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extended q & a with daniel beunza about taking the floor: models, morals, and management in a wall st. trading room

Following 9/11, Wall St. firms struggled to re-establish routines in temporary offices.  Many financial firms subsequently made contingency plans by building or renting disaster recovery sites.   As we see now,  these contingency plans relied upon certain assumptions that did not anticipate current pandemic conditions:

The coronavirus outbreak threw a wrench into the continuity planning that many Wall Street companies had put in place since at least the Sept. 11 terrorist attacks. Those plans were largely built around the idea that if trading at a bank headquarters was knocked off-line, groups of traders would decamp to satellite trading floors outside the radius of whatever disaster had befallen New York. But those plans quickly became unworkable, given the dangers of infections from coronavirus for virtually all office work that puts people close to one another.

“This is really not the disaster that they had planned for,” said Daniel Beunza, a business professor at the City University of London, who has studied and recently written a book on bank trading floor culture.

 

Just in time for us to understand the importance of face-to-face proximity in the workplace, Beunza has a new book Taking the Floor: Models, Morals, and Management in a Wall Street Trading Room (2019, Princeton University Press) based on years of ethnographic observation. Beunza kindly agreed to an extended Q&A about his research.

Q: “Chapter 1 of your book describes how you were able to gain access to an organization, after two failed attempts.  Quinn, a classmate, offers to introduce you to a former co-worker of his from finance: Bob, now the head of a derivatives trading floor at International Securities.  You meet with Bob and observe activities, where you realize that the trading floor no longer looks or sounds like prior literature’s depictions.  After this first meeting, you send over “sanitized” field notes about your first visit (p. 32), and you meet again with Bob, who has even read and reflected on these field notes. This second meeting to go over your initial impressions starts a longer relationship between yourself and this unit of International Securities [a pseudonym].  You have your own desk on the floor, where you can write down notes​.  

In subsequent years, after the bulk of your field research ends, you invite Bob to come as a guest speaker in your Columbia Business School classes.  Your book recounts how bringing in Bob not only offers the MBA finance students perspective on their desired field of employment, but might also smooth over student-professor relations, especially since teaching evaluations matter.  Afterwards, Bob comments on the students’ late arrivals to class and how he handled the equivalent in his workplace, helping you to understand divergences in your respective approaches to relationships and organizations. 

In chapter 8, your book describes your interview with Peter, an executive who had worked with Bob at International Securities.  Peter describes how most Wall Streeters might react to researchers’ requests for access:

“Bob is a curious dude.  He reads a lot.  He befriended you because he was curious. Most guys on Wall Street would say, ‘Oh, another academic from Columbia?  Thank you very much.  Goodbye.  I don’t have time for you.  You’re going to teach me a new algorithm? You’re going to teach me something big?  Okay.  Come in and sit down.  And I’ll pay you, by the way.’  But a sociologist?  ‘Wrong person on my trading floor.  A desk?  No.  You’re crazy.  Go away.’ So Bob has those qualities, and many of the people you see here have those qualities” (p. 168).

Peter’s comment, along with your observations, also offers a colleague’s assessment of Bob’s management style.  Rather than relying on money as an incentive or fear as a motivation, Bob hires people ‘who were a little different,’ and he cultivates relationships by spending time with employees during work hours in supportive and subtle ways, according to Peter.  (Elsewhere, your book notes that this does not extend to colleagues having drinks outside of work – a way that other organizations can cultivate informal relations.)  

 Your book argues that such practices, when coupled with clearly communicated values delineating permissible and impermissible actions, constitute “proximate control.” Such efforts can check potential “model-based moral disengagement” where parties focus on spot transactions over longer-term relationships; this focus can damage banks’ viability and legitimacy.  In other words, your book posits that face-to-face contact can channel decisions and actions, potentially reigning in the damaging unknown unknowns that could be unleashed by complex financial models.

 First, the content question:

These analyses remind me of older discussions about managerial techniques (notably, Chester Barnard, who built upon Mary Parker Follet’s ideas) and mantras (Henri Fayol’s span of control), as well as more recent ones about corporate culture.  Indeed, your book acknowledges that Bob’s “small village” approach may seem “retro” (p. 170).

That said, your book underscores how people and organizations still benefit from face-to-face connection and interdependency.  Some workplaces increasingly de-emphasize these aspects, as work has become virtually mediated, distributed, asynchronous, etc.  Why and how does it matter so much more now?  How are these findings applicable beyond the financial sector​?”

Beunza: “Face-to-face connections are crucial, but I should add that the perspective coming out of the book is not a luddite rejection of technology. The book makes a sharp distinction between valuation and control. The use of models to value securities is in many ways a more advanced and more legitimate way of pursing advantage on Wall Street than alternatives such as privileged information.

However, the use of models for the purpose of control raises very serious concerns about justice in the organization. Employees are quickly offended with a model built into a control tool penalizes them for something they did correctly, or allows for gaming the system. If perceptions of injustice become recurring, there is a danger that employees will morally disengage at work, that is, no longer feel bad when they breach their own moral principles. At that point, employees lose their own internal moral constraints, and become free to pursue their interests, unconstrained. That is a very dangerous situation.

I would argue this is applicable to all attempts at mechanistically controlling employees, including other industries such as the Tech sector, and not-for-profit sectors such as academia. Some of the warmest receptions of my book I have seen are by academics in the UK, who confront a mechanistic Research Assessment Exercise that quantifies the value of their research output.”

Q: “Second, the reflexivity question:

Did you anticipate how Bob’s visit to your Columbia Business School classroom might provide additional insight into your own “management” [facilitation?] style and your research regarding financial models and organizations?  How have research and teaching offered synergistic boosts to respective responsibilities?  How do such cross-over experiences – discussing issues that arise in researcher’s organizations, which probably constitute “extreme” cases in some dimensions – help with developing organizational theory?”

Beunza: “Back in 2007, I had a diffuse sense that I would learn something of significance when inviting Bob to my classroom, but was not sure what. Before I saw him, I suspected that my original view of him as a non-hierarchical, flat-organization type of manager might not quite be entirely accurate, as a former colleague of him said he was a “control freak.” But I had no way of articulating my doubts, or take them forward. His visit proved essential in that regard. As soon as he showed up and established authority with my unruly students, I understood there was something I had missed in my three years of fieldwork. And so I set out to ask him about it.

More generally, my teaching was instrumental in understanding my research. MBA students at Columbia Business School did not take my authority for granted. I had to earn it by probing, questioning, and genuinely illuminating them. So, I develop a gut feeling for what authority is and feels like. This helped me understand that asking middle managers to abdicate their decisions in a model (which is what the introduction of quantitative risk management entailed in the late 90s) is a fundamental challenge to the organization.”

Q: “This, a methods question:

Peter’s comment underscores what Michel Anteby (2016) depicts as “field embrace” – how an organization welcomes a researcher – as opposed to denying or limiting access.  Anteby notes how organizations react to researchers’ requests to access is a form of data.  How did Bob’s welcoming you and continued conversations over the years shed additional insight into your phenomena?”

Beunza: “Anteby is right that the bank’s form of embrace is data. Indeed, I could not quite understand why International Securities embraced my presence in the early 2000s until 2015, when Bob laid out for me the grand tour of his life and career, and allowed me to understand just how much of an experiment the trading floor I had observed was. Bob truly needed someone to witness what he had done, react back to it, accept or challenge the new organization design. And this was the most fundamental observation of the research process – the one that motivates the book. My entire book is an answer to one question, “how did Bob’s experiment perform?” that I could only pose once I understood why he had embraced my presence.”

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