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People in the world of finance tend not to be very thoughtful about personality—and there are overwhelming data to support this generalization. But personality affects the decisions of financial managers just like everyone else. In addition, the success or failure of every organization is the sum of the decisions that the leaders make on a daily basis. Ultimately, then, the success of an organization depends to a significant degree on the personality of the leaders. Consider the case of Lehman Brothers, a 150 year old Wall Street investment bank with 25,000 employees world wide. It was the fourth largest investment bank in the world, and it declared bankruptcy on September 15th, 2008. The CEO of Lehman Brothers is Richard Fuld. Starting in the summer of 2007, Fuld made a series of decisions that ultimately doomed his company. As the subprime mortgage business slumped, Fuld decided that money could be made by investing as others retreated, so he “doubled down” on mortgage backed derivatives. As they continued to decline in value, so did Lehman’s holdings. But Fuld seemed not to notice. As Joe Nocera remarks in the New York Times (9/15/08), “And yet, even as they lowered the value of their mortgage-backed securities, firms like Lehman had still priced them too high.” David Einhorn, a hedge fund manager, described Lehman’s mark-to-market pricing as “dishonest”; Nocera called it wishful thinking.For at least a year, Lehman Brothers needed to sell parts of itself to remain solvent. Over the past several months, a series of interested buyers approached Lehman, but in each case, Fuld thought Lehman was worth more than the price offered. He maintained this position right into bankruptcy. Why did Richard Fuld make these decisions? What sort of person is he? The question is hard to answer because the only information we have is in the financial press, which is not insightful about psychology. Fuld received a BS from the University of Colorado in 1969 and an MBA from NYU in 1973. He joined Lehman Brothers in 1969 as a commercial paper trader, and Lehman is the only place he has ever worked. He rose rapidly, and has been the CEO since 1993. The Institutional Investor magazine named Fuld the #1 CEO in the industry in 2006. Fuld’s salary in 2007 was $51.7 million dollars and in March, 2008 he received a $22 million dollar bonus for 2007. Over the past five years, Lehman paid him $311.9 million dollars in compensation.Here are some other facts about Richard Fuld:

In this cover story from Canadian publication Advisor's Edge, Dr. Robert Hogan discusses the validity of personality assessment in the selection process, as well as his pioneering role in the history of personality testing.Dr. Robert Hogan, an international authority on personality assessment, recalls facing stiff resistance from academics and lawyers when he and his wife pioneered personality testing in the United States in the early ’70s. “The furor was like Galileo saying the earth revolves around the sun. It was a big career risk.”Read the full text of the article by downloading the PDF here.

For test developers and test users, validity is the most fundamental concept in psychological assessment. It is also a surprisingly vexed notion. A review of the literature on validity composed by the “great minds” (e.g., Lee Cronbach, Jane Loevinger, Paul Meehl) will give you a case of vertigo. The definition of validity found in the AERA Standards for Educational and Psychological Testing is a statement by a committee—in the same way that a camel is a horse designed by a committee.The confusion about validity is the result of the way psychological measurement was conceptualized at the outset, beginning with Charles Spearman’s research on intelligence. Spearman taught at a private boys’ school; he noticed that his students’ scores on their various academic examinations were correlated. Based on this, he derived two conclusions. First, he proposed that there was a single, general factor underlying performance on all the exams. And second, he proposed that that factor was (or reflected) “intelligence”. Spearman set the framework and the terms of the discussion for all subsequent assessment research. The framework consists of two assumptions that follow from his two conclusions. Since Spearman’s time, virtually all psychological assessment has been based on these assumptions, neither of which is necessary or necessarily true. The first assumption is that individual differences in human performance depend on, or are related to, or reflect individual differences in the strength or magnitude of a corresponding underlying trait or propensity. The second assumption is that the goal of assessment is to measure individual differences in the strength or magnitude of the underlying trait. In this view, the goal of assessment is to measure traits. This view is never questioned, and it has implications for understanding validity. In this standard model, a test or measure is valid to the degree that it accurately measures the underlying trait.But this view of validity makes it impossible ever to determine validity. The problem is that the actual existence of traits is questionable on genetic and neuropsychological grounds. There are no anatomical or neurological structures corresponding to any of the many traits that have been proposed. Consequently, it is by definition impossible to determine whether a test accurately measures an underlying trait—because the existence of trait is in doubt.The confusion about the meaning of validity can be resolved fairly easily with a simplifying assumption. If we assume that the goal of assessment is to predict outcomes, then validity can be defined in terms of the ability to predict those outcomes. A measure of sales performance is valid if it predicts sales performance; a measure of customer service potential is valid if it predicts ratings of customer service, and so on. This view makes no assumptions about the existence of underlying traits the strength of which causes performance. It simply stipulates that assessment has a job to do, and that job is to predict non-test outcomes. This definition of validity satisfies the requirement of Occam’s razor, which states that one ought not multiply causal entities unnecessarily; the definition also satisfies the aesthetic of the Bauhaus movement which states that less is more.

Business literature typically characterizes the people at the top of organizations in remarkably positive terms. Senior executives are described as visionary, acute, charismatic, decisive, creative, etc.—i.e., as being substantially more talented than the average person. They are also usually described as being well motivated, as caring about their staff, their colleagues, their organizations, and their shareholders. The reality is somewhat less flattering.With regard to the talent level of senior executives, there are no reputable data to support the claim that they are more capable than a group of younger but equally well educated managers. The data do indicate, however, that, as one ascends the corporate hierarchy, the demands of jobs change, and the data show that derailment is a function of an inability to make the needed adjustments to changing job demands. We can conclude that the senior people in most organizations differ from their younger colleagues primarily in terms of age and political experience, and little else. But what about the claim that the senior people are better motivated than the rest of us? The example of Sprint Nextel, a telecommunications company headquartered in Overland Park, Kansas is instructive.Daniel R. Hesse, who formerly ran the wireless business at AT & T, became CEO of Sprint Nextel in December, 2007. Consider the situation he faced and with which he is valiantly trying to cope. First, the management team that he inherited had participated in the merger of Sprint with Nextel, a merger that is charitably described as “ill fated” because the two corporate cultures were so poorly aligned. Second, the same management team presided over a massive defection of customers; at 2.5 percent, Sprint’s client churn is the highest in the industry; in the first quarter of 2008, 1.1 million of Sprint Nextel’s 59.3 million customers defected to other companies. They left because they were tired of surly customer service and lackluster cell phones.At his first meeting with his senior management team, Mr. Hesse asked the group who was responsible for customer service and no one raised a hand. At his next meeting he asked senior managers how they had arrived at their earnings projections and the response was blank stares. Mr. Hesse has moved quickly to put some accountability in place for his senior managers, but that is not the point. The situation he encountered is actually quite common, the reason the situation is common is important, and has to do with the secret life of organizations.The fundamental dynamic in every organization is the individual search for power. It is a Darwinian process, which means some people are more successful at it than others, and they rise to the top. Perhaps the most important single challenge for top managers is to try to persuade their staff to spend less time trying to advance their careers and more time trying to enhance the performance of the organization that employs them. This is a challenge for two reasons. On the one hand, American culture, with its symbiotic ties to capitalism, is inherently individualistic and typically misreads Adam Smith’s concept of the “invisible hand”. Many people (who should actually know better) believe Adam Smith argued that if each person pursues his/her self-interest, the general welfare will take care of itself. Smith had no illusions about the rapacious tendencies of capitalism; he understood that, left to their own devices, most people will behave badly. Smith also understood how hard it is to get people to understand that their welfare is tied to the welfare of the collective.On the other hand, managers are usually evaluated and promoted based on how much their boss likes them. They are rarely evaluated and promoted based on their contribution to the maintenance of the entire organization, or to the team for whose performance they are responsible. And this was exactly what was going on at Sprint Nextel before Daniel Hesse arrived. His challenge is to damp down the individualistic excesses of his managers and find leaders who are willing to think about and work for the good of the organization rather than trying to enhance their personal careers. His biggest asset in this process is his own stature as a role model.

The following Robert Hogan commentary appeared on the Hogan Assessments Website in March 2007. It's a good summary of of why we (Hogan) do what we do, and I'd be curious to know the perception of the relationship between personality and career success from people *outside* the realm of I/O psychology. If you're currently searching for employees (or even an employer), how much does personality matter to you?

Ronald Reagan was fond of saying, "He governs best who governs least." I am a lifetime liberal but on this point, I largely agree with the former President and conservative icon. Several years ago, on a commercial flight to somewhere, I was sitting next to a talkative retired aeronautical engineer. In the course of his monologue, he noted that he had been Ronald Reagan's boss in World War II. They ran a logistic operation for the Army in the western Pacific (Reagan had bad eyes and had received a deferment from combat assignments). I asked him about Reagan's performance, and he said Reagan was the best natural manager he had ever seen. I then pointed out that, inside the Washington beltway, Reagan was frequently criticized for his "hands off" leadership style, and the engineer snapped, "That's because he knows what he is doing." He then pointed out that everyone agreed that Reagan's transition into the White House had been the smoothest in recorded memory—more so even that of the compulsively organized Navy Nuclear Engineer Jimmy Carter—and this testified to Reagan's skill as a manager.