New York. Concrete Jungle Where Dreams Are Made Of (and lessons for Bank Risk & Compliance)

Pyramids

I arrived in New York this May to the news that it was sinking into the sea[i]. Apparently the skyscrapers and other more prosaic buildings weigh the equivalent of 140 million elephants and this is pushing the Big Apple into the sauce at a rate of 1 to 2 mm a year[ii].

By the calculations provided to me by Microsoft Bing that is equal to the mass of 11.6 billion humans, being 1.4 times the current population of the world. So presumably if everybody went to live in New York it would sink another 1mm annually.? Albeit that is unlikely to be the biggest logistical problem, and the queues at JFK would be a nightmare.

I was reminded of this difficulty when wandering though Hell’s Kitchen between 11th and 12th Avenues and saw a pyramid on the waterfront. I am no architect, but surely this is the worst possible design if you have the danger of rising tides. If they had instead built it upside down there would be more space in the increasingly spacious upper levels once the tiny ground floor was flooded.

VIA 57 West[iii] is also home to a dine-in cinema with a full restaurant, craft cocktails and comfy reclining seats, where you can presumably watch The Day After Tomorrow[iv], and it’s graphic depictions of catastrophic New York floods, as the water laps at your ankles. A case of life imitating art imitating life[v].

You may also be served by black clad ninja staff, who silently glide up with your orders, so as not to interrupt your viewing experience. I am not convinced it is a good idea for invisible waiters to ghost up to you with a tub of Ben & Jerry’s New York Super Fudge Chunk when Wes Craven films are on,? Less ice cream and more I Scream.

Therefore, for coastal structures in NYC I suggest building the pyramids the other way up. They will be cool in appearance and in temperature, offering extra pavement shade from the burning sun as global warming progresses; and also require fewer sandbags and replacement carpets for the small, watery lobby.

Somewhat like the Guggenheim Museum on the Upper East Side, albeit for the pedantic reader that building is technically an inverted ziggurat[vi].

Inverted Pyramids

I was in New York not to critique architecture, but for a 1LOD[vii] Banking Risk & Control conference where I was moderating some panels.

Whilst revising for my sessions I thought I would check out who would be in attendance to get a feel for the audience.

Using the conference App and by filtering on corporate titles (where a functional role was included) I came up this very rough and entirely unscientific estimate of the crowd demographic

I admit there were quite a few titles that I didn’t attempt to categorize, as either I didn’t understand them, didn’t know how to classify them, or they didn’t support my desired narrative arc[viii].

For example, keynote speaker John Bolton, as Former National Security Advisor to President Donald?Trump, didn’t make the cut. Both as I had no grouping for moustachioed political operative, and as I thought it unlikely he would attend one of my panels.

All very interesting, I hear you mutter as you stifle a yawn, and your point is what?

Well, as the main conference progressed I had the chance to listen to multiple talks, panels and deep dive sessions, and if I had to synthesize the most recurrent concerns raised by the speakers and attendees they would include:

• There is often not enough collaboration, too much duplication and multiple functions can be an inhibitor;
• There is a continued need to tackle cultural and behavioural drivers and that people risks are key;
• There are things we are not measuring that we need to (but we don’t really know what those things are).

In summary, many of the continuing critical issues seemed to boil down to understanding and influencing aspects of behaviour and this is presumably the reason why firms are dripping ? of one percent of their total risk, compliance and control headcount into it.

It all gets even more bizarre when set against how people responded to the question: I am convinced that the correct culture, values and purpose is embedded in my organization ?- where 62% agreed.

Some readers may be worried by the remaining 38%, but I’m more perturbed by the over-confidence bias[ix] of the majority; given the seeming consensus - that whilst we don’t really know what that something is, how to understand it, measure it or change it; we are at the same time confident that it is embedded. Doubtless it is marked as green on an executive dashboard, so everything should be ok.

It reminded me of the annual Edinburgh Fringe Festival[x] where each year a prize is granted for the best joke, and which is sponsored by a UK TV Channel called Dave[xi]. Given that I am also a Dave I have decided to make an award for the most concerning comment of the day.

The honourable runner up was: “We need to move from managing human behaviour to managing machine behaviour”, which was pipped to the post to the inaugural “Dave” by “Conduct is a buzzword, we’ve been managing it forever”.

It will doubtless come as a relief to regulators, shareholders and wider society that many banks have mastered the tricky topic of “managing behaviour” and can now move on to other more pressing concerns.

The near death experience of the global economy in the GFC, the hundreds of billions of fines, and the recent implosion of banks can be put behind us at last – phew.

As the day drew to a close, and the setting sun glinted off the (ever so slightly higher) waters of the Hudson, John Bolton gave his closing comments. In it he referred to a Winston Churchill quote on the “confirmed unteachability of mankind”. The fuller context of the original 1935 speech[xii] being:

“It falls into that long dismal catalogue of the fruitlessness of experience and the confirmed unteachability of mankind. Want of foresight, unwillingness to act when action would be simple and effective, lack of clear thinking, confusion of counsel until the emergency comes, until self-preservation strikes its jarring gong–these are the features which constitute the endless repetition of history”

Like the opening sequence to an old Rank Organization film, there have been as many strikes of the jarring gong in 2023, albeit not sufficiently loud to help with the self-preservation of SVB, Credit Suisse and others.

So for the structure of the risk management pyramids in banks I would advocate a tweak to my previous recommendation on skyscraper architecture.

This would not be to turn it upside down again – but at least to redirect some concrete from the top heavy upper floors into building firmer behavioural foundations.

And it is important not to make a joke about the existing foundations, as the walls may start cracking up.

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Postscript - PIPs

When thinking about pyramids for this article there was one phrase that lodged in my skull that I couldn’t shake free. Like water plugged in the outer ear when you climb out of a swimming pool, I tried tipping my head and hitting the other side with my palm to no avail – it was still there.

And that ear-worm was -“an Inverted Pyramid of Piffle”.

Unfortunately for me those words were originally uttered by former UK Prime Minister Boris Johnson,[xiii] as he tried to claim allegations of an affair were untrue. The accusations were in fact true, so (not for the first nor last time) he was fired for dishonesty.

Leaving aside any views on politics and integrity, he does have a knack of 3 word slogans that are hard to shake off.

So leveraging the behavioural science of turning abstract concepts into concrete things I will roll with it, and ask people to call out any People Inversion Pyramids (PIPs) whenever you see them.

Postscript – The Sunk Cost Fallacy

I am genuinely intrigued by the reasons behind the reluctance of many in regulators, bank management, compliance, risk and control to invest more in a scientific understanding of human behaviour and decision making, as a small counterpoint to the over-whelming volume of current framework, taxonomy, RCSA, models and metrics. Particularly when the latter has - a) not covered itself in glory and b) is very expensive.

Perhaps it is because we are all human beings who therefore (by dint of our own lived experience) intuitively know what drives behaviour; and that this is through a mix of extrinsic reward or punishment. This is unfortunately c) wrong (or rather very incomplete).

Maybe it is partly because of the Sunk Cost Fallacy[xiv]given the resources already committed to the current unwieldy structures. As illustrated below:

Postscript – Industry Conferences

I am a strong advocate for industry conferences and the sharing of ideas and best practice. So my comments are in no way intended to undermine them – and especially the excellent ones run by 1LOD and their exceptional moderators.

The more diverse people from different organizations gather in a room the more we can learn, and the likelier we are all to have some “aha moments”.?

Not only that, but the logo for 1LOD is an inverted triangle, which seems curiously appropriate.

Postscript – Measuring Things

The reductionist dangers of assuming measurement is a golden bullet are many, and require a whole series of articles to cover. These would need to address (amongst other things):

• The streetlight effect, and it’s close relative the McNamara[xv] fallacy;
• A consideration of complex systems;
• When measurements become targets and prone to manipulation;
• The illusion of control.

In May there was also an exhibition taking place at the (inverted ziggurat) Guggenheim Museum titled “Measuring Infinity” by the artist Gego [xvi].

I suspect the subtle and creative interpretation on show for that measurement was more intricate than a RAG rating.

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Footnotes

[i] New York City is sinking due to weight of its skyscrapers, new research finds. The Guardian 19th May 2023. https://www.theguardian.com/us-news/2023/may/19/new-york-city-sinking-skyscrapers-climate-crisis

[ii] Parsons, T., Wu, P. C., Wei, M., & D'Hondt, S. (2023). The Weight of New York City: Possible Contributions to Subsidence From Anthropogenic Sources. Earth's Future, 11(5), The Weight of New York City: Possible Contributions to Subsidence From Anthropogenic Sources - Parsons - 2023 - Earth's Future - Wiley Online Library

[iii] VIA 57 West is a residential building located at 625 West 57th Street between 11th and 12th Avenues in Manhattan, New York City. The pyramid shaped tower block (or tetrahedron), is designed by the Danish architecture firm Bjarke Ingels Group.

https://en.wikipedia.org/wiki/VIA_57_West

[iv] The Day After Tomorrow - the 2004 American science fiction disaster film directed, co-written, and co-produced by Roland Emmerich - The Day After Tomorrow (2004) - IMDb

[v] My favourite example of Life imitating Art imitating Life is the Wolf of Wall Street. A film about bad behaviour in finance that was allegedly funded by bad behaviour in finance. Goldman Sachs settles 1MDB scandal with Malaysia for $3.9bn - BBC News

[vi] The internationally renowned art museum and architectural icon. Home | The Guggenheim Museums and Foundation. “The Guggenheim Museum is a radical departure from traditional museum design. It is an inverted ziggurat shape that resembles a white ribbon curled into a cylindrical stack that grows continuously wider as it spirals upwards towards a glass ceiling”

[vii] XLoD Global is the world’s largest event dedicated to senior management in Non-Financial Risk functions at financial institutions XLoD - The World's Leading Non-Financial Risk & Control Event (1lod.com)

[viii] Hopefully some honesty on the haphazard data gathering approach helps rather than hinders it’s trustworthiness.

[ix] The?overconfidence bias is when a person's subjective?confidence?in their judgments is reliably greater than the objective?accuracy?of those judgments. Overconfidence | Psychology Today. There may be a social element to it - Proeger, T., & Meub, L. (2014). Overconfidence as a social bias: Experimental evidence. Economics Letters, 122(2), 203-207.

[x] Home | Edinburgh Festival Fringe (edfringe.com)

[xi] Dave's Funniest Joke of the Fringe is chosen by members of the public from a shortlist drawn up by judges. In 2023 it caused some controversy by not being funny. Edinburgh Fringe funniest joke: Lorna Rose Treen's zookeeper pun - BBC News

[xii] JB also refers to the Churchill speech in - The Economist - John Bolton on the lessons to be drawn from Russia’s invasion of Ukraine. Feb 28th 2022. John Bolton on the lessons to be drawn from Russia’s invasion of Ukraine (economist.com)

[xiii] BBC News – 14th November 2004 - Boris Johnson's regret at sacking. https://news.bbc.co.uk/1/hi/uk_politics/4010293.stm

[xiv] The?sunk cost fallacy?is the tendency for people to continue a course of action even when abandoning it would be more beneficial. Because we have invested our time, energy, or other resources, we feel that it would all have been for nothing if we quit. The Sunk Cost Fallacy - The Decision Lab

[xv] The McNamara fallacy (also known as the quantitative fallacy) is a common problem in decision making. It involves making a decision based solely on quantitative observations (or metrics) and ignoring all others. McNamara fallacy - Wikipedia

[xvi] https://www.guggenheim.org/exhibition/gego-measuring-infinity

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