Davos & Disruption Done Right: In Praise of "Difficult Women" in Finance

Women are still most definitely outsiders in places that matter, not least in finance. And we saw last fall what a Wall Street outsider can uncover, just the latest woman in finance to blow the whistle.
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When it comes to Davos, the elite confab purporting to tackle pressing world issues, we're guessing women attendees had at least one advantage. There were probably no lines at the ladies' restrooms. That's because the percentage of women at the latest annual World Economic Forum meeting, which ended last week, stood at a paltry 17 percent.

To be fair, the World Economic Forum has been trying to close that gender gap with incentives for companies and other powerful institutions to send more women. As Fortune rightly points out, the WEF is dealing with a limited pool of women in powerful positions from which to choose. Some of the magazine's sobering statistics: fewer than 4 percent of the Fortune Global 500 company CEOs are women. And just 8 percent of the world's leaders are women.

Sometimes terms like "gender parity" and "diversity" are presented as a box to check off. But we should think of them not just as an end in themselves, but as a crucial means of achieving another tangible, worthy end: better policy, better executed. As a social anthropologist, I have seen how the inclusion of women can help thwart a system of influence that allow insiders (mostly men) to shape practice and policy with impunity in venues of power such as finance. (My new book Unaccountable investigates informal influence in finance and a wide range of other policy venues.) Having more women involved can disrupt entrenched informal networks, like those that gather at Davos.

I do not want to suggest that women are inherently more ethical creatures, an idea that seems to feed into the very stereotypes I'd like to see disappear. But women are still most definitely outsiders in places that matter, not least in finance. And we saw last fall what a Wall Street outsider can uncover, just the latest woman in finance to blow the whistle.

In late November, the New York Federal Reserve was the target of intense ire from Senator Elizabeth Warren (among others) on Capitol Hill. The regional Fed bank (and the most powerful because it's supposed to supervise Wall Street) appears to be a deeply troubled institution that, according to extensive reports, remains far too close to the banks it is charged with supervising, even years after the 2008 financial crisis.

We know this, in part, because of a woman hired by the New York Fed (and fired not long after) who attended that Senate hearing: Carmen Segarra. Segarra was an "outsider," one who wouldn't back down, who shook up an environment dominated by elite insiders. As an anthropologist trained to understand the role of networks, both within and across organizations, I've seen what those outside them are up against.

An investigation by ProPublica and the public radio program "This American Life" ignited the fire under the New York Fed a month earlier. They presented Segarra, a newly hired bank examiner, who had secretely taped 46 hours of her interactions with Fed employees and top investment bank Goldman Sachs. She said the examiners showed undue deference to those they were supposed to be supervising, namely Goldman. One example was a deal that a Fed examiner had described as "legal but shady" which the Fed investigated but did not thwart. If anything, the examiners seemed pleased that they had pushed Goldman as hard as they did. But in the end, just as had happened during the crucial years leading up to the financial crisis, concerns never led to concrete action that forced banks to curb risk.

It is easy to focus on the fact that Segarra was fired after just seven months, with both her and the New York Fed (no surprise) offering conflicting reasons as to why she was removed. Segarra says she was justifiably flagging her concerns about Goldman's conflicts-of-interest policy; the New York Fed insists her dismissal involved "individual job performance."

But it's also important to look at why she was hired in the first place: to bring more outsiders in. In 2009, the New York Fed was staring down reforms that would give it more supervisory power (notably, the Dodd Frank financial legislation that would pass in 2010.) Clearly, the institution had failed spectacularly to tamp down risk at the big banks going into the 2008 debacle.

So, according to ProPublica and "This American Life," New York Fed chief (and former Goldman partner) Bill Dudley commissioned what was supposed to be a secret report on what went wrong at the New York Fed that might have contributed to the crash. The idea was that assurances of confidentiality would lead to more candor.

The New York Fed hired Columbia University finance professor David Beim to write the report. And he concluded that a huge part of the problem was the culture of the New York Fed itself: too embedded and enmeshed in Wall Street to be a truly effective supervisor. Beim found what's called "regulatory capture," (the focus of last November's Senate hearing), which "This American Life" described thusly:

Regulatory capture is when a regulator gets too cozy with the company that he's supposed to be monitoring. He's like a watchdog who licks the face of an intruder and plays catch with the intruder instead of barking at him.

Beim's report has a slew of recommendations including this one, essentially urging the bank to hire those more likely to bark:

Because so many seem to fear contradicting their bosses, senior managers must now repeatedly tell subordinates that they have a duty to speak up even if that contradicts the boss. Evaluation of employees at year-end might include specific categories like "willingness to speak up", "willingness to contradict me", or "thinking outside the box". Senior managers themselves need to be assessed on their ability to elicit discussion and dissent.

Part of the solution lies in hiring practices. Recruitment has clearly been upgraded in recent years and the current marketplace offers more opportunities to hire talent than in earlier years. Recruiters should be willing to take chances on individuals with the confidence to speak their convictions, even at the risk of getting somewhat disruptive personalities. These changes, if pursued diligently and enthusiastically, should yield important benefits in morale and supervisory effectiveness. Regular supervision efforts will benefit greatly from a greater diversity of thoughtful views.

In short, hiring Carmen Segarra was exactly the sort of "disruptive" personality the New York Fed needed. ProPublica says she was "born in Indiana, raised mostly in Puerto Rico," is conversant in five languages and learning a sixth, and has sterling academic and professional credentials. Here are some of the words that have been attached to her: passionate, direct, confident, independent-minded, idealistic, overachiever, expressive. As she told "This American Life," "[p]oker face is a real problem for me." And she explicitly mentioned to ProPublica a knack for boundary-crossing. Segarra said she enjoyed "work[ing] closely with a wide range of laws and regulations that apply across the banking and investment sectors, as opposed to just specializing in one particular type." Contrast this with those content to perform within the narrow confines of their own financial silos in the lead up to the financial crash. They were too focused on their own short-term prospects to take notice of the bigger, darker picture looming above and across those silos.

Notable to me is something else she told "This American Life" about why the 2008 crash galvanized her. It was partly because she saw how friends from the middle class suffered greatly, "teachers, police officers." This shows a strong affiliation with the world far outside Wall Street, which, no matter how distant, is nevertheless greatly affected by the dealmaking that goes on there. Those with experience on Wall Street will tell you that not everyone actually has a strong connection to the outside, middle-class world.

In some ways, this is a rare case of accountability reforms actually working. Without that initial hiring of Segarra, which was the result of accountability reforms set in motion by the New York Fed itself (which was facing the prospect of legislative overhaul), we wouldn't have these 46 hours of tapes and evidence of acquiescence on the part of the supervisory bank. There would have likely been no hearing as we saw late last year, in which Senator Warren was able to interrogate the New York Fed chief.

But in other ways? Not so much. Ideally, Segarra (and presumably other "disruptives" like her) would still be working at the New York Fed, raising the red flag on deals that would break her "poker face" quickly into an expression of alarm. She wouldn't be embroiled in a lawsuit with her former employer or now disparaged as "abrasive," one adjective routinely employed to describe powerful women in finance (or any powerful woman for that mattter) who make a fuss. Such women include Sheila Bair, former FDIC chairman; Brooksley Born, former chairperson of the Commodity Futures Trading Commission; and current Senator Elizabeth Warren. All of them fought the banking-political elite in different ways and at different times. All have been described as "abrasive"--and surely far worse off-the-record.

The word "disruptive" has been co-opted in recent years by some new players who, under the guise of rattling the status quo and claims of "innovation," seem most interested in making money by the pushing their operations just short of rule-breaking. Segarra, like Warren, Bair, and Born before her, show disruption done right.

I was struck by what Segarra's supervisor reportedly said to her, after she was perhaps a bit "disruptive" with Goldman: "you're sort of breaking eggs." But it seems to me the real mess was made in 2008 by Wall Street and by extension, the regulators, too enmeshed with those they were supposed to rein in. Those losses totaled at least 13 trillion dollars.

That's a whole lot of eggs for the rest of us to clean up.

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