Why You Need to Measure Management
Executive Management teams are responsible for making decisions. They focus on strategic issues such as overseeing the development of an organization, managing its fiscal activity, assuring compliance, and identifying and addressing challenges and opportunities. The impact of these decisions reverberate through the entire enterprise. Academic research suggests a “CEO Effect” can impact the profitability of companies, with effects ranging from 10 to 20 percent. The CEO and executive management is clearly consequential, and may be the difference between a good company and a great one.
Interestingly, if you ask some of the world’s largest financial data suppliers for data on executive management teams in the equity markets, the options are surprisingly limited. So, where can innovative analysts look for data that provides insights on company leadership?
The Benefits of Military Profiling Techniques
The world of security and military intelligence may not be the first stop for most analysts seeking tools and techniques to better understand capital markets, but Distill Analytics believes it shouldn’t be the last. Intelligence analysts profile individuals and organizations to understand how a foreign adversarial state leader is likely to act and to detect if the country’s leadership may be in crisis. Financial analysts are also attuned to the state of leadership, putting them in a position to benefit from the ability to detect teams in crisis and forecast their ability to respond.
The basic operational goal when conducting military intelligence operations is “To enter the thought process of an enemy commander and predict, with certainty, what course of action he intends to pursue, possibly even before he knows himself what he is going to do.” You may think that this level of insight can only be obtained with confidential information or direct access to the target of interest. However, it is actually possible to construct a psychometric profile using scientifically tested analysis techniques that require only the public communications from the foreign head of government as input. The completed profile provides insights on how the target responds to major successful advances by opposition forces, how complex or simplistic their decision making is, and how quickly they return to their usual levels of openness to new information and cognitive flexibility after a significant deviation from their norm.
Applications and Benefits
How does remote psychological profiling work? Consider a specific use case where the person being profiled is the head of a country, and the goal of the profiling exercise is to generate the best negotiation strategy for upcoming diplomatic talks during a military conflict. General opinion indicated that this leader was a very black and white thinker. However, country to public opinion, the profile that was generated indicated that the leader was nuanced in their thinking, appreciating subtle differences between positions and engaged with multiple divergent perspectives. The surprising insight remote psychological profiling provided was that a nuanced position in discussions would likely be more successful compared to the all-or-nothing approach that had previously been anticipated.
The profile also indicated that the foreign head of government did not view their position to be under significant threat at the time. This also stood in sharp contrast to the narrative of the day. Therefore, the implication for military action was that significant military pressure would need to be applied to induce stress, a tactic that had been successful during a previous cycle of violence. These findings could only be discovered through profiling techniques.
In capital markets, financial analysts dissect and compare earnings call transcripts and statements from executives across various companies. Unlike intelligence analysts, they have not had the tools available to them to seek deeper insights on the leaders from these materials. However, the advances in cognitive and social sciences that are currently being applied in the security intelligence domain can now be applied to financial markets leaders.
Distill Analytics has the unique experience and expertise to apply these advances to generate meaningful data and operationally relevant insights about corporate leaders. We require only the transcripts of quarterly earnings calls as input. The profiles that are constructed inform thinking on how corporate leadership might respond to crisis, resolve a strategic dilemma, and coordinate action.
Distill Analytics measures corporate leadership teams' decisiveness and drivers using quarterly earnings call transcripts. Remote psychometric profiling is used in military, political, and aerospace applications to understand decision makers and forecast organizational behaviour. We bring these techniques to the investment world.