Speakers: Hui Chen, Zachary N. Coseglia, Daniel Beunza

Business professor Daniel Beunza spent years as an observer on the trading floors of Wall Street, and documents his journey in his award-winning book Taking the Floor: Models, Morals, and Management in a Wall Street Trading Room. On this episode of There Has to Be a Better Way?, Dr. Beunza shares his surprising findings about ethics, morality, and leadership in these highly intense and competitive settings, and how his ethnographic method of "living with the natives" and "going with surprises" can inform how we understand organizations and behaviors.


Zach Coseglia: Welcome back to the Better Way? podcast, brought to you by R&G Insights Lab. This is a curiosity podcast, where we ask, "There has to be a better way, right?" There just has to be. I'm Zach Coseglia, the co-founder of R&G Insights Lab, and I'm joined, as always, by the one and only Hui Chen. Hi, Hui.

Hui Chen: Hi, Zach. Hi, everyone. We have a special guest today, and that's Dr. Daniel Beunza. Professor Beunza is a professor of social studies of finance at City University of London Business School. He is going to be talking with us about his field research, and his award-winning book called Taking the Floor, so this is going to be a very interesting conversation. We're going to dive into that very shortly, but before we do that, Zach, you have your existential question, as always?

Zach Coseglia: I do have an existential question. Daniel, we like to start by getting to know you a little bit better professionally, and we like to end by getting to know you a little bit better personally. So, my introductory question to you is: Who is Daniel? Who are you?

Daniel Beunza: Thank you for that. I guess my job has turned me into something of a professional outsider. I'm an academic—I am a Spanish-born, U.S.-trained business school academic in London. For my research, which is what I spend most of my time doing, I hang out in places where I traditionally don't belong—these are trading floors, financial data organizations, exchanges, alternative investment companies—and so, I guess I am just used to hanging out with strangers.

Zach Coseglia: I want to start by talking about your research and talking about your book, and obviously, we're going to delve probably pretty deeply into both. The full title of your book, for folks that are looking for it, is Taking the Floor: Models, Morals and Management in a Wall Street Trading Room. You start the book by really identifying the fact that this is a two-decade labor, from beginning your research to, ultimately, publication. Tell us about what inspired you to look at, as we just said, "models," "morals," and "management" "in a Wall Street trading room."

Daniel Beunza: My motivation for starting this project—and this back in 1998, so a long time ago—was when I was a graduate student in New York City. I was doing my doctoral studies in New York University, and I was living in a very inexpensive graduate student residence in the Upper West Side. Every day, I would go down to my business school, taking the #1 Train—back then, the Twin Towers were still in place, and halfway down my commute I would then glance to my right and see them, and, at night, see them again. That prompted thinking on my end, wondering what was inside, and that then led me to wonder about the financial industry and its place in New York City at large. I decided that this was a world that I wanted to understand from inside—so, like, go inside those Towers, go through the façade, if you will, and then understand the life of those traders that were inside the Towers. That's what set off the project in the first place.

Hui Chen: The project involved what you refer to as "ethnographic study." As a reader, I see that that involved you basically embedding yourself on the trading floor and having lots of conversations with various people in the organization. So, tell us: What is an "ethnographic study" and what did it look like from your perspective when you were doing it?

Daniel Beunza: Ethnography is a very specific technique that was initially developed by anthropologists in the U.K. to deal with the distance, the cultural gap that existed, between their culture and their location. The realization that anthropologists arrived at is that you cannot understand people at a distance without being there with them. And so, the ethnographic technique relies on fieldwork, it relies on living "among the natives," but it also relies on a very specific mindset, which is paying attention to those things that surprise you, that contradict one's own preconceptions. While most of my colleagues in the world of business schools are busy trying to confirm the hypothesis that they think up and then test via quantitative analysis, whether it's regression or experiments, ethnographers go out there in the world to challenge themselves and their preconceptions.

Zach Coseglia: I love that. You say that your work doesn't start with a hypothesis, you're starting—one of the words we love most here is—with "curiosity." So, did you know what direction this was going to go? Did you have an "intention" as you began this research, or did it really take shape based on that curiosity that was ignited in you on the train on your way to school?

Daniel Beunza: I would love to say that "I had some hypothesis and I had read some literature," but the reality of it is that I was just honestly curious to know what the hell was going on down there—I was almost like a tourist. Now, as I made a decision to study the financial sector, then I realized that there was some work in the social sciences—outside finance, outside economics and outside even behavioral finance—that spoke about the role of social relations on, say, a stock exchange. What that work did is it went into things like, for instance, the way in which, and the size of, a trading crowd in, say, one of the exchanges that used to trade on a floor in Chicago; the relationship between the amount of people on the floor; the way in which they shout; the volume of the shouting; and the structure of the social network that gets created. And so, I began my own research very keen to understand communication via shouting on a trading room.

On my first day, my very first visit to the bank, I showed up with a detailed questionnaire trying to get at various aspects and issues in the bank, many of them related to shouting, and, to my shock and disappointment, the trading room was just extremely quiet. For a while, I had a conversation with the manager whom I was interviewing on that day, but eventually, I just had to confess that, "I was really interested in shouting. And why was everyone so quiet and not acting like on television?" And so, the gentleman laughed and explained that things have changed with the introduction of technology. At the time, it was not really the internet, it was Bloomberg Terminals, which then made the communication of information something that travels on screen as opposed to via the mouth, and so, the trading floors had radically changed because of technology. I understood the explanation, but I was nevertheless very disappointed. I resolved to finish the interview and then go find another trading floor that might actually provide me with the level of shouting that I was hoping for, but, eventually, I realized that, actually, no, I really had to go with that surprise, that unexpected finding, and then really investigate the ways in which technology was reshaping finance, the way that traders did their job, plus the way in which social relations were mediated.

Zach Coseglia: Many of our listeners are lawyers, compliance professionals and ethics professionals. We look at the title of your book—you talk about Wall Street and you have the word "morals" all in the same thought. Tell us, at a high level, about the connection between "morals" and "Wall Street," where, I think, for a lot of people those may seem like disconnected concepts.

Daniel Beunza: I would completely expect that, but this is the story of how I got into this. I finished my first ethnography of a Wall Street trading floor (this was a three-year intensive project), I began to publish a few papers, won a couple of awards, and then, I got hired by Columbia University to teach at its business school. I had been there for a couple of years when, suddenly, September 2008 and the bankruptcy of Lehman Brothers came along. The press was full of these extremely damning headlines like, "These Unethical Traders and Bankers." And my colleagues were just really keen on understanding my perspective of this because they knew I had been doing fieldwork there: "Daniel, what do you think about this whole mess going on on Wall Street?" The thing that shook me the most is that I couldn't say anything to that, because the world that I had seen was not a world of excesses, opportunists and problems—it was a world of people who were, yes, ambitious, but at the same time, worried about doing the right thing. I realized that I had seen a very unique, ethical landscape within Wall Street, and, eventually, I understood that, in fact, this was not by coincidence: That the manager of the trading floor that I had been following for three years had, unbeknownst to me, been engaged in a major reform process to address the ethical standards of the trading floor that he was managing. In fact, unbeknownst to me again, I was part of that whole adventure because it suited him to have someone there documenting what was going on. And so, I realized that I had to go back to my fieldwork, not with an eye to understand the models, traders, tradings and the detail of the derivatives pricing, but, rather, to understand the moral foundations of that organization, and to get a better sense of what a manager can do to affect things on the trading floor.

Hui Chen: You mention in your book that compliance interventions often happen at the symbolic level: speeches, workshops, breakout groups. You say, "Such initiatives run the risk of proving too general to have concrete bearing on trading practices. In addition, attempts to instill different values in bank employees overlook the fact that values are not easily internalized, and that values are not a particularly powerful determinant of actions. Furthermore, because norms and values are not often shared among most members of a collective, organization-wide initiatives led by compliance or other departments may prove too generic to effect change." Now, tell us a little more about with that means.

Daniel Beunza: I think that targeting "values" is an attempt by divisional functions to influence employees, but what they really are trying to do is make up for the fact that that direction of influence is not running alongside the main axis that exists in organizations. Organizations are a hugely powerful beast, and the way that they function is the hierarchy, and so, what your boss does or says is, of course, of huge significance. What other people do or say is of some significance, but it's got nothing to do with what your boss does or says. I think that one of the complexities in the current bank culture agenda is that, in many ways, it is addressed at corporate functions, whether it's HR, compliance or risk management, while the most powerful form of influence in an organization is the manager-subordinate relationship. What I saw in my book is the hectic attempts of a manager at getting back the authority and the ability to shape his employees, oftentimes, by warding off the attempts by other divisions, such as—in the case that I studied—risk management. So, the idea that you can influence values, I think, that that is perhaps problematic.

Zach Coseglia: I'd love it if you could put a little bit of a finer point on this, because I think that the "culture" discussion often does, today, turn to organizational values: What are the things that we value, whether it's trustworthiness, respect, excellence, personal accountability, etc.? Are you saying that your research suggests, and the research of others is suggesting, that we shouldn't be focusing on those values, or that we shouldn't be focusing on those values to the exclusion of behaviors?

Hui Chen: Or perhaps are you maybe saying that there is no such thing as an "organizational value?" That there are so many different cultures within an organization like a modern-day global corporation that it perhaps is meaningless to think about what is the organizational culture of a hundred-thousand-person organization spread across the world?

Daniel Beunza: I actually think that the two of you have made extremely valid points. I think that people respond to their own values. I think that addressing culture also needs to look into norms. "Values" are the "generally internalized direction for behavior." "Norms"—especially informal norms—are really "the set of things that constrain behavior." In making sure that organizations do not blow up, as they did in the financial crisis, or do not generate the type of opportunistic behavior that became apparent with the LIBOR scandal, norms are an extremely important component. And these are different from values—these are things that people won't do because of ostracism or because they just think it's wrong. But different people can have different values, and yet, adhere to the same informal norms.

Zach Coseglia: One of the themes that we've had on this podcast is this idea that there's a desire, there's an instinct at times, to try to "reduce to a thing," to try to take the reductionist view, because there's comfort in that. I think that what we increasingly are finding, from talking to you and talking to others, is that culture isn't one thing. It's not just values. It's not just norms. It's not just behaviors. It's not just about the ways that we interact with each other. It's not just about the organization. And it's not just about the people. It's about all of these things and so much more—it's an incredibly complex concept. Would you agree with that, first of all? And, if so, what are we to do and what are our listeners to do, as agents for shaping culture, when it is as complex as it seems (at least to me)?

Daniel Beunza: I think that you put your finger on the paradox of taking an enlightened and expansive understanding of "culture," which very much echoes the understanding that cultural anthropologists had during the 1970s and before that. More recently, anthropologists have narrowed their perspective and taken the view that culture is really about the way in which natives make meaning of things, of artifacts, of expressions. In the context of finance, I must confess that I am somewhat worried that the more complex a view of culture is, the more difficult it is to really put one's own finger on what it is and then intervene. And so, for instance, are organizational structures part of culture? Are organizational incentives part of culture? There's no question that they influence culture, and they certainly influence behavior, but I think that if one takes an excessively all-encompassing understanding, then the danger is that there are not going to be any distinct tools to intervene in culture—instead, we are just re-labeling things that we already know about, like structures, incentives, etc.

Zach Coseglia: If everything is culture, nothing is culture?

Daniel Beunza: That's right.

Zach Coseglia: Tell us a story or two from the book about how you saw some of the complexities, or maybe the simplicities, of culture actually come to life through your fieldwork.

Daniel Beunza: One of the situations that stayed with me the most—and this is not something that is in any way a recommendation for action—there was an instance where the manager of the trading floor was challenged by one of the traders, by the top producer of the trading floor in that year. The context of that challenge was that the manager had put in place a compensation system which was similar to what hedge funds normally use, which is traders are paid a fixed percentage of the profits generated by their desk. That percentage is agreed upon at the beginning of the year and is not subsequently revisited. However, in this specific instance, the trader, who was the leading producer, did really well, and so, he felt that he not only was entitled to the percentage that had been agreed, but actually of a greater share. He came up to the manager and expressed that view, and then threatened to just leave the floor, leave the bank, if his views were not agreed to. That gave the manager a real dilemma, because what do you do? If you say "yes" to him, then very quickly your system is going to be called into question by everyone else on the floor who will find other reasons for why they should be the exception, too, to the rule. If, on the other hand, you don't agree, then you run the risk of really just losing the employee, and can you really afford losing your top producer? So, the decision by the manager shocked me, because it was completely outside the realm of my thinking. As somebody who teaches MBAs and students in the business school, I'm always thinking about: What is the more efficient way of proceeding? What maximizes shareholder value? What the manager of the trading floor did when faced with the dilemma was to simply fire the trader—neither say "yes" nor "no," but just simply fired the guy on the spot. Now, why is that? The reason is that he manifestly had decided to challenge a system of norms that the manager had introduced and everyone had agree to. This followed a number of incidents, and this also followed a number of other colleagues who had expressed concerns about the behaviors of this trader, so this was not some sort of rash decision made by some sort of tech captain. But it was a radical decision, and it really, I guess, taught me that sometimes managing culture really entails "leaving money on the table."

Hui Chen: I remember the story very well. I feel I've come to know this person that you call "Bob" in the book. Is this somewhat of an unusual character, as far as Wall Street goes? And it goes to the greater question about ethnography—that, it's a lot of storytelling that you're doing. When we first met, you talked about ethnography as "collecting stories like you collect data." You probably said something more eloquent than that, but when I think about your explanation of "ethnography," I think about, "Stories are very illustrative, but to what extent are they unusual? How do we know this behavior is common or unique?" Tell us a little bit about your perception about how unusual Bob's behavior was in these respects on Wall Street. And two, how does ethnography as a methodology address the issue about whether something you're observing is an anomaly or a norm, or something else—how do you tell?

Daniel Beunza: I'm going to start with "Bob," because it's not just Bob, it's Bob and I, right? And so, here's Bob, a grown-up adult at the peak of his profession, being able to wield his level of authority. Then there's me: a young assistant professor trying to survive the classroom at one of the world's leading business schools, Columbia Business School, with extremely smart, ambitious, and, yes, aggressive MBA students. In my world, I am chickening out—the students are coming in late, I know it, they know it, I'm not saying a thing, and so, it's a mess. In Bob's world, he ends up in a position where he has the possibility, also the ability, to enforce norms, and it works. I think that why the book is successful is that we all have, all of us, an element of me, meaning the guy who's weak and who is unable to do any better; and Bob, the guy who is experienced, has already undergone the problems that one faces when being a junior person, and now he's able to really do it, and he's at the top of his game. One of the things that makes the book compelling is that I was honest in retelling my own limitations, and Bob was honest, as well.

The other question that you pose is extremely important: It is, "But how scientific is this? Is this not just a bunch of stories?" First of all, I have to acknowledge that what in social-scientific terms is called the "generalizability of ethnography" has traditionally been one of the weak points that people point to, but what I do is not just generalized from one case. What I typically do is I look for statements that are couched as universal laws and find an exception. So, that's what I'm doing—I'm taking the proposition, "It's impossible to manage the culture of a trading floor because finance is just like that," and what I'm showing is that, "Actually, no, it is possible to do it. Here's an example. I'm going to give you all the details you need to really be able to see that this person is alive, and that this is how you would do it." That's what the book is trying to do—it's trying to counter a proposition. "What was the overall proposition that I was coming with into this situation?" That's the thing that is being challenged by what I see.

Hui Chen: Daniel, I also want to quote Bob here about his view on risk management. Apparently, Bob believed that "having a department dedicated to risk management entailed an unworkable division of labor—one guy gets the reward and the other gets the responsibility. The salespeople get the reward, the risk managers get the responsibility." As someone who's worked in compliance, I imagine that's how a lot of us feel—that we're the ones who get all the brunt of the responsibility, and the sales get all the reward. What can people who work in compliance functions take away from your book?

Daniel Beunza: First, I think, is people should be able to take a more compassionate view of themselves when they are in compliance or risk management, because it's such a difficult job—the organization has decided to divide up labor and then locate all the tasks of compliance within a single group, and that creates huge tensions. So, the first one is, it's really very difficult. The second one is that there's a great risk that I think that control functions, compliance, risk management, might conceivably overlook, which is the risk of employeesfeeling that they have been unfairly treated. The danger with having people feeling unfairly treated in the organization is that it can then lead, in the extreme, to what social psychologists have identified as "moral disengagement." What I mean is situations where when one stops adhering to one's own norms, one no longer feels bad about it, and the self-sanctioning mechanism stops applying because of the perception of injustice. When that happens, then essentially you have a free player inside the organization handling somebody else's money, so, a dangerous situation. And that generally speaks to another puzzle that I experienced in my research, which is, in the wake of the global financial crisis, I could still never find a single instance of a "bad individual." It's not that people brought down their banks because they wanted to—they were just trying to "do better" for themselves without any regard for the consequences. So, I think that that blunt application of control tools creates a danger of moral disengagement, and that's something that perhaps should be more taken into account.

Hui Chen: Daniel, if I might even add to a Better Way that I felt like I got out of your book, it was this ethnographic approach as a methodology. To me, it's a more advanced way of listening and adding observation to listening. I like what you said when you explained about the ability to understand people in their native environment, because I do feel like that's not something that many—certainly trans-national corporations—do very well in terms of their compliance efforts. In the cross-cultural work that we do, what we see all the time, in fact, is the headquarters, which is usually based in the U.S. or Europe, telling people elsewhere, in other markets, that: "We want you to behave in the way that we want you to for the reasons that we think are important to us. We don't really care what your nature, environment, your actual day-to-day life and culture are." In terms of what I got out of it was really the importance of trying to understand the native environments where people are trying to do their jobs and trying to apply their values, and how they perceive your value from those vantagepoints.

Daniel Beunza: I am extremely pleased, and I am thrilled that that's what you got out of it. In fact, what you got out of it is what primarily the world has found interesting in my current work as an ethnographer.

Zach Coseglia: Alright, this has been so much fun. Now, it is time for you to take the Better Way? questionnaire, which is inspired by Proust, Inside the Actors' Studio, Bernard Pivot, and a bunch of other folks. And so, for our first question, you actually have your choice—you can pick between one of the following two. The first question is: If you could wake up tomorrow having gained any one quality or ability, what would it be? Or you can answer: Is there a quality about yourself that you're currently working to improve?

Daniel Beunza: I wish sometimes I could be a rock. I'd love to be that sturdy artifact that is unruffled by the emotions of others.

Hui Chen: The second question is also a choice of one of two. You can answer: Who is your favorite mentor? Or you can tell us: Who do you wish you could be mentored by?

Daniel Beunza: I was privileged to be the graduate collaborator of Professor David Stark at Columbia University's Sociology Department. I think that just being around him sparked in me a level of curiosity about the world that is very rare and exceptional that I had barely seen before. So, I think that if there is one person that influenced me positively in a professional and personal level, that would be him, David Stark.

Zach Coseglia: Terrific. What is the best job, paid or unpaid, that you've ever had?

Daniel Beunza: For the past years, I have been paid to train bankers and bank executives in ethnographic research methods. If you ask an ethnographer of finance, "What would be that dream job?"—I guess that I was just really lucky to have it.

Hui Chen: Awesome. What is your favorite thing to do?

Daniel Beunza: If there is one thing that I particularly love to do, it is to be the flâneur, to be the urban person that wanders around. I love to hang out in the artistic areas of the cities, whether it's East London or Williamsburg in New York, spend the weekend, bring the family sometimes, and just get lost in whatever contemporary trend is taking place.

Zach Coseglia: Wow, I love that. Very similar to our next question, which is: What is your favorite place?

Daniel Beunza: I am from Spain, and I am from the East, from the region called Valencia. There's a specific village called Xàbia where I have been spending my summers now for the past 20 years. That's where I met my wife. The beach, the culture, the food—I realized that that is the place that I particularly love.

Hui Chen: Alright, so next question is: What makes you proud?

Daniel Beunza: One thing that makes me really proud is when I hear back from my students and see that they graduated, they got good jobs, they maybe get promoted. They find their way—they turn into these incredibly competent-looking people that years before, they were just in the making. So, to have a role in that process of somebody becoming a fully grown-up professional, I think that is really beautiful.

Zach Coseglia: It is indeed. What email sign-off do you use most frequently?

Daniel Beunza: I write, "Regards, Daniel."

Zach Coseglia: We're collecting pretty good data on how people sign off their emails here, so we'll let you know how you compare.

Hui Chen: Next question is: What trend in your field is most overrated?

Daniel Beunza: I think academics work from home too much. I don't know if it's a "trend" or it's always been the case, but we, as academics, collectively suffer from lack of social connection to other academics, who also suffer from lack of social connections. I hope that this at some point will reverse.

Zach Coseglia: The last question is: What word would you use to describe your day so far?

Daniel Beunza: I have to use two words: Today has been "fun" but a little bit "exhausting." I am organizing a workshop on, guess what? Bank culture. And so, lots of fun, but very tiring.

Zach Coseglia: Well, Daniel, thank you so much for joining the podcast. It's been really fun getting to know you, and learning more about your research, and digging into your book. I think it would be really wonderful to have you back at some point. Thanks again. And thank you all for tuning in to the Better Way? podcast and exploring all of these Better Ways with us. For more information about this or anything else that's happening with R&G Insights Lab, please visit our website at www.ropesgray.com/rginsightslab. You can also subscribe to this series wherever you regularly listen to podcasts, including on Apple, Google, and Spotify. And, if you have thoughts about what we talked about today, the work the Lab does, or just have ideas for Better Ways we should explore, please don't hesitate to reach out—we'd love to hear from you. Thanks again for listening.

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