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The Power of MoralPurpose: SandlerO’Neill & Partners inthe
Aftermath ofSeptember 11th, 2001
Steven F. FreemanLarry Hirschhorn
Marc Maltz
Steve Freeman is on the faculty of the Uni-versity of
Pennsylvania School of Arts &Sciences Center for Organizational
Dynam-ics. Steve’s primary research area is creativ-ity, innovation
and resilience in work and or-ganizations. He teaches and conducts
re-search on creativity, innovation, improvisa-tion, and resilience
in work and organiza-tions.
Contact InformationPersonal
website:http://sf.appliedresearch.us
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Steven F. Freeman
Despite devastating losses in the September 11th
attacks, Sandler O’Neill, an investment bankformerly based in
the World Trade Center, emergedstronger than ever within one year.
The combinationof moral work and the pull of opportunity
releasedextraordinary physical and psychological resourcesthat
fueled this astounding recovery.. The case showsthat in an
organization that permits advancementthrough moral work, people
feel exceptionallyenergetic and psychologically available.
“If we possess our why of life, we can put up withalmost any
how.”—Nietzsche (1968, p. 23)
Sandler O’Neill & PartnersThe Disaster and RecoveryOn
September 11th, 2001, Sandler O’Neill & Part-ners, formerly of
the 104th floor of the World TradeCenter’s South Tower, lost
thirty-nine percent of itspeople, including nine partners and
two-thirds of itsmanagement committee, and nearly all its
physicalassets and corporate records. Neither industry expertsnor
organizational scholars could have been optimis-tic about the
future of the firm. Yet within one year,the firm not only had
recovered but was doing betterthan ever, with record profits and
revenues and newhighly desirable lines of business, while also
takingcare of the health and well being of the survivingemployees
and the families of the deceased.
Academics … Skepticism… How We Cameto Study ItScientists are
skeptical by nature and training. Wetend to see concepts such as
power of purpose asimprecise, unverifiable, and
intractable—especiallywhen these concepts include moral claims. But
weare also open to evidence. The authors had beeninvited in autumn
2001 to document the
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Larry Hirschhorn
organizational losses of the World Trade Centerattacks. It soon
became apparent, however, thatvaluable as this task might be, the
biggest storyhere was explaining how one decimated firmcarrying an
extraordinary burden could rise withastonishing alacrity to
unthinkable heights.
...the big...the big...the big...the big...the biggggggest story
herest story herest story herest story herest story here we we we
we wasasasasaseeeeexplaining how one decimaxplaining how one
decimaxplaining how one decimaxplaining how one decimaxplaining how
one decimated fted fted fted fted
firmirmirmirmirmcarcarcarcarcarrying an erying an erying an erying
an erying an extrxtrxtrxtrxtraoraoraoraoraordinary bdinary bdinary
bdinary bdinary burururururdendendendenden
could rise with astonishing alacritycould rise with astonishing
alacritycould rise with astonishing alacritycould rise with
astonishing alacritycould rise with astonishing alacrityto
unthinkto unthinkto unthinkto unthinkto unthinkaaaaabbbbble
heightsle heightsle heightsle heightsle heights.....
Sandler O’Neill and September 11th,2001Sandler O’Neill &
PartnersSandler O’Neill is an investment bank that special-izes in
thrifts, community banks and savings andloans.1 The firm was
founded in 1988 by six part-ners who referred to themselves as the
“3-2-1gang” (three Jews, two Catholics and a Protestant).It became
a mostly Caucasian, Catholic firm thatgrew by hiring friends, the
sons and daughters offriends, and the sons and daughters and
friends ofbusiness associates. From the onset, the firm hadbeen
very successful, rewarding partners andemployees with considerable
incomes. Partnersreferred to it as a “money machine.”
September 11th Death TollSeptember 11th, 2001. At 8:45 am,
eighty-threeSandler employees, two consultants, and twovisitors
were in the company’s principal office onthe 104th floor of the
South Tower of the WorldTrade Center. When the North Tower was
hit,sixteen employees immediately left their offices(despite
building advisories not to leave). Alongwith a seventeenth who
happened to be on the 44thfloor, these employees exited the
building andsurvived.
FFFFForororororum um um um um
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Larry Hirschhorn is a principal with theCenter for Applied
Research, a management-consulting firm with offices in
Philadelphiaand Boston. He helps clients develop andimplement
strategies by focusing on businessrequirements and group dynamics.
He haspublished widely in the field of organiza-tional
psychodynamics, He has participatedin the Center’s development of
the “cam-paign approach to organizational change”.
Contact [email protected]
Marc Maltz
Marc Maltz, MBA, ROCP, specializes instrategic organizational
and leadershipdevelopment Co-founder of and ManagingPartner for
TRIAD Consulting Group LLC,he brings 20+ years of experience in
sales,marketing, operations, business planning,and systems
development to TRIAD. Marcheld executive positions at
AT&T,Westinghouse Electric Company, NYNEXCorporation and Music
Mining Co., Inc.Marc has an MB.A, an MA in History andpostgraduate
certificates from MIT’sExecutive Program in Technology and
theWharton School’s Executive Program inFinance
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71
The South Tower was hit at 9:02 a.m. andcollapsed at 9:59 a.m.
No one above the 78thfloor at the time of impact survived
(Table1).
The sixty-six dead left forty-six widows orwidowers and
seventy-one children underthe age of eighteen, including one child
bornin August 2001 and another born in October.Over 100 parents
lost sons and daughters;many had sent their adult child to work
fortheir colleague, friend, or banker at Sandler.The Equity
Department was wiped out—twenty of twenty-four killed. Nine
ofSandler’s thirty-one partners perished,including Herman Sandler
and ChrisQuackenbush, two of the three partners whoformed the
management committee that ranthe firm.
The Week Following September 11th
The following week. Ray Soifer, anindependent banking
consultant, issued adire warning in Business Week on 9/13: “Theloss
of life is catastrophic in an industry thatrelies on personal
relationships.” On
Table 1: Sandler O’Neill Employees on September 11th, 2001
Employees Total Sandler O’Neill employees September 11th, 2001
171
Total based on the 104th floor of the World Trade Center 149
Killed by the attacks 66*
Exited building and survived 17
Witnessed events from concourse or nearby 24
Traveling or not yet to work 42
Total based in satellite offices 22 * Two consultants and two
visitors were also killed.
Monday September 17, CNBCmisunderstood a press release and
broadcastthat Sandler would not remain in businessbecause its
losses were too devastating. Thebroadcast prompted numerous calls
fromclients, friends, and others who believed thestory to be
reasonable. How could thecompany remain viable after
suchdevastating losses? Surviving employeesasked the same
question.
But by the day after the attack, JimmyDunne, the lone surviving
managementcommittee member, and his remainingpartners had already
decided that the firmmust survive. The next day (9/13),
Dunneannounced this in an emotional meetingwith the employees. On
Wednesday, 9/19,two days after the erroneous CNBCannouncement, he
went live on CNBCpledging that the firm would remain inbusiness so
as to not let “terrorists win andundermine America.” Dunne set
three goalsfor the firm in the near term: to care for thefamilies
of missing colleagues, ensure thesafety and health of all surviving
employees,and personally assure the firm’s clients and
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friends that the firm would continue.
RecoveryRecovery. In spite of the devastating losses,Sandler has
amazingly managed not only tosurvive but to thrive, as evidenced by
thefollowing:
No deals or clients were lost. Two months after the attack, the
firm
was profitable again. By May 2002, profitability and
revenue recovered to pre-9/11 levelsand continued to trend
upward.Revenue per partner, per professionaland per employee was
higher thanever. (All occurring as Wall Streetexperienced a major
downturn.)
The firm substantially strengthenedsome of its core areas
through newhires
A new business underwriting anannualized $23 billion in initial
publicofferings, and a second new businessin preferred stocks were
developed.
Moreover, all this was achieved as the firmreconstructed records
and infrastructure;hired and trained replacements; built a
newfacility; attended funerals; dealt with trauma,anxiety, and a
dozen varieties of loss2—andwhile providing generous care, salary,
bonus,and benefits to the families of the deceased.
Theory: Organizations Non-resilient in Response to LossGeneral
Organization TheoryScholars would have had little reason to bemore
optimistic about Sandler’s future thanindustry analysts would.
Organization theorysuggests that organizations are notresilient—at
least not in the positive sense of
being able to respond effectively tocatastrophic events.
Extensive researchdocuments difficulty adapting to evennarrowly
circumscribed loss.3 Crisis researchindicates it is far more
difficult to recoverfrom a fatal disaster.4
OrOrOrOrOrggggganizaanizaanizaanizaanization theory sugtion
theory sugtion theory sugtion theory sugtion theory
suggggggestsestsestsestseststhathathathathat ort ort ort ort
orggggganizaanizaanizaanizaanizations artions artions artions
artions are e e e e notnotnotnotnot
rrrrresilient—aesilient—aesilient—aesilient—aesilient—at least
not in thet least not in thet least not in thet least not in thet
least not in thepositivpositivpositivpositivpositive sense ofe
sense ofe sense ofe sense ofe sense of being a being a being a
being a being abbbbble tole tole tole tole to
rrrrrespond efespond efespond efespond efespond
effffffectivectivectivectivectively toely toely toely toely to
cacacacacatastrtastrtastrtastrtastrophic eophic eophic eophic
eophic evvvvventsentsentsentsents.....
Self-Amplifying Feedback LoopsMoreover, problems in business
tend toamplify through a vicious circle:5 A setbackdepletes an
organization’s resources;creditors, alarmed by a shortage of
cash,may be unwilling to risk additional capital;employees facing
the possibility ofjoblessness may seek work elsewhere; andcustomers
and suppliers worried aboutcontinuity of service may seek
serviceselsewhere. Doubt begets more doubt and thefirm spirals
downward in a doom loop.
SegueYet despite catastrophic losses, Sandler notonly avoided
collapse, but managed insteadto actuate a “virtuous circle” in
which effort,opportunity, hope, and motivation created anupward
spiral of confidence andperformance.
The Source of Sandler’sResilience: Moral PurposeSituational
FactorsSeveral situational factors contributed to theresilience of
firms hit in the 9/11 attacks.
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73
The firms suffered no prior or subsequentattack, and although
the attack was deadly, itwas over quickly. The damage was done
bystrangers; no trusts were shattered orbetrayed. Most important,
the firmsthemselves were held blameless and theirenvironment was
exceptionally supportive.
Limits of Situational FactorsAspects of the situation, however,
can onlyaugur the possibility of recovery; it hardlypredicts
Sander’s phenomenal post 9/11success. Likewise, Sandler
generallymanaged the crisis well. But crisismanagement can only
mitigate losses; itcannot produce growth. To explain thefirm’s
remarkable post 9/11 performance, wewere led to one dominant
explanation: that anewly found moral purpose invigorated anentire
community.
MorMorMorMorMoral pural pural pural pural purpose wpose wpose
wpose wpose was a motivas a motivas a motivas a motivas a
motivaaaaationaltionaltionaltionaltionalfffffactor in and ofactor
in and ofactor in and ofactor in and ofactor in and of itself
itself itself itself itself, spur, spur, spur, spur, spurring on
thering on thering on thering on thering on the
efefefefefffffforororororts ofts ofts ofts ofts of the par the
par the par the par the partnertnertnertnertners ands ands ands
ands andemploemploemploemploemployyyyyeeseeseeseesees, as w, as w,
as w, as w, as well as customerell as customerell as customerell as
customerell as customersssss,,,,,
suppliersuppliersuppliersuppliersuppliersssss, v, v, v, v,
volunteerolunteerolunteerolunteerolunteers and others and others
and others and others and othersoursoursoursoursources ofces ofces
ofces ofces of e e e e external helpxternal helpxternal helpxternal
helpxternal help.....
Three PartsMoral purpose was a motivational factor inand of
itself, spurring on the efforts of thepartners and employees, as
well ascustomers, suppliers, volunteers and othersources of
external help. It had multipliereffects in concert with other
factors: An ability to get help. The world was
sympathetic in the aftermath of theseattacks; Sandler was
particularlyeffective in obtaining and utilizingforthcoming
assistance. The pull of opportunity. Death created
opportunities for advancement,
leadership, new business andstructural change. These
opportunitiescould be seized without guilt becauseof its link to
moral purpose.
Moral PurposeNo Longer Just an InstrumentIt was by no means a
foregone conclusionthat the firm would continue. The partnerswere
already wealthy. For several yearsDunne, an effective delegator,
managed theoperations of the firm while spending 200days a year
playing golf. (He was on the golfcourse the morning of 9/11.) He
workedshort hours, checked “ten emails a day,” andspoke daily with
his department heads.Herman Sandler was an active
philanthropistcommitted to environmental issues, music,and numerous
other nonprofits. Severalsenior partners were informally
semi-retired,searching for what they were going to donext,
including Fred Price, who after 9/11became Chief Operating Officer.
We learnedthat several partners believed that the firm’snatural
trajectory was coasting towards ashutdown or sale. There was no
plan to sellthe firm to a next generation of owners.Surviving
owners were concerned with thefinancial well being of the families
of thedeceased, but that obligation could havebeen met through a
capital reservedistribution. 9/11 changed this sense. Thefirm, once
an instrument, as one ownerdescribed it, “for feeding the mouths
offamilies,” became a moral enterprise: tohonor the dead, care for
both the familymembers of the deceased as well as theliving, and
deny the terrorists a victory.Typical comments included:
… the whole idea is that we are atwar. It is important to keep
oureconomy going.
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We are covering these families forthe next five years. This
isextraordinary and I take great pridein it.
I feel more motivated and moredetermined. We have
moreresponsibility to … [rebuild thefirm] for those who are
gone.
One employee who quit before 9/11 to starta non-financial
business in his home,returned:
They wanted to bring me back. [Apartner] gave me a call, and
wetalked about it for a while, and themore I thought about it, the
more itmade sense to come back, from[many] points of view. I never
reallywanted to come back to the Streetafter I left, but this is
different. Fromjust a moral standpoint, it isabsolutely the right
thing to do.
Employee MotivationWhen Sandler’s salespeople sold stocks
andbonds, they were selling for their deadcolleagues emotionally
and literally:Commissions generated through sales andtrades on the
accounts of a deceasedemployee went completely to thatemployee’s
estate. The firm continued topay salaries and bonuses, to
providecounseling services and medical insurance.It created a
resource center to help thefamilies of those killed to cope
withfinancial and legal needs, and a foundationto help children of
their lost colleaguesattend the college of their choice.
Customers and CompetitorsCustomers treated the firm differently
aswell. It seemed doubtful to analysts and themedia that a
relationship-based firm in arelationship-based industry could
survive
the death of so many relationship managers.Yet all clients
remained with the firm.Maintaining a relationship with the
firmenabled clients, suppliers, and otherstakeholders to honor
their relationship tothose who died and to work through theirown
feelings regarding the tragedy. Sixmonths after the attack, Dunne
noted that,early on:
I made a mistake. I thought thatclients would find it a
bitpresumptuous … if I interjectedmyself into those relationships.
I was100 percent wrong. Not only did theywant it, they expected it.
Now I amfuriously … contacting the keypeople that our key people
talked to.
MorMorMorMorMoral pural pural pural pural purpose enapose
enapose enapose enapose enabbbbbled the fled the fled the fled the
fled the firmirmirmirmirmto ato ato ato ato attrttrttrttrttract and
ract and ract and ract and ract and retain helpetain helpetain
helpetain helpetain help.....
Attracting HelpMoral purpose enabled the firm to attract
andretain help. After the attack, the firm wasfaced with an
avalanche of extraordinarydemands: managing the media,
handlingcalls from well wishers, legal concerns,estate issues,
regulatory issues, child care,funerals, and counseling. Dunne
immediatelyput policies in place to care for the victims’family
members and was in touch with mostof the widows and widowers in the
first fewhours after the attack. He drew on outsidehelp to deal
with most extraordinaryfunctions: On 9/11 Sandler hired a
publicrelations firm and on 9/12 an
organizationalconsulting/counseling firm. Dunne also drewupon top
legal, financial, and other expertise.A close friend of a deceased
managingpartner approached Dunne at a memorialservice and asked if
there was any way hecould help. When it turned out he had
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managed communications for a priorgovernor of New York, Dunne
recruited himto manage these functions for SandlerO’Neill.
One employee noted, “We were fortunate tohave good people with
background andtraining in various areas come in to help
us.”Prominent CEOs, lawyers, financial advisersand many other
volunteers showed up attemporary offices to help. Relatives
laidcable and set up computers; ex-employeesworked the phones; when
trading began thefollowing Monday, competitors
conductedtransactions (and refused commissions).When Sandler moved
into temporaryheadquarters two weeks after the attack, itwas
difficult to distinguish amongemployees, hired hands, relatives,
andvolunteers.
The crisis generated publicity and celebrity(including profiles
on CNBC and CBS’ 60Minutes and a cover story in Fortune).Public
approval of Sandler’s management,Dunne’s charisma, and the
effectivenesswith which Sandler managed publicrelations led to
invitations for new deals.Management fully accepted the generosity
ofothers, allowing the firm to enter deals thatwere made available
and made businesssense. One partner told us, “XX gave us adeal. It
was great. They practically filled outthe paperwork for us.”
Openness to Receiving Help Is Not SoEasyAlthough the ability to
cope with traumadepends partly on the ability to attract anduse
help, there is an inherent paradox—trauma can be very isolating.
Individuals andleaders of organizations feel violated; theyworry
that their experience cannot beunderstood and that others are
judging themfor the extremity of their response. They
exhibit physical and emotional stress and arehighly sensitive to
their environment, openlyreacting to a face, a memory, a picture,
aplane, a siren, or other noise. Just whenpeople or organizations
most need help, theyare often least capable of seeking or using
it.Organizations may sensibly worry that ifthey solicit help, the
resulting publicitycould expose their weakness, leading tofurther
losses of key personnel and business.Indeed, in the first month(s)
after the attack,other badly damaged financial services
firms(especially Cantor Fitzgerald and MarshMcClellan) provided
little public access.This might explain why CEO HowardLutnick of
Cantor Fitzgerald made and thenchanged decisions, after getting
badpublicity, on how he would financially treatthe families of dead
employees (Wall StreetJournal, 2001). He lacked the openness
thatwould have enabled him to test ideas andpossible policies with
friends and advisors.
The Pull of OpportunityEnormous Effort Put Forth. How toExplain
It?One person described the tenor of themonths following the attack
as “sprinting amarathon.” Sandler partners and employeesput forth
astounding energy and effortrebuilding the IT system,
reconstructingrecords from memory, contacting thecustomers of
deceased employees, andcreating a working temporary facility
whilealso planning for a permanent move. Apartner noted that the
intensity had reached alevel of “white heat” and wondered howlong
the firm could sustain this tempo. Oneemployee noted:
After 9/11, I think everybody whoworked here felt like a
partnerbecause they were involved in thecompany in a way that
they’re never
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going to be involved in any other jobin their lives. So you felt
like apartner …
Tragedy’s Upside: Opportunity (forIndividuals)Personal
opportunity. The loss of friendsand colleagues was personally
devastating,yet the tragedy had an upside: The loss ofleadership
and talent created newopportunities for survivors. “For
everydeconstruction there is construction,” onerespondent put it.
Even though the work ofreconstructing the firm was
physicallyburdensome and psychologically difficult,many stepped
forward to fill voids becausethe situation presented an opportunity
toadvance.
For every deconstruction there isconstruction.
The pull of opportunity was clear both tointerviewees at all
levels of the firm and tothe many job seekers who contacted the
firmin the months after the disaster. Althoughnot part of our
initial interview protocol,most interviewees alluded to it.
Commentsincluded:
I am ending up with a chance towork on accounts of those who
havedied. There is good business there.These are situations I would
not havehad a chance to be involved in. Thereis more latitude in
terms of whereyou can go.
I will make more money nowbecause they need competent people
to maintain the relationships.
I think that one of the neat thingsabout this firm is that there
are moreopportunities that you could followup on; bigger account
lists than asalesman could cover, the matrix ofaccounts and
potential accounts andproducts and opportunity. There willnever be
enough hours in the day.
Opportunities at the Firm LevelNew Business OpportunityLikewise,
the tragedy created opportunitiesat the firm level, which
managementcautiously pursued. Some larger banks andcompetitors saw
Sandler as a symbol of howthe U.S.A. could and would respond
toforeign attack. For the first time, Sandlerwas “invited to the
table” to participate onlarge underwriting deals. One
respondentasked rhetorically:
Opportunity? A ton right afterwards.Competitors included us
inunderwriting. Companies that wewould never speak with, such as
X;there was an open forum… Some ofthese relationships will be
enduring.
Structural OpportunitiesThe tragedy also created
structuralopportunities—the chance to make changesthat otherwise
would have been unfeasiblebecause of either sunk costs or
entrenchedpersonnel. For example, an IT professionalsaid that in a
sad way the disaster was anopportunity to improve the
computersystems: “Opportunities start from an emptyspace.” One
executive came over from amuch larger firm because, “I thought
theopportunity to rebuild the equities business
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was unique in such a small, well-regardedfirm.”
At the firm level, the tragedy created theopportunity to
completely remake the equitiesgroup and to take the firm in new
directionsbased on, in Dunne’s words,
. . . people that can broaden our scope.Some new senior hires
have helped agreat deal: I miss X at a business levelso much but
hiring Y has been agodsend for me. And it’s also helpedeverybody
else behave better.
Death generally created slots for strategic,high-quality new
hires. The firm hired talentfrom prestige firms who, by virtue of
theirskills and relationships, brought new kinds ofbusiness.
Recruitment was enhanced by thegood publicity for the moral stance
it took inrelationship to its families. Young people fromtop
universities, who might normally havegone to larger firms, began to
apply for jobs atSandler O’Neill.
*****
Under what conditions would findingopportunity in a colleague’s
tragedy not feellike dancing on their grave? Some
respondentsexpressed ambivalence about making moneyand advancing
because other people died:
You have been given five new accountsthat were existing Sandler
O’Neillclients. ... Do I deserve someone else’smoney?
I took on coverage of better accounts.This is not the way you
want to get[these accounts]. It is an uncomfortableidea.
An employee hired November 2001 said:
I don’t know how to express how I feel.I am glad to be here but
not happy forthe reason why.
Ambition is a powerful drive that typicallymust be restrained.
Under normal businessconditions, coworkers’ ambitions often
clash.To maintain organizational cohesion,individual ambition must
be circumscribed bynorms of fair play and obeisance to team
goals.In this case, however, altruistic incentivescreated a
situation in which ambition became agift to others: Seizing
opportunity meanthelping the firm survive, future opportunitiesfor
others, and resources for helping thefamilies of deceased
colleagues.
The combination of moral work and the pull ofopportunity
released extraordinary physical andpsychological resources.
The combination of moral work and the pull ofopportunity
released extraordinary physical andpsychological resources. Work
typicallyinvolves a tradeoff between normal businessactivities,
which we undertake for materialadvancement, and volunteer work,
which weundertake for a moral payoff (Table 2). At theextremes, in
a failing, demoralizedorganization, people feel depleted, but in
anorganization that permits advancement throughmoral work, people
feel exceptionallyenergetic and psychologically available.
Beyond ResilienceThe term resilience presently has a
powerfullypositive connotation, but literally it isinsufficient to
capture the magnitude ofSandler O’Neill’s accomplishment.
Resiliencemeans the ability to spring or bounce back(from stress,
illness or adversity), but is itsufficient to characterize a
phenomenon inwhich an entity is almost destroyed yet
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Table 2: Moral Work and Opportunity
Moral Work No Yes
Yes
Normal business life
Average psychological and
physical resources
Invigoration (Sandler O’Neill)
Substantially increased psychological
and physical resources Pull of Opportunity
No
Demoralization (a failing firm or ineffective volunteer
efforts)
Psychological and physical
resources are depleted
Volunteer work
Average psychological and
physical resources
emerges stronger than ever?
We opened this article with one maxim byNietzsche; we close with
another—hisubiquitous quotation, “What does not kill memakes me
stronger” (1968, p. 8). A web searchof the quotation reveals
thousands of hits.What should we make of this popularity? Is
itevidence of a world desperate for palliatives oris there a
verifiable phenomenon? At leastsome compelling examples can be
found, suchas the autobiographical experiences related byFrankl
(1946) and Armstrong (2000).
In academic and practice articles, we use thisresearch to
develop theory on organizationalresilience and applications for
management ofrisk and crisis management. But beyond
crisismanagement, beyond resilience, the case begsthe question of
motivation and performance:Can we clarify the sources of strength
andmotivation that Sandler O’Neill drew upon?And can we help others
achieve comparableresults?
The most valuable extension of this research isto help make
these sources of strengthgenerally available to those who face
greatchallenges and endeavor to perform greatdeeds.
Endnotes1 As a full service investment bank, Sandler O’Neill
helps clients manage mergers, acquisitions, andconversions;
provides guidance on fixed income andequity investment management
and trading; and, moregenerally, on maximizing shareholder and
companyvalue.
2 Sandler’s performance might suggest that the 9/11losses were
perhaps not economic (i.e., insurancecovers the physical assets;
people can be replaced,etc.) Our findings suggest, however, that
the losses—economic and otherwise—were, if anything, evenmore
severe than media reports and death tolls mightindicate. These
losses can be placed into threecategories, (1) people, (2) wealth,
and (3) systems,routines and processes.
People. “When you lose people, you lose mentors,friends,
colleagues and skills,” one manager said. Theone surviving member
of the management committee,barely containing his emotion, told us,
“I lost mymentor and my best friend… who do I even consultnow?”
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The deaths of colleagues and friends wereparticularly severe for
Sandler O’Neill because itwas an exceptionally related and
tight-knit firm.One long-time employee noted that, “We all grewup
together.” This was a firm that “worked hardand played hard”
together. Employees’ familieswere best friends, vacationed
together, belonged tothe same social networks and owned homes
nextto each other.
Sandler was known as a “relationship” firm onWall Street, a firm
that prided itself on the way inwhich it managed its relationships
with clients andpotential clients.” One reason why CNBC couldreport
that Sandler would be terminatingoperations is because loss of life
is catastrophic inan industry that relies on personal
relationships.
Aside from the cost of death, came the cost ofsurviving. In the
months following 9/11, survivingemployees needed to:• Attend
numerous funerals/memorials, deliver
eulogies, and help the families of the deceasedwith both
consolation and concrete tasks suchas childcare and estate
management.
• Contact and speak with well-wishers, themedia, and virtually
“everyone we ever hadcontact with.”
• Make personal sense of what happened,attending to their own
psychological andemotional needs and those of their families.
Even to the degree that people could bereplaced, hiring is
hardly an overnight process.Moreover, management had to hire,
orient andtrain on a mass scale at the same time that theywere
struggling to rebuild, deal with the tragedy,and actually do the
ongoing work with a sharplyreduced workforce.
Wealth. The moneymaking machine was shutdown, at least
temporarily. At the same time,expenses soared. In addition to all
the ordinaryexpenses of running the business and theextraordinary
expenses involved in rebuildingquickly (insurance covered much, but
not all thecosts), the company had to acquire an array ofspecial
services—counseling, legal and publicrelations help in order to
manage the demands ofthe families of those lost, the employees,
well-wishers, the media, etc.
The balance sheet was hit equally hard. Paying out thedeceased
partners’ interests reduced the firm’s equityand cash to a fraction
of pre-9/11 levels.
Systems, Routines and Processes. Accountants andinvestors
believe that much if not most of a firm’sworth consists of
“intangible” assets that reside intacit knowledge of systems,
routines and processes(Lev, 2001, 2002). At Sandler, this knowledge
priorto 9/11 was rarely documented (a practice that thefirm has
since changed). On 9/11, the firm lost notonly the tacit knowledge
that was in the heads of thedead, but also:
Computers, paper files and corporate records.Physical records
needed to be reconstructed (mostlyfrom memory). Client and contact
lists had to berecreated from memory. “The firm had to replace
itsunderlying structure piece by piece.”
Technical processes, including trading, research andclient
management. The firm had to reapply for alltrading licenses and
redevelop and re-implement allcorporate protocols.
Physical systems. The firm had to develop temporarysystems
quickly, while also planning intermediate andlong-term
solutions.
The supervisory structure was decimated. Rebuildingthe
management structure was an enormousresponsibility for surviving
partners.
For every function, we had to ask, “Who’s left here todo it? Can
we still do it? Who do we need in the shortterm? Who do we need in
the long term?”
Finally, the coordination that comes from years ofteamwork was
gone and dearly lamented. Onerespondent explained,
“Sixty-six of my colleagues died, [which] made myability to do
everything much more difficult. Z and Ihad a shorthand. I would
talk to him at least 3 times aday every day. We didn’t need to
speak for long, just30 seconds. But that takes 5 minutes with
anyoneelse.”
3 Hannan & Freeman (1977, 1984, 1989) and theirmany students
have written extensively on theinflexibility of organizations.
Another highly
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influential work, Staw, et al. (1981) documentsgeneralized
organizational rigidity. Christensen(2000), Anderson and Tushman
(1990) and Tushmanand Anderson (1986) have identified
howtechnological change commonly leads to swift declineof
established firms in an industry. A wide variety ofother work
illustrates the equivalent difficultyorganizations have adapting to
social changes (e.g.,Hoffman, 1997, on the challenges faced by
thechemical industry in response to environmentalconcerns) or new
business conditions (e.g., Freeman,1999, on the US auto industry in
the 1960s and 70s).
4 When the hard work of change and adaptation wouldneed to be
undertaken, the people who would do it aredead, traumatized, or
consumed with extraordinaryresponsibilities. Individual recovery
from loss isnotoriously slow, painful, and difficult; when
thecommunity that would normally provide support intimes of
distress is also distressed, recovery may beimpossible (e.g.,
Erikson, 1990, 1994; Shrivastava,1987). Erikson (1976) concluded
that such “collectivetrauma,” is far worse than the substantial sum
of theseprivate wounds.
5 Rudolph & Repenning (2002) observe a convergentinsight in
organizational studies: Even small problemscan become major
disasters (Vaughan, 1996; Perrow,1999; Weick, 1993).Vicious circles
are technicallyunderstood and analyzed as reinforcing
feedbackloops. See Sterman (2000) for a thoroughmathematical
explanation of system dynamicsbusiness applications or Senge (1990)
for a lesstechnical explanation. See Masuch (1984) for atheoretical
analysis of vicious circles.
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model oftechnological change. AdministrativeScience Quarterly, 35,
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life. Putnam, NewYork
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technologies PrincetonU. Press, Princeton, NJ
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Understanding the
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role of quantity in organizationalcollapse. Administrative
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Senge, P. M. (1990). The leader’s new work:Creating learning
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This essay has been written for theOrganization Development
Journal inacknowledgement of its sponsorship of
the 2003 Academy of ManagementBest Practice Paper,
OrganizationDevelopment & Change Division,
which the authors were awarded for aresearch paper on Sandler
O’Neill.
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