Numerous studies have shown that, despite the massive resources deployed in manager searches, institutional investors and their consultants overwhelming fail to hire genuinely skilled active managers. “In my view,” Jason Hsu writes, “manager selection criteria should be examined from a higher level of consciousness and responsibility.” Citing data that strongly associate a poor culture with poor performance, he argues for a new approach to manager selection, one that explicitly takes into account the character of prospective managers’ internal relations. Jason and his fellow researchers have found, in particular, that firms with a culture of blame exhibit traits which meaningfully compromise their ability to achieve sustained business and investment success. Thus he effectively advocates selecting managers who respond to setbacks more constructively than do those whose reflex is to assign blame.
For reference, this short article is the introduction to a Practical Applications report on Jason Hsu, Jim Ware, and Chuck Heisinger’s paper, “The Folly of Blame: Why Investors Should Care About Their Managers’ Culture.” the paper appeared in the spring 2015 issue of the Journal of Portfolio Management (vol. 41, no. 3, pages 23–34).