Where Should We Draw the Line on the Manager-Employee Friendzone?

Where Should We Draw the Line on the Manager-Employee Friendzone?

I’ve always had very close relationships with my bosses.

Except for my earliest jobs, I can’t remember not having a very friendly relationship with the person who managed me. I feel very fortunate for that. To this day, I’m still close with many of my former managers. I count most as friends. As a manager, I tend to have very close relationships my employees too.

For me, the lines can sometimes blur between being a manager and being a friend. I realize this is not a universal thing. Many successful managers keep matters purely professional – distant even – from staff members. Likewise, many employees prefer to keep worlds from colliding. Work is work. Friends are friends. I’m not sure there’s anything wrong with either perspective, quite honestly. I know great people on both ends of the spectrum.

The question we’ll explore today: What is the optimal relationship to have with employees, and where should we draw the line on the manager-employee friendzone?

As I’ve shared in previous blogs, my management philosophy can be described as “employee-up”. What that means is, rather than taking the highest level corporate goals and directing my teams to deliver against them, I tend to go in the opposite direction. I try to understand what a person wants, and then help them achieve it. Career goals, financial goals, family goals, anything. I try to help them achieve their personal and professional goals by finding success in the company.  

In a roundabout way, employee-up and top-down management approaches both end up in a similar place i.e. with the employee delivering against company objectives. The difference is my philosophy, the employee-up approach, begins with the individual needs vs the needs of the corporation.

To be effective at the employee-up approach, a manager needs to build strong personal relationships with staff members. This is where we get to the friendzone topic. They need to be personally invested in the success of every individual. Team members need to know their manager genuinely cares for their wellbeing. They need to believe the manager is a true partner for them. If that trust is not present, the whole thing falls apart.

When the relationship is working optimally, it can be mutually beneficial for manager and employee. The team member has a strong advocate and supporter, and the manager has built a level of trust that inspires loyalty and opens the lines for honest communication. When a staff member knows that you are their biggest supporter, even your most critical feedback is well received because it comes from a place of caring. That’s the magic relationship I try to find as often as I can. When you can be completely transparent with your team members and have them accept criticism as support instead of indictment, you can achieve huge performance gains.  

Related: Why Leaders Should Speak Less in Meetings

One byproduct of the employee-up management approach is that you end up being very close to your team members. Friends really. You spend a lot of time learning about them, coaching them, worrying about them. You get emotionally invested in their happiness and success. There are many positives to having this kind of relationship with team members, but it also raises a lot of questions:

  • What happens when you need to fire your friend?
  • What happens when someone takes advantage of your friendly nature?
  • What about people who don’t want to be friendly with their boss?
  • What about people who don’t have big career aspirations and just want clarity and work life balance?
  • What happens if team members mistake your caring for weakness?

These are all legitimate questions. And I deal with them all the time. What I’ve come to learn is that you can’t treat everyone the same way, no matter which management philosophy you subscribe to. This is the reason I find fault with the classical top-down director approach. It’s too clinical, too sterile. It’s very difficult to inspire a person through corporate objectives. No matter how compelling your company’s mission and vision are, it rarely outmatches the personal missions we are on for ourselves.

By contrast, the employee-up approach starts by understanding what a person wants, what kind of support they want, what kind of relationship they want with a manager, and then offering it to them. Some people just want clarity and feedback; others want a real partner and mentor. By starting at the employee’s needs, you can find the optimal relationship.

I don’t have all the answers. In fact, I think I still have more questions than answers when it comes to this topic. I’d love to hear about your experiences with managers and with team members. Have you gone too far into friendzone? Is there a stronger argument for top-down management than I’ve given credit for? 

Brendan Reid
Human Capital
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Brendan Reid is an accomplished executive and author of Stealing the Corner Office. He has built his career by breaking with corporate convention and questioning long held man ... Click for full bio

Multi-Factor or Not Multi-Factor? That Is the Question

Multi-Factor or Not Multi-Factor? That Is the Question

Written by: Chris Shuba, Helios Quantitative Research, LLC

Let’s pretend you are a US investor that wants to deploy some of your money overseas.  You think international developed market stocks are attractive relative to US stocks, and you also think the US dollar will decline over the period you intend to hold your investment.  Your investment decision is logical to you. But you have choices:  You could a) simply invest in a traditional index like the MSCI EAFE, b) invest in a fund that systematically emphasizes a single factor (like a value fund) that only buys specific stocks related to that factor, or c) invest in a developed fund that blends several factors together, like the JPMorgan Diversified Return International Equity ETF (JPIN).  What is the best choice? 

Investing in a traditional international market capitalization index like the MSCI EAFE is not a bad choice. It has delivered nice returns for a US investor, especially uncorrelated outperformance in the 1970s and 1980s, and helped to diversify a US-only portfolio.

Your second choice is to invest in one particular factor because it makes sense to you.  Sticking with the example of a value strategy, you might believe a fund or index that chooses the cheapest or most attractively valued stocks based on metrics like Price to Earnings (PE) is best.  

You could go find a discretionary portfolio manager who only buys stocks he deems to be cheap.  Typically the concept of “cheap” is based on some absolute metric that the manager has in mind, such as never buying a stock with a PE greater than 15.  If there are not enough stocks that are attractive, he will hold his money in cash until he finds the prudent bargains he seeks.  This prudence also obviously risks possible underperformance from being absent from the market.

The alternative is to buy a value index or fund that systematically only buys the cheapest stocks in a particular investment universe.  So if there are 1000 investable stocks available, the index ONLY buys the cheapest decile of 100 stocks and is always fully invested in the 100 securities that are relatively cheapest.  This is an investment approach that a discretionary manger may disdain.  The discretionary value manager may look at those same 100 stocks and think they are pricey.  But nevertheless, academic research has shown that always being fully invested in the relatively cheapest percentiles of stocks in the US has produced superior returns over many decades. 

Such a portfolio is called a “factor” portfolio.  Why the name?   In the early 1960s, academics introduced the concept of beta and demonstrated that individual US stocks had sensitivities to, and were driven by, movements in the broad market.  In the early 1990s, academic research began to show that other “factors” such as value and size also drove US stock returns.  Since then, several factors have been identified as driving individual stock outperformance: value, size, volatility, momentum and quality.  Stocks that are cheaper, smaller, less volatile, have more positive annual returns and higher profitability have historically outperformed their peers.  It turns out these factors also work internationally.

Related: Who Gets Sick When the U.S. Sneezes?

Of all the factors, value is the factor that has been the best known the longest (even before it was academically identified as a “factor”), thanks to the books of Warren Buffet’s teacher Ben Graham.   And if you look abroad at an array of developed global markets and create a value index and compare it to its simple market capitalization weighted brother, the historic outperformance of value has been stunning.  Until recently.  

While there was some variability by country, on average from the mid-1970s up until 2005 a value factor portfolio in a developed market outperformed its market cap weighted index by about 2% a year.  That’s a lot. By contrast, since 2005, the average developed country value portfolio has underperformed a market cap indexes by about -40 basis points.  Which is the danger of investing in one factor.  It may not always work at every point in time.

So if investing in one factor like value runs the risk of underperforming, how about a multi-factor international developed equity portfolio?

Below is a breakdown of individual factor portfolios’ performance in international developed equity markets since 2005, an equal weighted factor portfolio as well the performance of the MSCI EAFE as our performance reference.  Note that, for the last 13 years, value has been the poorest factor by far, while the others have handily beaten the EAFE.  An equal weighted portfolio of all 5 factors, while not as optimal as some of the individual factor results, beats the EAFE by 1.6% and has an information ratio, or risk adjusted returns that are superior by 37%.  The equal weighted factor portfolio also has the advantage of not having to predict which factor will work when, so even when a factor like value does not beat the market, the other factors can pick up the slack.

SOURCE: MSCI, Data as of January 31, 2018. Past performance is no guarantee of future results. Shown for illustrative purposes only.

The equal weighted factor portfolio has one other advantage over the market cap weighted alternative. Note in the chart below how well the portfolio outperformed in the 2008 crisis, so it tends to do relatively well in highly volatile sell offs.

SOURCE: MSCI, Data as of January 31, 2018. Past performance is no guarantee of future results. Shown for illustrative purposes only.

While it’s not inconceivable that one or two of these factors could erode, or underperform for a stretch, the fact that you have exposure to multiple factors in a portfolio that seems to do especially well in crises suggest the multi-factor blended portfolio remains the most attractive way to invest in developed markets.

So, when asked the question: Multi-factor or not multi-factor?  The data speaks for itself.

Learn more about alternative beta and our ETF capabilities here.

DEFINITIONS: Price to earnings (P/E) ratio:  The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings.

DISCLOSURES: MSCI EAFE Investable Market Index (IMI): The MSCI EAFE Investable Market Index (IMI), is an equity index which captures large, mid and small cap representation across Developed Markets countries* around the world, excluding the US and Canada. The index is based on the MSCI Global Investable Market Indexes (GIMI) Methodology—a comprehensive and consistent approach to index construction that allows for meaningful global views and cross regional comparisons across all market capitalization size, sector and style segments and combinations. This methodology aims to provide exhaustive coverage of the relevant investment opportunity set with a strong emphasis on index liquidity, investability and replicability. The index is reviewed quarterly—in February, May, August and November—with the objective of reflecting change in the underlying equity markets in a timely manner, while limiting undue index turnover. During the May and November semi-annual index reviews, the index is rebalanced and the large, mid and small capitalization cutoff points are recalculated.

Investors should carefully consider the investment objectives and risks as well as charges and expenses of the ETF before investing. The summary and full  prospectuses contain this and other information about the ETF. Read the prospectus carefully before investing. Call 1-844-4JPM-ETF or visit ww.jpmorganetfs.com to obtain a prospectus.
J.P. Morgan Asset Management
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