th The Power of Moral Purpose: Sandler O’Neill & Partners...

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

Abstract FFFFForororororum um um um um ArArArArArticticticticticleslesleslesles

69

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

Volume 22 • Number 4 • Winter 2004

Organization Development Journal

70

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 ArArArArArticticticticticleslesleslesles

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

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




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.

72

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.



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

74


75

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



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

76 Organization Development Journal


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

Volume 22 • Number 4 • Winter 2004 77


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?”



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



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.

ReferencesAnderson, P., & Tushman, M. (1990).

Technological discontinuities anddominant designs: a cyclical model oftechnological change. AdministrativeScience Quarterly, 35, 604–633.

Armstrong, L. (2000). It’s not about the bike:My journey back to life. Putnam, NewYork

Christensen, C. M. (2000). The innovator’sdilemma: When new technologies causegreat firms to fail. HarperBusiness,New York

Erikson, K. T. (1990). Toxic reckoning:business faces a new kind of fear.Harvard Business Review, 68(1), 118–127.

Erikson, K. T. (1976). Everything in its path:Destruction of community in theBuffalo Creek flood. Simon Schuster,NY

Erikson, K. T. (1994). A new species oftrouble: Explorations in disaster,trauma, and community. Norton, NewYork

Frankl, V. E. (1946/1984). Man’s search formeaning. Beacon Press, New York

Freeman, S. F. (1999). Identity maintenanceand adaptation: a multilevel analysis ofresponse to loss. Research inOrganizational Behavior, 21, 247–294.

Hannan, M. T. & Freeman, J. (1977) Thepopulation ecology of organizations.American Journal of Sociology, 82,929–964.

Hannan, M. T. & Freeman, J (1984) Structuralinertia and organizational change.American Sociological Review, 49,149–164.

Hannan, M. T. & Freeman, J (1989)Organizational ecology. Cambridge:Harvard U. Press.

Hoffman, A. (1997). From heresy to dogma:An institutional history of corporateenvironmentalism. New LexingtonPress, San Francisco, CA

Masuch, M. (1985). Vicious circles inorganizations. Administrative ScienceQuarterly, 30, 14–33.

Nietzsche, F. W. (1968). Twilight of the idolsand the anti-Christ (trans. by R. J.Hollingdale). Penguin Books,Baltimore.

Perrow, C. (1999). Normal accidents: Livingwith high-risk technologies PrincetonU. Press, Princeton, NJ

Rudolph, J. W., Repenning, N. P. (2002).Disaster dynamics: Understanding the



role of quantity in organizationalcollapse. Administrative ScienceQuarterly, 47, 1–30.

Senge, P. M. (1990). The leader’s new work:Creating learning organizations. SloanManagement Review, 32(1), 7–24.

Shrivastava, P. (1987). Bhopal: Anatomy of acrisis. Ballinger Publishing,Cambridge, MA

Sterman, J. (2000). Business dynamics:Systems thinking for a complex world.Irwin/McGraw-Hill, NY

Tushman, M. L., & Anderson, P. (1986).Technological discontinuities andorganizational environments.Administrative Science Quarterly, 31,439–465.

Vaughan, D. (1996). The Challenger launchdecision: Risky technology, culture anddeviance at NASA. University ofChicago Press, Chicago.

The Wall Street Journal 10/26/2001. Beforeand after: Why Cantor Fitzgerald cannever re-create what it once was—move to electronic trading roiled firm;in wake of carnage, it’s a lifeline—atragic opening for rivals.

Weick, K. E. (1993). The collapse ofsensemaking in organizations: the MannGulch disaster. Administrative ScienceQuarterly, 38, 628–652.

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.



th The Power of Moral Purpose: Sandler O’Neill & Partners...

Documents

Transcript of th The Power of Moral Purpose: Sandler O’Neill & Partners...