Added On: Tuesday, March 11, 2008

The No Asshole Rule

I have written about research on superstars by Harvard Business School's Boris Groysberg before, both here and in Hard Facts. He has complied compelling evidence from both investment analysts and GE senior executives suggesting that star employees are less “portable” than many executive search firms might lead you to believe. BUT as I’ve blogged about, if you are going to hire a star from another firm, their odds of success go up substantially if you take both the star and his or her team. Boris tells me that he is currently finishing a book on the topic, which I look forward to reading.

But this post is about The No Asshole Rule. Boris wrote me a pair of detailed notes about a series of case studies that he has done that track Lehman Brothers’ research department over a 20 year period. Boris reports that “the rule” helped fuel the rise of the research department there, and then when it was abandoned, was linked to performance problems, and when it was reinstated, performance again improved.

You can buy these case studies at Here is a link to all of Boris’ Harvard Business School Press writings (his HBR articles are very thoughtful too). I will order and read the cases. But here is his summary of the power of the no asshole rule from the four cases that Boris and his collagues wrote:

Ashish Nanda and I wrote a series of cases on the Lehman Brother research department, and its initial rise under Jack Rivkin who implemented the "no asshole" rule (although we had to rephrase it in the case to the "no jerks" rule to adhere to the HBS standards even though everyone still described it as the "no asshole" rule). The no asshole rule at Lehman really helped to create a culture of teamwork, collaboration and many believed it drove the strong performance of the department. Under Rivkin's rule, Lehman's research department became number 1 on Wall Street during 1990-1992, but the department fell in ranking shortly after Rivkin got fired. Later, the department got reinvented, which led to its subsequent rise again (with the "no asshole" rule reinstated). In fact, we tracked this research department over a 20 year period, documenting HR polices and culture through its different transitions.

In the “Lehman Brothers: Rise of the equity research Department” case (the A case), Rivkin was emphatic about who he would not hire. “I have a ‘no jerk’ policy,” he declared. “No matter how good an analyst may be, given the structure we are trying to create here I am not going to bring a jerk into the department. To me, a jerk is someone difficult to manage, marching to his own drummer, not interested in what was going on within the department and within the firm. We are just not going to have people like that here.” Recalled Balog, former star analyst and associate research head, “Jack was very clear in telling us that life’s too short to have prima donnas in the department even if they were number one ranked people. We wanted people that were well rounded and could have fun with others.”

As one after another analysts attested, they loved working there under Jack Rivkin and Fred Fraenkel, and many passed up attractive offers to stay at a firm where their performance was supported in every conceivable way, and to be part of something they valued. “The research directors of other Wall Street firms were flabbergasted,” Fraenkel recalled. “Our people . . . were better analysts than they would be somewhere else because of the people in their team helping them and giving them insights into their industry. Our competitors were offering them jobs with hundreds of thousands of dollars more salary, yet they didn’t find it worthwhile to dislodge from what they had here.”

Under Rifkin and Fraenkel, Lehman’s research department achieved high performance with a budget considerably smaller than that of Merrill Lynch and Goldman Sachs. (In 1992, Lehman’s research department budget was about $70 million, compared with Goldman’s $105 million and Merrill’s $125 million.) This is a phenomenon known in the department as “the Jack Rivkin discount.” Also, the Lehman A case tracks the turnover statistics which are significantly lower than the industry. The quotes and numbers are from the Lehman Brothers A-D cases.

Boris wrote me a second email that further documents the power of the no asshole rule in another firm:

In our study of research departments, a number of firms had “no-asshole” rule as an important organizational practice. So you are capturing something that more and more managers are explicitly thinking about and advocating. Let me offer you another example. In our study of research departments between 1988 and 1996, Ashish Nanda and I found that star analysts had 11.8 percent turnover rate, however, there were big differences by firms. More remarkably, Schroeder Wertheim lost only two ranked analysts over the course of nine years, for a total star turnover rate of about 2 percent (the lowest turnover rate).

Attached is an excerpt from my interview with Barry Tarasoff, research director at Schroder Wertheim, who elaborated on the strategy that he took, which resulted in the lowest star turnover rate in the industry from 1988 to 1996. “There isn’t any one magic potion. But the number-one thing—I called it Tarasoff’s First Principle—was ‘no assholes.’ When we recruited, we made an enormous attempt to bring in reasonable people. So we had a group of people that liked each other a great deal. Number two, we had a distinctive culture that you could never export to another firm.” The “no-asshole rule” was able to contain turnover.

Thank you Boris! This is great stuff. I continue to be surprised how many firms have explicit “No Asshole” rules. In fact, I visited SuccessFactors last week and will be writing more about their “no assholes” rule and how it is woven together with 12 other “rules of engagement” such as transparency and teamwork. CEO Lars Dalgaard has built an impressive culture – energetic, performance-driven, and refreshingly free of bullshit. I especially love has last rule for all employees (including himself) ‘I will be a good person to work with – Not territorial, not be a jerk, and as Lars says often “it’s OK to have an asshole – just don’t be one”’ Now that is my kind of workplace!


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