Links in this episode
- Daniel’s Book: https://www.amazon.co.uk/Taking-Floor-Models-Management-Trading-ebook/dp/B07PXXMNFX
Hi, welcome to the Decoding Culture podcast on This is HCD. My name is John Curran and I’m your host. I’m a business anthropologist, executive coach and CEO of JC Associates, which is a consultancy that explores how culture shapes organizations and consumer behaviour. Now, I’m recording this introduction to episode 5 on the 30th of March 2020, at a time where London is in lockdown due to COVID-19. Every day feels like we’re living in and through a dystopian film. Humanity has no normality while we’re frantically trying to redefine cultural norms and rituals. The role of the social sciences is now key, because it is through this interpretive lens that anthropologists and sociologists are able to deconstruct the everyday, also challenge perceptions of normality and facilitate new ways of seeing.
In this episode, I explore, amongst other things, the ability to challenge perceptions of normality. My guest is Dr Daniel Beunza, who is a sociologist and Associate Professor of Management at Cass Business School. We discussed Daniel’s latest book, Taking the Floor: Models, Morals’ and Management in a Wall Street Trading Room, which is based on his 10-year ethnographic study. The book considers the moral consequences of the use of economic models on Wall Street. But what is brilliant about the book is that it also shows that to understand morality and models you also need to understand organizational culture. Here, Daniel describes how understanding the architecture of the trading floor – for example, how desks are positioned – is an important component to understanding larger themes around morals, risk and models. Social interaction and the use of the body is central here.
Now, it’s worth noting that, when I interviewed Daniel at Cass Business School in London, it was at the stage of the coronavirus where we were kind of negotiating, ‘Do we shake hands or not?’ Although we’re not really talking about this in the podcast, it is worth noting that his book is essential in understanding how a perspective from a social science and ethnographic standpoint can make us see differently and think differently about what we consider normal. This is now key to how we all move forward and redefine normality. Hello, Daniel and welcome to the Decoding Culture podcast.
Daniel Beunza 03:00
Brilliant. Well, it’s great to be here. We’re sitting here at Cass Business School in London. Thank you for inviting me here to your office. I want to really talk about your book, because I’ve read it. It’s a fascinating read for many different reasons. I think, really, it deserves probably four or five podcasts because there’s so much I want to ask you, so forgive me if I’m all over the place with some of my questions. But the first thing I really want to ask you is why did you pick an ethnographic study of trading floors in Wall Street?
Yeah. So at the time – and keep in mind, this was 1999 – I was a young PhD student. I was in New York University, and I was in New York City. And every day, as I commuted to the business school where I was doing my studies, I would look up and see – because at the time they were very much there – the Twin Towers. And the image of the Twin Towers and the interest and the curiosity about what was going on inside – the people there, who were they, what were they doing? – kind of captured my imagination. And instead of just letting all go, at some point I realized that I was living in the financial capital of the world – of course, Londoners may disagree – and that if I was going to spend the years of my PhD writing a doctoral dissertation, well, it had to be about that. And so I made that the goal of my doctoral studies: to try and penetrate that world and understand it from the standpoint of that people.
Had you always had an interest in the ethnographic approach? I mean, if you’re thinking about Wall Street, you’re thinking about trading floors. It makes sense to me as an anthropologist, but I’m kind of thinking about how would you go about doing ethnography in these kinds of places that have high energy, secrecy – I don’t know. Why ethnography?
Yeah. So my background was in economics. I had done my undergraduate degree in economics, I had a master’s degree in economics, I was familiar with the economic models, Black-Scholes – the capital asset pricing model. But to my mind, those models didn’t truly speak to the human realities that were inside those buildings. And so, at some point, I decided that I was going to use my knowledge by doing an ethnographic study of the way in which people use the models – which, of course, goes beyond the models themselves. And so that was then the center of the study.
Okay, and we’re going to talk about that in a minute. But that’s really interesting. I find it so powerful about what you just said there. You’ve kind of got the DNA in economics. Right?
But you realize that there was something else that was needed, which is the kind of ethnographic approach.
Let’s think about this classic thing about getting access in the ethnography. How did you work with gatekeepers? Or you know, how – I guess you just didn’t turn up at one bank and knock on the door and go, ‘Um, hi, I’m an ethnographer. Can I come in?’ What was the process?
Right. So it took me a couple of months into my PhD to make the decision that I wanted to study a large Wall Street bank, but, of course, I had no access to any of those banks. So then I spent a whole year trying to gain access. I would then ask for access to everybody I met who could potentially be related to that world – somebody that was sitting next to me on the plane, some adjunct professor who maybe taught the evening MBA students. And so I literally hunted for opportunities to gain access. The access that I eventually got was my third attempt; two prior attempts did not work out. It really came through the contact of a fellow PhD student was taking a course in economic sociology at Columbia University. And so when I talked to him, and I explained my interest and my goals, he mentioned that he had a former colleague – because he is a student; the one sitting next to me had worked on Wall Street – who had gone back to work and had gone back to a bank, and he might be willing to talk to me. And so after trying so many things, in the end, the access turned out to be very straightforward.
Okay. One of the wonderful things about the book is you introduce actual characters – people, individuals – and they’ve all got pseudonyms, and we’re in the bank. And there’s Bob. Bob seems to be the key feature or key person throughout the whole thing. Bob felt like your first port of call. What was it like turning up almost from day one? I’m expecting now, with my limited knowledge of a trading floor, we’ve got high testosterone, men shouting, phones flying. What did you see?
That’s right. Indeed, that was exactly my preconception, and not just simply based on the cultural products that I have had access up to then – say, Oliver Stone’s Wall Street or Tom Wolfe, The Bonfire of the Vanities – but also the research by Mitchel Abolafia on Wall Street banks during the 1980s, so 10 years before my study. Based on all that, I was expecting exactly that type of hypermasculine setting. And so to me, I was absolutely surprised and shocked on my first day at the trading front of the bank that I eventually studied. I call it International Securities.
That’s the name of the bank you were in there – it’s a pseudonym.
Exactly. It’s the pseudonym of the bank. And so I turn up at the bank and I see all these desks and traders and row upon row of Bloomberg screens. But to my surprise, nobody is shouting. And in fact, it goes beyond that. Some of the traders seem to be rather relaxed. So you know, clicking on the mouse, or maybe having coffee standing up in the corridor with other traders. Such was my surprise that when I got the chance to speak to the head of the entire trading floor – this gentleman that I called Bob – I found myself needing to actually confess and say, ‘Look, I had expected all these dynamics of shouting in trading, and in fact, hadn’t even anticipated that there might be some correlations between traded volume and spoken volume. But in fact, nobody’s shouting here. Could you please explain to me why what I’m seeing here does not look like in the movies?’
And what was Bob’s response? So you’re saying, ‘Why aren’t you shouting? I spent the last year planning for this. And then there’s no shouting.’
Exactly. So Bob, to his credit, he laughed. And he said, ‘Well, Daniel, the trading floors that you have in mind, they do exist. But these are the trading floors of 10 years ago from the 1980s. Now, with the rise of technology and the use of the Bloomberg terminal, the price information comes from the screen. So we don’t need to shout at each other prices and quantities. And in fact, if somebody were to start shouting those, we would think that something wrong has happened to the person.’ At the time, as I say heard that, I was somewhat disappointed that, as you say, all my preparation had actually apparently been for nothing.
But then the follow-up question that I had for Bob proved very productive. I asked him, ‘Well, if you can access all that information from the screen, then why do we need trading rooms? Why not just send traders and, you know, work from home.’ And in fact, at the time there was the rising trend of internet online trading. And so he paused for a second, and he said, ‘Well, we need trading floors to understand each other and to have those conversations and to really be able to tell that the other person is understanding what we’re saying.’ And then he went through a number of examples of very complex trades that we’re pulling information and expertise from various desks in a rapid manner, quick enough to beat the competition. And then I understood, based on that conversation, that, wow, these trading floors have now gained a new use, and I realized that this actually ought to be the topic of my study – not so much how shouting and trading are related, but rather the ways in which the rise of new technologies is reshaping the way that trading is organized on Wall Street.
That’s ready interesting, because one of the really consistent and also strong themes within the book is not that technology replaces the need for human interaction and the physical body.
But it reframes it. Something new is happening.
Can you give us some examples of that? There’s so many in the book.
Sure. To me, the most interesting example is exactly the ways in which the more that trading became quantitative, and the more that economic models were used for the purpose of finding profit opportunities – so in a sense, the more technological and the more abstract trading became – the greater the importance of space and the greater the importance of the people sharing their space and working together. So, one example is: take two desks that were on the trading floor. Say one of them is looking for opportunities by drawing on the statistical properties of the stocks. So, maybe the price – whenever the price goes up by a lot, then it tends to come down. That is called mean reversion. Now, that desk was located right next to another desk, which specialized in using models to predict when two companies might be doing a merger. It just so happens that when two companies are about to merge, the statistical properties of the stocks cease to apply. And so, it was extremely useful for the statistical arbitrageur to overhear the conversations of the merger arbitrageurs, because the moment he understood that, look, these two companies are about to merge, he then needed to pull that company from the algorithm because he understood that the statistical properties have actually changed and he would not be able to realize that by any other means, until it was too late.
You also describe – Bob, again – how Bob curates the physical architecture of the space.
And are there different reasons why he’s doing it? I mean, he seems to be playing with personalities in the space, but also the need to be able to trade in the most effective way.
So one of the running themes of my research is just how sophisticated some professionals become. So myself as a graduate student, I always felt that I was, in a way, almost trying to catch up with what Bob was doing. So at one level, what Bob was doing was all about promoting collaboration and informal interaction and trust across desks. So for instance, he mandated that traders do not stack monitors on top of each other so as to create a form of like a nest. And the thinking behind that is that if people are able to look up and see the entire trading floor, they will be better able to recognize the people that they are working with by face. And so his thinking was that if people were able to recognize each other, then they would more easily trust each other. So that was at the level of sharing and collaboration. But as I discovered later on in my research, there was a second reason why those monitors were not stacked on top of each other, which is because Bob had a policy of trusting and then checking. And so he also wanted to monitor what was going on, and to be able to see at a glance the type of conversations and interactions that were taking place. And so to me that policy of not stacking up monitors is really indicative of what a sophisticated game the manager of that trading floor, Bob, was playing.
One thing I really got from it when I was reading it, I was oscillating between the curation of the architectural space and cultural artifacts, like the Bloomberg terminals and the desks, was a form of surveillance; it was Foucauldian and Bob was the big lord looking over. And then I’d flip to the other side thinking, ‘Oh, this is more Goffmanesque. It’s a performance. It’s theatrical; you have to read the other person’s body.’ Was it a bit of both?
Absolutely. This is absolutely the case. I realized just to what extent what I had seen was simultaneously a surveillance system but also a stage on one specific day. In November of 2007, I invited Bob to come and speak to my students. At the time, I was Assistant Professor at Columbia Business School, and so I was teaching the MBA students. Bob came into my classroom and, to my surprise, he immediately was able to establish his authority in front of them. Keep in mind, these are 30-year-old people, some of them might not be particularly interested in general management and who have to take this course because it’s an obligatory course. So they tend to be quite skeptical of whoever is standing in front of them. And so to my surprise, as soon as Bob walked in, he was able to command authority. So I realized that this was somebody who was very self-conscious and very expert at using the stage. And so then on that day, I decided to change the topics that I was intending to discuss with him. And I asked him the question directly: well, how do you then use the floor to establish your own authority? He went over a number of fascinating practices that he would then put in place in order to make the trading floor, in a way, his space.
I’m sure we’re gonna come back to that granular part of the ethnography. But if we open up your overall thinking and theory, we’re talking about morality here.
And this notion about models. It’s moral disengagement, is that–
So what do we mean by moral disengagement? What does that mean?
Yeah, so one of the one of the challenges of theorizing about morality is that one always runs the risk of coming across as being moralizing. And to me, the concept of moral disengagement – which was developed by a social psychologist, Albert Bandura – is very useful because it’s not about something that is deemed moral or immoral by someone else. Moral disengagement is about the individual processes that we all go through. And so we all experience situations when we do something that goes against our own norms, and the typical reaction is that we feel bad about it. Well, in its very basic form, the idea of moral disengagement is when somebody starts to not feel wrong about doing things that one knows are not right. And it’s a very simple dynamic, but, at the same time, it can be very powerful. Because the moment that somebody experiences disengagement, then that person is placed in the position of being able to pursue his or her own self-interest without any constraint.
Developing that point, then, because I find that very interesting. You’re going to have to tell me if I’ve read this wrong, but you introduce then the difference between managers and traders, right? And traders have their models that almost feels like an entrepreneurial secret – they’ve got a recipe to them that are unique to that trader, right? And then you’ve got these managers, who are kind of making sure that these traders are maybe running with this moral disengagement. What’s that kind of interaction like between the managers and then the traders, and how do models work within that space?
Yeah. So the key to that interaction, I learned from the trading floor, is justice. And this was something that I was absolutely not anticipating. But believe it or not, justice is at the center of all forms of conversation and all forms of interaction that take place between a supervisor and a trader on Wall Street. Now, the typical situation these days, but also back when I was doing my fieldwork, is that a trader has developed a really interesting and unique idea for a trade. But halfway through the process, the risk models that are used by the bank to protect its own bottom line flag up that trade as potentially dangerous. If the system is mechanistic enough, and many of them are, then the bank will then force the trader to close the position, in which case the expected losses become real losses. But of course, the very best trades, they produce losses before turning in the big profits. And so it’s almost like not allowing the idea to develop enough. And so that risk of, ‘Well is my supervisor going to allow me to fully develop the idea and to then reap the rewards or is the supervisor going to rely on the mechanistic procedures in the bank and cut it short?’ That is very much at the center of how managers and traders relate.
Am I right, though, in thinking: is a trader then wanting the manager to inform them, to kind of be their overall lookout or is the trader trying to outfox the manager – wants to run with the risk, wants to hedge the bet in a way, being on the edge of danger?
So the intuitive, of course, view is that the trader is simply keen to run with the trade, no matter what consequences for the bank. And then as well, that the trader would be protective and even secretive about what he or she is trying to do. But the reality can be quite surprising. So in some cases, for instance, in the trading floor that I observed at International Securities, Bob was frustrated that some of the traders were not taking big enough risks. At the end of the day, traders are complex people, as we all are, and so some of them don’t want to be embarrassed by having losses in their trade. Some of them may have had formative experiences in which their colleagues ostracize them socially for creating losses. And so it’s not as if every trader wanted to run the biggest trade possible. That’s one. The other one is one would expect that traders would want to remain secretive and shield their trades from the supervisors. In fact, that is only the case if they assume that the supervisor is not going to be able to understand their reasons and their thinking. What a trader ultimately wants is somebody who is willing to engage in a conversation with them, and really make an effort to understand where that trade is coming from. And so what I observed is that, in the case of Bob, he made a very consistent effort to have the time to engage in informal conversation with the traders and get a sense of what is it that they were doing and trying to accomplish before making decisions as to whether to cut the trade or let it run.
That’s really interesting. We spoke about this while we were having a coffee, but yesterday on Radio 4 with Mervyn King, the head governor or ex governor of the Bank of England were talking about morality in banking needs to be on narrative and stories before it’s about numbers. And there’s something about Bob there in informal space about making that kind of judgment.
Absolutely. If there was one thing that I learned from my subsequent conversations with Bob – once my initial fieldwork had been done, and I went back years later to speak with Bob and basically reflect with him about what he was doing – is he went back to the way in which he used as many opportunities as he could to present his own narratives and stories to the traders. There’s a twist to this, which is that he also understood that nobody wants to be on the receiving end of a boss telling you stories about the boss’s life. And so what he did is he used situations. He used occasions that were not specifically about constructing the culture, building the culture, but rather maybe a seminar, a speaker who was coming to say something, maybe some mandatory course that the financial regulator wants the bank to have. And then what he would do is wrap the technical material with his own person. He would present it, he would connect it to other things in his life, he would then also act in a way that was consistent with what he was doing. And so very much, Bob was all about the narrative.
I guess another very broad question I have around morality is: within trading, what does morality actually mean? I mean, you could say, ‘Well, these people are earning lots and lots of money. As a group they give a lot away to charity’ – I don’t know. Is that morality? Is it morality about the specific trade or deal? Was it morality about who are we in this world of banking?
So, ultimately, morality is central to what the traders do, and what the book does and what I encountered is a gradual shift in the moral thinking that has been taking place in Wall Street and the City of London. And so somehow, beginning in the 1980s, and in parallel with the introduction of quantitative finance, financial models, technologies, there’s been a process by which the moral obligations that traditional investment banking partnerships have towards their customers somehow became less present. And so to put it in perhaps a little bit over simplistic manner, the system shifted from helping customers make money to make money off their customers. What I do in the book is I look at that process whereby the moral beliefs and the moral narratives shift over time, and look into the reasons for why they do. And also look into the experiment that is the center of the book, Bob’s trading room, and the ways in which he attempted to change morality and to address the shortcomings that he had found.
So 2008 comes along almost halfway through 10 years of you doing ethnography. You’ve had a few years now with Bob on the trading floor, looking at the rise of the Bloomberg terminal, but yet the use of the physical body in their social interactions and networks are crucial. 2008 comes in. What impact does this have on how you are thinking?
Yeah, so 2008 had a tremendous impact. And, in fact, it really questioned my own sense of expertise and of knowledge about the trading floor. Because all these headlines that came up in the media about reckless behavior on Wall Street, none of that had anything to do with the world that I had seen for three years of fieldwork. And so what I first did is just experience cognitive dissonance, just not knowing what to make of it. But then, a month later, in October of 2008, I went back to that presentation that Bob had made to my students a year earlier. And in that presentation – I had it on tape, so I could just watch the tape again – I noted that Bob explained to my students that the big Wall Street banks, they’re too big, they’re too complex, they’re not well managed. And he added that, when the next crisis comes, not one, but two of the large Wall Street banks will disappear. And so as I watched that again, my jaw dropped, because I realized several things. Number one, he knew something that I didn’t know. Number two, the trading floor that I had observed for three years was not a representative trading floor, similar to the others, but in fact it was an experiment. It was the experiment that Bob had put in place after he had gone through the personal trauma of seeing the previous bank where he had been working during the 1990s disappear after a series of scandals. And so then, after September of 2008, my interpretation of what I had seen for three years changed, and I realized that I had not just seen some of the usual practices of quantitative trading but also I had seen something very unique and remarkable, which is an experiment in moral change. And so what I decided to do is to go back to my notes, to recode the notes for my fieldwork, and also go back to Bob and go back to the traders that I had met an interviewed and interacted with for three years to make sense of the outcome of this experiment – what had worked, what hadn’t worked, and in what ways does it inform all this debate that to this date has not been resolved about how to reform the financial system?
This idea of being an experiment and almost coming as a kind of new insight for you – that actually, what I was experiencing was an experiment, right? There’s something you write about at the beginning of the book – 2014 I think, with Dudley, talking about this idea of the culture agenda, and all of a sudden the world of banking is using this word ‘culture’.
So why? Why does ‘culture’ become this go-to term?
It’s absolutely the case that regulators have put in place what should really be described as a cultural turn. So traditionally, restraint was put in place on Wall Street through mechanisms such as regulations, conduct penalties, as it was about preventing traders from not doing things by punishing the things that they did. Now, the cultural turn that central bankers and supervisors have put in place, it’s about changing how they think, rather than how they act. So this is revolutionary for supervisors and regulators. Now, why is this the case? Well, in my view, this is a recognition that the structural policies that the regulators put in place – beginning in 2010 with the Dodd-Frank Act and the Volcker Rule, and then the similar measures in the UK – are going to be inevitably limited when it comes to creating organizational change.
Now, John, you are an organizational change expert and you know this as well as I do: that if somebody thinks that he or she can show up to an organization, merge two divisions, create three new positions and expect that this is going to be leading to meaningful change, well, that’s not going to happen. So you need the culture to change in addition to the structure to change. And so the structural changes were put in place earlier in the 2010s and then the cultural shift that took place later on. The last point is that, of course, culture is to some extent a misnomer. A journalist from the Wall Street Journal asked William Dudley, at time the President of the New York Fed, what he meant by ‘culture’. What Dudley replied was that, actually, it’s not so much culture as ethics and conduct. So really, regulators often talk about culture, but it’s a euphemism to refer to the ethical standards on Wall Street and the City of London.
That’s a great way of putting it. Actually, I watched also a talk you did at LSE – I’ll put the links in the notes – but I think you start with this image of kind of – and this is a big gripe I have as an organizational consultant, when people think about culture as a set of values, in this rather traditional way. ‘As long as we’ve got values, we’ve got culture’, right? But then as long as it’s plastered up on the wall, or in nice brochures, that’s it – job done. But actually, it becomes more of an ideological cultural artifact than actually what we’re talking about by culture. Are you convinced by this cultural agenda?
It’s a very good question. I would say that the jury is still out there. Of course, the problem of conceiving culture as a set of symbols exclusively is that then it makes it all too easy to engender symbolic compliance. The bankers will put up the signs, but then the actual practices and behaviors don’t change. And in fact, if the technology hasn’t changed, it’s very difficult for them to change. So in terms of looking at the outcomes and assessing whether this cultural agenda has been effective or not, there has been an organization – the Banking Standards Board – that was created by the British Parliament with the goal of enhancing cultural standards in financial institutions in the UK. They have been collecting data. The data – and this is public – shows that there has been an improvement, but that improvement took place early on, in sort of like the time in which these measurements began to be done, so 2016, 2017. But more recently, the quantitative studies show that there seems to be a form of flatlining of the improvement, so now that improvement seems to not really be taking place anymore.
At the core of the problem, based on my study, is the size of the institutions. Because when it comes to traders who are doing highly innovative trades, then the danger is always that a mechanistic control system might lead to unfair outcomes that lead to perceptions of injustice. But of course, it’s very difficult – not to say impossible – to control a mega bank with anything other than a mechanistic system. And so for as long as the capital markets are made up of humongous banks, then it’s going to be very difficult to see long-term change.
A final question, then, based on that. If we think of now and also the future – the rise of AI, but also the rise of fintech and different banking models – are we going to see a sense of, I don’t know, grounded morality is my first point? Second point is: are we going to see less need for Bob’s desks?
Yeah. Now, those are the questions that I think companies, banks, startups, regulators, everybody is asking at this point. And, of course, it’s impossible to know for sure what lies ahead. But my sense of the way in which fintech has evolved is that it has developed into a symbiotic relationship with the large mega banks, so that in many ways the fintech startups are not threatening the existence or the viability of these large banks, but rather they have ended up being collaborative relationships where they rely on some of the infrastructure that is offered by the banks. And by the same token, the banks have themselves been developing many of the fintech technologies, and then using them to offer them to their customers. And the risk, of course, is that for as long as banks remain as large as they are, then their potential to shape policy and to influence the regulator, it remains there. And so the danger is that we might end up with fintech technology, but fintech technology that is being offered by the same large Wall Street banks that led to 2008. It’s a little bit as if we had today Facebook, Google, and Twitter, but those had been provided by the old industrial companies like General Electric and General Motors. So clearly it’s a very difficult situation and this may be where we are heading.
Okay. Well, Daniel, thank you so much. My last question I ask all my guests is: I’m going to now give you or hand you over the symbolic anthropologist’s notebook. You can take this notebook and go and study any organization or any theme you would like to for the next 12 months. Where would that be and why?
If I was now to start a study, I would like to know more about the way in which investors are pushing companies to be more sustainable. Consumers, voters and the general public have been asking companies to be more sustainable for decades, but it seems that this has only gotten us so far. But over the past year, there seems to be a concerted effort by which there is now a real wall of money coming into sustainable companies – potentially creating a bubble of financial value in sustainable companies, but a potential bubble that might at least reward some of the companies that have been doing the right thing for years. It’s not yet clear what is driving this concerted interest this specific year, because the need has been there for many years. But it appears as if there’s some form of concerted action between central bankers, between government officials, between enlightened capitalists and between financiers who now see a genuine economic opportunity, and there’s a chance that all this might end up redirecting the economy towards a more sustainable future.
Daniel, it’s been a fascinating conversation. We could have gone on for longer, but thank you so much for being on the Decoding Culture podcast.
Thanks for listening to the Decoding Culture podcast. I hope you’ll be able to take away some learnings from my discussion with Daniel and apply this to how you think about the future of work, morals and the importance of social interactions. Please do subscribe to it on iTunes and give it a rating. If you want to learn more about other shows on This is HCD network then visit ThisisHCD.com, where you can also sign up to the newsletter and join the Slack channel, where there are lots of interesting conversations happening.