Leslie Brinkman at Versutia Capital (organizational Behavior)

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LESLIE BRINKMAN AT VERSUTIA CAPITAL

TEAM CASE ANALYSIS

MGT 5043 Organizational Behavior

November 2017

Background

Leslie Brinkman is a gifted and talented businesswoman, who established her hedge fund investment firm, Versutia Capital, in late 2002 / early 2003.  Using her previous experience as an analyst and portfolio manager Leslie desired to create an environment which was counterculture to typical hedge fund firms.  Her intent was to create a successful firm focused on people, processes and a team-oriented culture.

By most measures Leslie was initially successful in her goals.  At the close of their 1st year of operation in 2003 Versutia Capital earned a respectable 17% return increasing the initial $115 million investment to $500 million.  By the close of 2004 the firm had doubled its staff to 12 and was showing returns of 21% which was nearly twice the S&P’s return of 11%.  They had doubled their portfolio balance closing the year with $1 billion across 69 positions.  

Unfortunately, unchecked growth, unrealized business strategy and lack of effective management caught up with the group and by Q1 2005 they found themselves with a dismal -6% return, unhappy and angry investors and employees who described the work environment with ‘war stories’.

Leslie had founded her firm based on a vision of collaboration and teamwork.  She intended to maximize the talents of each person in the company under her direct leadership to produce a better-than-industry-average result.  She began by staffing her firm with employees with a good range of expertise across various industries including specific industry analysts, a trader and a CFO. She designed a flat management structure in which everyone reported directly to her and created a list of maxims that were intended to define the firms core beliefs.  She devised creative compensation plans designed to encourage teamwork and provide higher pay rates based on performance.  

Leslie thoughtfully and deliberately put a structure in place to facilitate fast and accurate decision making by her team with high transparency and visibility.  This included daily staff meetings, a firm portfolio blotter and a close quartered environment which employees described as ‘frenetic and exciting’.  

As is typical for the hedge fund industry, there were long hours, high stress and a low tolerance for failure.   Leslie’s leadership style was often demanding and harsh.  Over time, Leslie became increasingly task saturated and overwhelmed with her administrative, leadership and fund-related duties.  Her interactions with the employees became caustic and detrimental to the firm creating a hostile work environment and low morale. Employees were motivated not by success but rather by the fear of failing and being chastised and held publicly accountable by Leslie.

The firm was successful in the ‘forming’ phase of their development.  They were energetic and excited and had financial success.  As they entered the ‘storming’ phase they began, as expected, to encounter friction and conflict and the team adjusted personnel accordingly.  However, by the end of 2004 the firm had grown so big so fast that everyone was overwhelmed, overworked and demoralized.   They did not take the time to pause and examine their success to determine its causes.   They had not entered the ‘norming’ stage with a strong commitment to the team goal and were far from the ‘performing’ stage with successful structures and processes in place, leadership delegation and team member development.

By Q1 of 2005 the firm was financially failing, there was a negative culture, low morale and investors demanding explanation and action.

Recommendations

The solution for Leslie and Versutia Capital begins with the application of US quality guru J. M. Juran's application of the Pareto principle of quality management where 20% of causes result in 80% of the positive/negative effects.  He called the 20% the “vital few”.  

Versutia Capital’s vital few are as follows:

• Reverse the Negative: To address and correct the negative return of the fund to retain investors and employees
• Increase Morale: To address the ongoing company culture and employee morale issue
• Develop a Vision and Strategy to Support:  To refocus the company on the original intent and mission envisioned by Leslie

Reverse the Negative

To address the critical problems of the fund, Versutia Capital should immediately hire the best consultants in the sector to evaluate and adjust the fund strategy to achieve significantly better-than-industry average performance by the end of 2Q 2005.  The goal of the consultant team is to help arrest and reverse the fund’s trend by identifying the strengths and weaknesses of the current fund strategy and recommend adjustments to investments.  

There is an immense amount of work associated with a full review and re-tooling of investment strategies.  An already overworked Versutia staff cannot successfully do so alone. The consultants will collaborate with Versutia analysts to understand the current fund.  The consultants will work together with the Versutia trader to make changes to the investments to secure an improved return.  

Leslie will communicate with investors to explain the immediate and aggressive approach to adjusting the fund to achieve a positive or better-than-industry average return.