The Art of Interviewing

Those charged with doing due diligence on asset managers (or other investment service providers) can find inspiration in the work of Tyler Cowen and Daniel Gross regarding talent assessment and selection.

Earlier postings in this series have connected their book (Talent) to the investment realm, emphasizing these points, among others:

~ Talent acquisition is not only an investigative process but a valuation exercise.

~ “Otherness” tends to be misvalued.

~ Virtual communications differ from in-person encounters, and participants need to adapt their personal game plans in response.

Each of those has implications for due diligence work, as does the chapter entitled “How to Interview and Ask Questions.”

Question time

The book provides insight for both interviewers and interviewees.  Although this posting will focus on the former, those being interviewed can expect to hear a couple of questions that were recommended by the authors and will be adopted by others.  Here’s one:

What are the open tabs on your browser right now?

The rationale for it:

In essence, you are asking about intellectual habits, curiosity, and what a person does in his or her spare time, all at once.  You are getting past the talk and probing for that person’s demonstrated preferences.

That approach can be adopted in a variety of ways when vetting a portfolio manager, for example.  The spare-time aspect still applies, but, also, which of the many data platforms and tools are in use at the moment and why?  What Bloomberg screens are up?  (While a large share of managers claim not to care much about current prices or technical analysis, a lot of their open windows contain flashing quotes and price charts.)

Here’s a very good question for any market participant:

What is it you do to practice that is analogous to how a pianist practices?

That gets at whether someone has an orientation to self-improvement or whether they are content to tackle an evolving market with the set of skills that they currently have.  Broadly speaking, that kind of practice is rare in investment circles, making the question a surprising and particularly good gateway for discussion.

Before offering more examples, let’s step back and look at the bigger picture.

Interviewing process

While the book addresses job interviews not due diligence ones, in both cases

an interview is fundamentally about how to engage with people, and if you cannot engage with people, you cannot break through the combination of bravado, nerves, and possibly even deceit that people bring to their interviews.  During an interview, you can ask anything (legal) in the known universe and explore any angle you wish.  What a splendid but also baffling position to be in.

There are many choices to make:  Aggressive or ingratiating?  A structured interview or a free-flowing one?  Trying to understand what makes a person tick or asking about investment ideas?

Most due diligence interviews, like most job interviews, proceed in a fairly predictable manner — resulting in equally predictable answers that hew to the narrative of the person being interviewed and those of his or her organization.  According to the authors, “You can do better.”  But that requires rethinking the standard approach, taking risks, and leaving out certain topics that others might view as essential.  Is your goal documentation or discovery?

One important strategic decision:  how forceful to be in your questioning.  Some doing due diligence are afraid to burn bridges, because they are worried about future access in cases where they will have ongoing research duties — or about being allowed to invest in situations where a manager is controlling the number and kind of investors who can participate.  Thus, an investment manager being interviewed might hold more cards than a typical job applicant (although the circumstances are akin to those between an in-demand potential hire and a would-be employer).

Do you search for common ground at the start of an interview or ask a specific question?  Either can work, but you are best off when you can move rather quickly “into the mode of inquiry, the mode of curiosity, the mode of conversation, and the mode of learning.”  Getting interviewees to tell stories about themselves and their organizations helps you to understand them, but only if those stories aren’t the well-rehearsed ones that they tell everyone else.  That requires creativity:

The main problem with obvious questions is that they tend to elicit obvious answers.  Try not to ask for stories that are likely to be canned.

If they don’t have to hesitate or ponder in response to your inquiries, you’re not being creative enough.  They should need to pause and think and perhaps fumble a bit.  What matters in the end is whether you can uncover things that others don’t.

You should use silence as a tactic (or a weapon, if you will); “hold the tension as a way of making it clear that you expect an answer, and a direct answer at that.”  And keep the pressure on if they aren’t responsive:

This insistence on an answer is one strategy that makes many interviewers feel uncomfortable or even a little mean.

Nonetheless, your job is to make sure that “every question generates a maximally informative answer.”  That may be hard when a relatively inexperienced manager research analyst is interviewing an investor of some renown, but it’s essential to a good due diligence interview.

As with job interviews, due diligence interactions can be full of clichéd questions.  For the most part they should be avoided, but there are strategies in which they can be used.  By asking them over and over again (in different ways), you will “get the person out of prep sooner or later,” especially if you keep going a level deeper each time around.  (“What is your edge?” definitely fits the definition of a cliché, but it offers an enormous tree of branches to pursue if you ignore the easy summations that you hear and drill down into the nitty gritty, searching for real examples and evidence — and challenging the interviewee as needed when the explanations are empty.)

All along, you should be on the lookout for unusual approaches, ideas, and worldviews; language that is unusual and which might open a door to unique perspectives; and the willingness to talk about challenges and trials in a way that reveals the person behind the mask.

Some examples

There are interview questions sprinkled throughout the book for which there are analogs in the sphere of due diligence, which is, after all, about analyzing and valuing talent.  (After four postings about it, the message should be clear:  Read the book.  It is full of insight into interpersonal dealings that can be applied when analyzing investment organizations.)

Among the questions are some to get interviewees to admit beliefs that they aren’t rational about or may be wrong about.  Or, flipping the script, asking them, “What is one mainstream or consensus view that you whole-heartedly agree with?”  Getting at the underlying beliefs of those you interview (and how they fit into those of their organization) can be fruitful.

Many of the questions offered by the authors are personal in nature, an approach that may fit more obviously in a job interview situation rather than a due diligence visit, but isn’t the purpose the same in each case?  Shouldn’t the “people” paragraphs in a due diligence report actually be about the people?  Biography is not identity, and it’s impossible to get any kind of explanatory depth about people if you don’t engage them in ways that reveal who they are.

One “brutal, meta question”:

How do you think this interview is going?

By using it:

You are in essence asking the candidate how much weakness he or she wishes to disclose.  Should the candidate give an articulate account of her weaknesses so far, thereby impressing you with her insightfulness but also confirming your negative impressions?  Or should the candidate stonewall and instead give an account of everything that has gone well?  If nothing else, you will confront the candidate with a surprise situation and put her in a difficult position, but one that gives her a chance to shine in confronting a challenge.

Another meta question:

What criteria would you use for hiring?

When posing that while conducting due diligence, you are asking a presumed expert to offer a template for analysis.  How thoughtful is she in response?  How open?  Are the recommendations she provides unique and insightful, or are they boilerplate, echoing what everyone always says?  How do she and her organization rate according to the attributes that she has provided?

Such simple questions as those cited by Cowen and Gross can yield multi-layered, revealing answers or mere pablum, providing indications that are of value.  The goal should be to spend a significant percentage of time during an interview in discussions prompted by those kinds of inquiries — and much less on transitory investment chatter.