Recognising talent is hard, and it’s harder the more qualitative or long-term the project or job or industry is. Indeed, the more complex the challenge, the harder ‘talent’ is to recognise as it becomes an increasingly emergent quality; being built from and composed of more and more details, none of which constitutes singularly reliable evidence on their own. In other words, the qualitative nature of talent often scales with the complexity of the task, and so, the challenge of recognising talent also scales in parallel.

At the same time, recognising talent is often an important component of success. In the workplace, recognising talent is an important part of hiring and attracting the right people, as well as ensuring that opportunities are given to the best people for the job. Being able to recognise talent is also important when dealing with juniors (be they children, students, or new recruits), and the attention paid to those with the biggest potential has the power to compound over many years and to produce outlier results. (A dollar invested in a bright student at an early age has the potential to yield millions down the line.) For example, being able to pick the most-promising candidates from a pool of recruits can be paramount to the success of a company, as the quality of the work often will depend on the quality of the people doing the work. This, of course, comes with the added benefit of rewarding those people who would be the most valuable to retain. 

For investors, the ability to recognise talent is similarly useful. First, the job of the investor is, in some ways, to recognise talent, by looking at collections of companies and sieving the most promising candidates from the mix. The better an investor is at recognising talent on the company level (either managerial or organisational), the earlier they will be able to pick outliers and to so compound their returns over time. Second, the task of recognising company talent can also be made easier if the manager can surround themselves with a group of talented colleagues who can bring their own perspectives, insight, and experience to the job. This, of course, prenecessitates the manager being able to objectively recognise talent in both themselves and their colleagues; to identify blind spots and to elevate and promote those people who are likely to help fill these in to allow the join investor group to become more talented than any individual investor can be on their own; effectively allowing the group to take meaningful positions with greater conviction at an earlier time.

All of these benefits are however dependent on finding answers to the original question: How do we recognise talent, even if it is hard?

An easy answer would be that it’s easy to recognise talent if you, yourself, are already talented, but that’s also an answer that’s not very useful and that would prove hard to scale. Instead, a better option is to look for proxies; to look for traits that are easier to identify than the ambiguous ‘talent’, but that nonetheless correlate with it. This, however, only helps in kicking the can further down the road: Assuming that we can find good proxies for recognising talent, how do we know what proxies to use? (Especially when these proxies themselves become more complex and qualitative the more complex the talent we’re trying to identify.)

The easiest answer to this question has often been singular traits like ‘intelligence’ or ‘creativity’ or ‘years of experience’, but complex problems are characterised by having no easy solutions. Indeed, I think that intelligence or creativity make poor proxies for talent since (I find) it likely that they’re often one and the same (making them useless as talent-proxies). For example, if we suppose that—depending on the task in question—that intelligent or creative people would be the most talented (or that intelligence or creativity is talent), wouldn’t this presuppose that intelligence or creativity are actually equally hard to identify? In my experience this is often the case, where ‘intelligence’, ‘creativity’, or ‘talent’ are like other qualitative concepts like ‘success’ or ‘potential, which is to say, that they are relative. (It’s hard to point to one person or accomplishment and say: “This is what success looks like”, and then be able to apply that situation wholesale to anything else, because ‘success’ doesn’t look like that, because success is many things.)

Instead, it makes more sense to look to more quantitative metrics that can be used as checklists or templates or recipes; where you’re unlikely to find all of them represented at the same time, but where you’re hoping to find many of them represented at the same time, and that this co-existence can be used as a proxy for talent, success, potential, or whatever qualitative metric you’re hoping to measure (much like the trinity of opportunity + competitive advantage + management quality can be used to benchmark predictions about an organisation’s outlier potential). In terms of identifying ‘talent’, such an emergent proxy could therefore be envisioned to include everything from the obvious but hard-to-recognise (e.g. intelligence and creativity and potential) to more-easily recognisable qualities (e.g. being hard-working and a quick learner) and traits (e.g. being open-minded and insightful). 

Within the services sector (where we’d find industries like finance and professions like investment management), a lot of ‘recognising talent’ boils down to ‘identifying’ these kinds of low-quality, quantitative traits. Indeed, many people look to checklists like grades and universities to assess the intelligence of new recruits (while also recognising that such proxies are inherently flawed and therefore perhaps most useful as filters to whittle down the pool to more manageable numbers). Once someone has been welcomed into an organisation, the assessment of ‘talent’ often further boils down to cookie-cutter metrics like ‘did they follow the task to the letter?’ (instead of the spirit), and ‘do they do the job to our liking?’ (regardless of whether this is actually representative of a job well-done). Over time, even these performative and imperfect proxies are whittled down even more, until we reach the situation that I think most of us are familiar with: Where ‘number of years served’ becomes the ultimate proxy of quality. 

A challenge with these emergent proxies is however that while they’re better than the wholly qualitative, that they’re still not perfect: An individual can be both hard-working and open-minded and still not be very good at the tasks they’ve been set, while another might be neither open-minded nor hard-working and be really good. Such proxies are also hard to measure: How do we measure ‘hard work’ (is it speed or work ethic) and how do we keep track of people’s open-mindedness (especially when they belong to a large organisation and our interactions with them are few and far between)? For this reason, the attraction is often to resort to wholly quantitative metrics, however imperfect these might be as proxies or however easy they might be to game.

To some extent, I think the financial services and investment management industries are uniquely bad in using ‘number of years served’ as a talent proxy—perhaps because the job is reflexive by nature and therefore hard to score. Indeed, while investment returns make for good proxies, the ever-changing nature of technologies and companies and markets means that the tide can turn at any time and that someone who’s performed well in the past might perform less-well in the future (and reverse). Instead, ‘years of experience’ makes for a more neutral proxy, where we assume that just because someone has survived the industry for x number of years, that they have to be good at what they do (because if they were not, they wouldn’t be there). 

This sort of thinking is however extremely dangerous since it leads us on a path where some of the best proxies available to us (number of years served) also become the worst (as they keep young talent—which is perhaps the most important talent—from being recognised). Instead, professional success in the financial services industry becomes a function of time: If you just put the time in (we tell our young ones), you’ll eventually be recognised. This is damaging to the enthusiasm of those who otherwise could—with the right support and encouragement—become the next generation’s shining stars. Indeed, it’s a common saying within the STEM fields (be this the engineering professions or life-science academia) that “the best ones get away”; alluding to the tendency for many organisations to push away the very people who they should be working the hardest to keep. A lot of the time, this pushing-out of the most talented comes from the poor incentives structures built into these organisations, where ‘talent’ (imagined or otherwise) isn’t actually the metric by which people come to succeed. Instead, as in investment management, we place the emphasis on time.

Jeff Bezos has alluded to this as a kind of ‘folly of the commons’ when he’s written about company cultures in the past [link]:

A word about corporate cultures: for better or for worse, they are enduring, stable, hard to change. They can be a source of advantage or disadvantage. … It is created slowly over time by the people and by events – by the stories of past success and failure that become a deep part of the company lore. If it’s a distinctive culture, it will fit certain people like a custom-made glove. The reason cultures are so stable in time is because people self-select. Someone energized by competitive zeal may select and be happy in one culture, while someone who loves to pioneer and invent may choose another. The world, thankfully, is full of many high-performing, highly distinctive corporate cultures. We never claim that our approach is the right one – just that it’s ours

Now, if you’re working for an organisation that places the emphasis on time served. What does that tell us about the culture of that same organisation? To me, it echoes sentiments expressed by Dan Wang [link], when he writes on the societal danger posed by risk-averse college students:

Because acts of youth are more easily recalled, our future elites will be made up of people who’ve managed to keep their records unsullied. What happens when most records of our life are accessible via Facebook, Snapchat, Twitter, or blogs? I think that makes it so that our future leaders will be selected for whether they were willing to be really boring in their 20s, who have no recorded indiscretions that might derail a Senate confirmation. Are these the people we want to be governed by?

In the same vein, it is worthwhile for the employee of any organisation to ask themselves: Is my organisation selecting for the most talented people, or simply the ones who’ve managed to keep their heads down enough to avoid being pushed out? Often, I find, it’s hard to answer the first part of such questions in the affirmative. Indeed, during my tenure in finance, I have realised that one of the most humbling insights that you can have as a portfolio manager is that if we can’t recognise talent in the juniors who we work alongside every day (and to so incentivise the most interesting, talented, and creative ones), how can we look at companies and choose in which to invest when those decisions are made on less-useful information than the information by which we recognise and reward talent within our own organisations?

These questions are doubly relevant to ask when contemplating that most organisations are meritocracies and that what differentiates them is the organisational definition of merit, i.e. what constitutes ‘merit’. While we’d like to believe that ‘merit’ is defined as ‘talent’ or ‘potential’ across the board, this is rather naïve. Instead, when we look to the people who become promoted within organisations, we often find that ‘merit’ is defined very differently from ‘talent’, where, in some organisations, the meritous are those with the sharpest elbows and those with the loudest shout, while, in other organisations, it is those with the strongest networking skills or political savvy. (This is of course not to say that any of those definitions of merit are wrong as cultures are only good or bad in the sense that they help or don’t help an organisation to achieve its stated objectives.) Instead, it is only very rarely that an organisation is organised in the way required for talent to be both meritous and recognised early on.

Of course, this brings us back to the problem with proxies all over again. And perhaps the point was never to find a perfect proxy (or collection thereof), but instead that we need to start having the conversations within our organisations of what proxies that we value and how we should track these over time. In many cases, there will be simple gains to make in giving up on the idea that talent is something that we can easily recognise or perhaps even engineer. Instead, we should probably think more about our organisational structures, where, if we can’t recognise talent or potential, how do we create the organisations that would allow us to select for these people without being able to recognise them ahead of time?

Here, it would of course be the most important to properly articulate the organisational idea of ‘merit’ (e.g. What do we consider meritous, and what behaviours would we like to incentivise?), as this will form the first pillar of a wider framework for informing incentives and aligning these with organisational objectives. Often, the answers to these questions will also be very different from the type of thinking that we’ve engaged in in the past. (For example, if we were to want to incentivise insightful research, we should probably worry less about how well a checklist has been ticked if the task has been completed in the right spirit, which is the bane of many a young analyst.)

After all, the beauty of most work worth doing is that it’s only by asking the right questions that we can start taking the first steps toward generating good results. And to do so successfully, it helps to first figure out what we would consider a ‘good result’ and then work backwards from there. So too, I would argue is also the case with recognising talent and building organisations hoping to capture as much of it as possible from early on.