The Office Will Come Back

– June 29, 2020 Reading Time: 4 minutes

“Our tenuous capital was the hours in the day, less the few we slept, and we spent that capital at a frenzied pace. I’d drop everything to get you the right cardiac surgeon, the right car, a place for your kid at John Thomas Dye or Harvard-Westlake schools – whatever you needed. I was everyone’s chief psychiatrist, legal adviser, financial adviser, fixer, cultural translator, and shoulder to cry on. With so many clients’ very lives seemingly our responsibility, I obsessed about what might go wrong for them – and for the agency.” Those are the words of Michael Ovitz, from his spectacular 2018 memoir, Who Is Michael Ovitz? He was describing the lengths that Creative Artists Agency went to in order to meet the needs of clients.

Fascinating about Ovitz was that he noticed. As in if you didn’t show up in the morning on time to CAA’s I.M. Pei-designed headquarters, he would call you to find out why. Crucial is that it wasn’t at all about spying on his employees. It was about grooming the firm’s most important assets. CAA purposely overpaid its employees because it wanted to overpay the clients of a talent agency that eventually morphed into an advertising shop, an investment bank, and realistically all things to most of the entertainment industry’s most successful people. If a CAA employee was tardy, Ovitz needed to know in consideration of what the firm was trying to deliver to clients each day.

Notable about the Beverly Hills-based firm was that flights to New York were strictly red eye. Work hours were to be spent aggressively making sure the firm’s clients were yet again being taken care of. Ovitz himself rarely ate dinner at home.

All of this is ideally a reminder that rumors of the death of office space, corporate headquarters, and gleaming cityscapes are grossly exaggerated. The brilliance of CAA is instructive in this regard. What made CAA great was a culture that Ovitz, Ron Meyer and others painstakingly built. Cultures aren’t built by remote workers rolling out of bed in pajamas each morning to the home office. No, the truly excellent cultures that up and coming businesses aim to mimic are forged by people working alongside one another.

Among other things, CAA invented the “packaging” concept whereby the agency sourced great scripts only to attach the best writers, directors, cinematographers, actors and others to the production. No doubt this packaging was an effect of CAA’s energetic agents bumping into each other at headquarters, only to discuss ways to put the firm’s clients to work.

The late Steve Jobs well understood the importance of corporate culture. His biographer Walter Isaacson made plain that Jobs, in designing the firm’s present headquarters, did so with his employees running into each other at the office top of mind. Much as the division of labor breeds specialization that results in exponentially more production than the kind that occurs among workers toiling all alone, so does division of thought promote exponentially greater innovation. Essential is that the thinkers cross paths in random ways that can’t be randomized on Zoom. Nothing against the latter for it facilitating exchange, but producers and thinkers can’t wait on Zoom all day for unexpected connections.

Thinking about the brilliant investment firm Oaktree Capital, the office setting is how it figures out whom it needs to groom for impressive growth, and whom it needs to jettison. Notable about Oaktree is that its founding partners instituted at the firm’s creation a “no a—hole” policy. One way in which they maintain the latter is through a firmwide rule about closed office doors. It’s not allowed. Though doors are sometimes understandably closed during particularly sensitive calls, the rule is that closed doors are opened right after. It doesn’t matter if you’re a founder, or a newby. Doors are open. This way those who operate Oaktree can find out “who the a—holes are” so that they can take their objectionable qualities elsewhere. This is difficult to achieve if everyone’s remote.

Goldman Sachs’s offices around the world are famously bereft of too many actual enclosed offices. There are many reasons for this.

For one, the view among senior people there is that if there are no offices there will exist a greater incentive among employees to be out visiting with existing and potential clients. Offices with doors are also too easy to hide in, whereas the pods at GS force visibility. If you’re not producing on the pod, you’re out and about looking for ways to be more productive on the pod.

After that, Goldman prides itself on the “culture carriers” it breeds within the firm. So focused on culture is the firm that it actually arms new associates with credit cards upon commencement of employment with an order that those new to GS take out mid-level and senior people to dinner each night. Explicit in all this is the belief at Goldman that collegiality breeds successful outcomes for the clients that the firm cultivates with great vigor.

These anecdotes about highly successful businesses will hopefully quiet all the knowing commentary from the chattering classes about how that which panicked politicians and the chattering classes (the new coronavirus) will soon enough reveal itself in a major shift toward work-at-home businesses. What a laugh.

Those who would conclude something so ludicrous are implicitly admitting that they’ve most likely never worked at a great company; that, or they never understood what made the company they worked for great. Corporations don’t get that way via thousands and tens of thousands working alone; only to check in on occasion with Portal. Implicit in the view that they could achieve greatness sans offices and headquarters was that all this time businesses spent enormous sums on the “right” location just because.

More realistically, there’s enormous value to the clustering of talent. Which explains why corporations don’t just put enormous time, effort and money into building corporate cultures crafted inside offices, but also that up-and-coming corporations cluster around those already established. Culture spreads.

It’s so easy amid political panic for the all-knowing to contend that “this time is different.” Not really. Some things never change. One thing that won’t is the value gained by people working alongside one another. Ignore the work-at-home futurists. They know not of what they speak.

Reprinted from RealClearMarkets