Practical analysis for investment professionals
16 September 2016

Sallie Krawcheck Discusses How to Conquer Groupthink

Sallie Krawcheck was out of a job, one of the countless casualties of the financial crisis.

But unlike many of her counterparts, her reputation was intact. As CEO of Citi Global Wealth Management, Krawcheck had discovered that her team had mis-sold high-risk investments as low risk. Based on her analysis, she determined that the company had not acted illegally or unethically. Nevertheless, she felt clients deserved their money back. But Citi CEO Vikram Pandit disagreed. So Krawcheck went to the board and made her case. The funds were returned.

She paid a price for doing the right thing, however. Soon after, she was forced out.

It turned out to be a blessing in disguise.

“I had a little time on my hands,” Krawcheck told the crowd at the CFA Institute Alpha and Gender Diversity: The Competitive Edge conference in Boston. “You know, sitting on the sofa, I was wearing the sweatpants, I was drinking the chardonnay — quite a bit of it, as a matter of fact — while the kids were at school.”

No longer a Wall Street insider, Krawcheck now had the distance to view the industry more objectively, to return to her research analyst roots, when she “worked to out-analyze anybody,” and puzzle out the principal cause of the financial crisis.

“I had been a manager, I had been a CEO,” she said. “I have worked for more financial services CEOs than anybody directly. I have been on more leadership teams than anybody.”

As Krawcheck saw it, she was uniquely positioned to diagnose the problem.

So coming out of the worst financial crisis since the Great Depression, Krawcheck took some time, dug in, and asked herself, “What did I see?”

She sifted through the data, but the answer came to her in the form of an epiphany.

During a visit to her son’s high school class, Krawcheck recalled, “They told me, as only teenage boys can — with the certainty of white males — that we in the industry had perfectly foreseen the financial crisis. That we were evil geniuses.”

They were wrong, obviously, but the boys’ certainty was reminiscent of what she had seen throughout her career on Wall Street and in the boardroom.

“Something that I thought about that no one was talking about was groupthink,” she said.

She recalled the meetings with her colleagues: overwhelmingly middle-aged white men, she said, who had grown up together, attended the same schools, gone through the same training programs, served on the same trading desks, and vacationed together with their families.

They always agreed, as Krawcheck remembered, so therefore they were always right. But they failed to anticipate the financial crisis, and once it hit, they failed to understand its consequences.

“I remember all of that group agreeing this downturn wouldn’t be bad,” she said. “I saw groupthink. I saw the false comfort of agreement.”

Inspired, she delved into the research. What she found was startlingly simple.

“The best teams, the smartest teams . . . are diverse teams,” she said. “Diversity of background, diversity of perspective, of optimism and pessimism, diversity of education, diversity of skin color, diversity of gender, diversity of any kind.”

More diversity might have prevented the Great Recession. But the strain of diversity she kept coming back to in her research was gender diversity.

“Is there really anybody who believes that the financial crisis that we went through would have been worse if we had more women?” she asked. “Do you really think it would have been worse?”

So what could have prevented the financial crisis and potentially forestall another one?

“The only answer I have found,” Krawcheck said, “is gender diversity.”

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: Courtesy of Monica Pedynkowski


Key Takeaways

  1. Groupthink can lead good people to make poor choices; Sallie Krawcheck’s solution to groupthink is more-diverse teams.
  2. The best teams — the smartest teams — are diverse teams.
  3. According to Krawcheck, more diversity — specifically gender diversity — might have prevented the Great Recession.


Closing the Gender Investing Gap
Sallie Krawcheck

View the full transcript (PDF).

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About the Author(s)
Paul McCaffrey

Paul McCaffrey was formerly the editor of Enterprising Investor at CFA Institute. Prior to that role, he served as an editor at the H.W. Wilson Company. His writing has appeared in Financial Planning and On Wall Street, among other publications. He is a graduate of Vassar College and the Craig Newmark Graduate School of Journalism at CUNY.

6 thoughts on “Sallie Krawcheck Discusses How to Conquer Groupthink”

  1. Hernan O. Santos says:

    I am from a third world country but our country has the highest GDP growth in South ASIA consecutively for the past years. Our Central Bank governor has been awarded by world body as one of the best for 8 years. Yes, we are a diverse country composed of 7,100 islands speaking in different native languages and with different cultures , mores and traditions and values. About 90 % speak or understand English here

  2. LBrowning says:

    This is a new height in cynicism. She’s denigrating her own kids for their race and gender? That’s pathetic.
    I’d ask Krawcheck if gender diversity is so key to preventing another financial crisis, how come Citi tanked so bad? She was CFO of the company, then CEO of the WM unit in the run-up to the crisis, reporting to VIkram Pandit. I’m not into tracking everyone’s race like Krawcheck is, but I don’t think he fits into the white male category. So with her and Pandit in charge she still blames the white males for everything?

  3. Peter M.J. Gross says:

    Hello LBrowning,

    You make an interesting point about the scale of diversity that would be required to prevent a crisis (across the entire financial system), as opposed to merely enduring one (at an individual firm).

    Would you say that Krawcheck’s tenure at Citi was better or worse than the following?

    • Alan Schwartz (Bear Stearns)
    • Richard S. Fuld, Jr. (Lehman Brothers)
    • Angelo Mozilo (Countrywide Financial)
    • Joseph Cassano (AIG Financial Products)


  4. former banks analyst says:

    I have a friend who worked at Citi when Sally was head of research after the TMT bubble / Jack Grubman scandal.

    After the scandal, she stood up in front of everyone and said that analysts had to ask tougher questions of management and be more critical. In fact, she joked that when she was an analyst she would ask “how do you know if management are lying?” to which the reply was “because their lips are moving.”

    Some brave soul put their hand up and asked her at the end of the meeting “Sally, were your lips moving?” Much laughter followed.

    – the brave soul didn’t last long after that. Sally Krawcheck is part of the problem, not the solution.

  5. Terence Lim says:

    1. They were able to prevent the crisis.
    2. They did not indulge in “groupthink”.
    3. They merely assured one another of the lies they have told themselves to assuage their conscience before it blew up.
    4. It is possible to accept both the lie and the truth regarding a matter in one’s mind, resulting in cognitive dissonance. Read Orwell’s 1984.

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