Based on research by Brian Akins, Yiwei Dou and Jeffery Ng

• Timely loan-loss recognition can work as a powerful tool in fighting corruption in the banking sector.
• The faster a bank recognizes a problem, the easier it is to address the issue. 
• Recognizing losses quickly, however, only really matters in places without government ownership of banks. 

The loans should have been sure things. Two high-profile lenders — Russia’s VTB Bank and Credit Suisse — provided $2 billion to two government-backed companies in Mozambique. What happened next was a corruption case of epic proportions.

The funding, approved five years ago, was meant to support a tuna fishing fleet and naval protection for vessels operating out of the southern African nation’s territorial waters. Credit Suisse and VTB pocketed $200 million in loan fees.

The only problem: The two companies were woefully mismanaged and never generated any meaningful revenue. And to this day, at least a quarter of the money remains unaccounted for. It’s not even clear that it ever arrived in Mozambique: The banks sent the funds to offshore companies in Abu Dhabi. Meanwhile, Mozambique’s parliament was never informed of these government-backed loan applications — nor was the public.

How can banking institutions avoid entering into corrupt deals like this? And how does corruption on this scale happen in the first place? Rice Business professor Brian Akins, along with Yiwei Dou of New York University’s Stern School of Business and Jeffrey Ng of the Hong Kong Polytechnic University’s School of Accounting and Finance, delved into these questions in a recent study.

What they found is that banks can better address corruption if they quickly recognize when they’ve made bad loans. It’s an important finding because loan-loss recognition is a relatively simple way to stem corruption, and little research has been done on the effects of quickly spotting bad deals.

The researchers examined the records of 3,600 firms across 44 countries and found that timely loan-loss recognition decreased the likelihood of corrupt lending practices. The quicker banks recognize a problem, the easier it is to address the issue quickly.

Loan-loss recognition matters because it provides investors and depositors information they can act on, according to Akins and his colleagues. Investors who see that banks are making corrupt loans are likely to correct the issue quickly. Depositors won’t stay with a bank very long if they know it is wasting the money in their accounts on bad loans.

But the study notes that in countries where banks were largely owned by the government, there was a greater chance that the lending institution would be bailed out in the event of loan failure. That is to say, there was less in the way of incentives for speedy loan-loss recognition.

The greater the government involvement in a banking institution, the less likely it was that outside stakeholders would monitor the banks very closely, the study shows. “Government ownership of banks leads everyone else who is supposed to be monitoring the bank to just let it go because they expect the government to back their claims on the bank if it fails,” Akins explains.

Deposit insurance, too, works as a disincentive for outside stakeholders to monitor banks closely. Loan-loss recognition doesn’t work as a disciplining mechanism in this case because depositors have the security of knowing that their claims are backed by insurance. And banks have a greater incentive to take risks. After all, if the loans fail, the burden will fall to taxpayers.

The Mozambique case was hardly unique. In 2014, the Indian government fired the chairman of the state-run Syndicate Bank for taking bribes in exchange for loans, while in 2012, the head of one of China’s largest banks, The Postal Savings Bank of China, was arrested on charges of bribery and illegal lending. 

In developing countries especially, corruption plays a big part in the way wealth is distributed. A $2 billion dollar loan anywhere is a large sum, but in a country like Mozambique, it amounts to a sizable portion of the nation’s wealth. That is to say, protecting against corrupt lending practices through timely loan-loss recognition amounts to yet another tool to ensure that economic resources are more likely to go to those who need them instead of a corrupt few.

Brian Akins is an assistant professor of accounting at the Jesse H. Jones Graduate School of Business at Rice University.

To learn more, please see: Akins, B., Dou, Y., & Ng, J. (2017). Corruption in Bank Lending: The Role of Timely Loan Loss Recognition. Journal of Accounting & Economics, 63, 454–478.

By Clifford Pugh. Photo credit to James Zhao '15

Moments of crisis bring out our best and our worst. Some people emerge from catastrophe bathed in praise for their heroism; others are drenched in public disdain for their actions in the same moments.

That’s what happened with Hurricane Harvey.

Whether they were big corporations, small businesses or struggling nonprofits, the storm gave an array of Houstonians the opportunity to shine – even if they didn’t think of that during the downpour.

In times of calamity, most people aren’t thinking about their personal brand, says Utpal Dholakia, a marketing professor at Rice Business. “How they behave in normal times is how they are going to behave in an emergency or a disaster,” he says. Nevertheless, Dholakia adds, personal and institutional brands often are profoundly affected by how people act at those times. “Every action that they perform in good and bad times is going to have an effect on their reputation.”

A year after the worst natural disaster in Houston’s history, here’s a look at some of the people and organizations whose credentials were enhanced by their instincts – and some whose names were tarnished by what they did when the chips were down.

Halo Enhancers

In the decades before Harvey, Jim “Mattress Mack” McIngvale was best known as the loudmouth owner of Gallery Furniture who promised to “Save You Money!” in incessant TV commercials. But when Harvey pummeled his community, another side of McIngvale emerged. He transformed his stores into temporary shelters and told evacuees to “come on over” in a Facebook video. He gave out his personal cell phone number. And for those who couldn’t make it to a store on their own, he dispatched delivery trucks and drivers to haul them to safety.

Since then, McIngvale has given hundreds of thousands of dollars to help those hammered by Harvey, and he and his wife, Linda, have launched an ambitious program to offer job training and other community services at their stores.

“We believe in unity and community,” McIngvale told Furniture Today. “Our thoughts have always been, ‘If we went out of business, would the customer miss us?’ This is another way to become part of the community.”

Houston Texans superstar J.J. Watt had less of a transformation to make. Just when it seemed he couldn’t be more beloved, Watts burnished his halo with a Harvey relief fund that brought in a whopping $41.6 million from 200,000 donors. In a recent Twitter post, Watt’s foundation called it “the largest crowdsourced fundraiser in world history.”

Watt’s efforts have enabled repairs to more than 600 homes and 420 child-care centers and after-school programs. They’ve allowed distribution of more than 26 million meals, offered mental health services for more than 6,500 individuals and bought medicine for more than 10,000 patients.

Watt, who has received a host of awards for his Harvey fundraising, including the NFL Walter Payton Man of the Year Award, has laid out a plan for the coming year as well: Funds will go toward continued home restoration, physical and mental health services, rebuilding damaged Boys & Girls Clubs and support for food distribution with Feeding America.

In Purgatory

Lakewood Church, by contrast, is still overcoming its Harvey moment. After its perceived sluggishness in opening its doors to those seeking help, the church led by Pastor Joel Osteen has been working to rehabilitate its reputation. Osteen got a recent boost from megaproducer Tyler Perry, who took to the pulpit to praise Osteen’s response to the storm during a nationally televised Lakewood service.

Lakewood also gleaned a city proclamation for its contributions after the floodwaters receded, such as providing $5 million in financial assistance and supporting 9,300 volunteers who aided more than 1,100 Houston-area families.

However, the proclamation prompted a storm of criticism on social media. In its wake, a city official revealed that Houston made 3,600 such proclamations in 2017, and that anyone could apply for one online or by mail.

Pitching In

The Islamic Society of Greater Houston weathered the storm differently. Before Harvey hit, the organization had already prepped several of its mosques to offer temporary refuge for storm evacuees.

Members who lived near the mosques brought in clean sheets, towels, diapers and food, while hundreds of volunteers worked around the clock to run the shelters and distribute supplies. Dozens of Muslim doctors also volunteered at the citywide shelters in the George R. Brown Convention Center and NRG Center.

The society raised $275,000 to help members of the Muslim community, plus another $300,000 for the community at large.

M.J. Khan, the organization’s president, estimates that around 40 percent of the Houstonians who took refuge in the mosque shelters were non-Muslims. Religious affiliation didn’t matter. “The first thing on the minds of people in the community was, ‘What can we do?’” Khan says. “We knew in a time like this we had to step up and help out. We take it as our responsibility to help our fellow human beings.”

Strange Bedfellows

And then there were the odd couples. These days few Republicans and Democrats play well together, but Harris County Judge Ed Emmett (Republican) and Houston Mayor Sylvester Turner (Democrat) were universally praised for the way they stood shoulder to shoulder as leaders in the crisis.

They appeared on TV together so often during Harvey that it became a crowd-pleasing bromance – one that continued as they both urged voters to approve a $2.5 billion bond issue to more than quadruple annual funding for flood control in Harris County. The bond issue passed overwhelmingly.

Weather Watchers

Houston-based meteorologist Eric Berger gained countless new fans during the storm with his reports on Space City Weather, a website he founded to “cover Houston weather news and forecasting with accuracy and without hype.” Soft-spoken and camera-shy in daily life, the former Houston Chronicle reporter was the subject of a gushing profile in Wired magazine, titled “Meet the Unlikely Hero Who Predicted Hurricane Harvey’s Floods.” Berger has since become a hotly pursued public speaker.

Harris County Flood Control District meteorologist Jeff Lindner also drew a large following with his frank and concise live updates on Harvey’s water levels. Lindner now has 21,000 Twitter followers.

Small Business Winners

Overall, it was figures such as Berger, people not normally in the spotlight, who were most likely to transform their public profile during Harvey, Dholakia says. That also applies to the small businesses and local mom-and-pop restaurants that stepped up to help their neighbors during the storm.

Dholakia cites Proud Pie, a coffee shop and artisan bakery in Katy, where owner Scott Chapman was active on social media during Harvey and offered free meals to first responders and the Cajun Navy. Chapman also opened his food truck in the parking lot of Grace Methodist Church and served 200 free meals a night for four nights to displaced families.

“One year after Harvey, they are one of the most popular restaurant/food shops in Katy,” says Dholakia. “People remember that there was a store owner who helped and was very proactive during the crisis.”

On the other side of town, at El Bolillo Bakery, seven employees rode out the storm by baking the store’s signature Mexican rolls for two straight days. Trapped in the store by high waters, the staff turned 4,000 pounds of flour into nearly 5,000 pieces of bread.

Owner Kirk Michaelis eventually rescued the bakers and took them to his home. “The next morning, they said they were ready to get back to work,” he said. “By 1 o’clock the next day, the stores were open and there was a line of people down the street. It was tough because a lot of my employees lost everything. And they still showed up to work.”

Employees took the excess bread to citywide shelters first, and then to smaller churches and shelters that hadn’t received the attention the larger ones had.

Since then, Michaelis says, “our business has increased, because people read about it and responded, although we didn’t do it for that reason. It’s like paying it forward; people started coming back.”

The city of Houston has proclaimed September 27 El Bolillo Bakery Day. To celebrate, Michaelis is planning a “share day” at the store’s three locations, offering five free bolillos or pastries for every five purchased.

“Hopefully you will share them with someone that helped you during Harvey,” he says. “We want to keep it going.”

Illustrated by Nick Anderson. Based on an article written by James Weston and Erik Dane. 

A year after Harvey displaced thousands of homeowners, many are now wrestling with what to do with their beloved, damaged homes. Rice Business Professor James Weston and former Professor Erik Dane offer essential guidance on how to think about this big decision in their article Should I Stay Or Should I Go? Nick Anderson illuminates. 

James Weston is the Harmon Whittington Professor of Finance at the Jones Graduate School of Business at Rice University

Erik Dane is a former professor and was the associate professor of management at the Jones Graduate School of Business at Rice University

Nick Anderson is a Pultizer Prize-winning editorial cartoonist

By Tracy L. Barnett

It was the relief effort watched around the world. As big as Hurricane Harvey was, the human spirit of Houston was bigger: A Texas-sized show of solidarity came through in the aftermath of the hurricane. The number of neighbors helping neighbors — in kayaks, in motorboats, in pickup trucks, in human chains — seemed to break all past records.

And yet gaping holes in the social fabric still affect the daily lives of thousands of people. A year later, nonprofits and grassroots disaster-relief organizations are trying to patch these holes while they prepare for the next disaster — because at this point, Houston has accepted that it’s not “if,” it’s “when.”

Some grassroots groups coalesced spontaneously during Harvey, after Houston’s institutional response became bogged down by the storm’s magnitude. When the streets around the Houston Food Bank flooded, groups like the Midtown Kitchen Collective and the Giving Hub worked to fill the food-delivery vacuum. DIY rescue and relief groups including Recovery Houston and the Cajun Navy operated around the clock without pay, relying on social media networks, fast-paced innovation and pure grit. Meanwhile cash-strapped community organizations like Casa Juan Diego, Boat People SOS Houston and the Texas Environmental Justice Advocacy Services (TEJAS) depended on an influx of volunteers who helped pick up the slack during the storm.

Event planner Kat Creech, who started the Facebook group that became Recovery Houston, marveled at the number of hearts and hands working to help in the days after the storm. As the year wore on and relief efforts turned to rebuilding, however, the numbers dwindled. Creech blames compassion fatigue — and what she calls “survival fatigue.”

“These people are doing everything they can to keep putting one foot in front of another as the rest of the world has gone back to normal,” she says. 

Dr. Betsy Escobar, who volunteers at Casa Juan Diego — a Catholic charity that serves immigrants, refugees and the poor — said the center was overrun after Harvey by immigrants who feared detention by Immigration and Customs Enforcement if they went to shelters or the convention center. “FEMA gave us a bunch of cookies, but we have a lot of people who are diabetic so that was not very helpful,” she recalls. Thankfully, the Houston Farmers Market came through with produce, rice and beans. Their next problem was the opposite: They suddenly started getting more help than they could handle. “We got a mountain of clothes, and that’s nice — but we were a little overwhelmed because it was too much,” Escobar says.

This feast-or-famine problem was not exclusive to Casa Juan Diego, according to Balaji Koka, associate professor of strategic management at the Rice Business. On the one hand, Koka witnessed a highly effective response by individuals and small organizations in his area. On the other hand, there were significant gaps in service, something that could be addressed by better coordination among city and county organizations, he said.

“Social media definitely enabled people to become a community with some amount of organization and coordination without any hierarchy,” Koka observed. “But sometimes the same lack of hierarchy would result in one house affected by the disaster being visited by three or four different volunteers, while another house would get lost in the shuffle.”

Rice Business Wisdom surveyed seven community leaders who were involved in Hurricane Harvey rescue, relief and recovery efforts. Here, we distill their collective wisdom about how to maximize our effectiveness in the next big storm.

BEFORE THE STORM

Should I buy a boat or a truck so I can escape or rescue people?

The consensus on this one is a definite NO. Unless you’re an experienced boater with training in navigating floodwaters, you can quickly become a liability, according to Captain Taylor Fontenot with the Cajun Navy.

Instead, find people in your neighborhood who do have boats and trucks and are willing to use them or volunteer them for the rescue efforts, recommended Jonathan Beitler, a volunteer with the ad hoc Midtown Kitchen Collective. In the desperate days after Harvey, the Midtown Kitchen Collective developed ihavefoodineedfood.com, a platform that helped coordinate many of the 300,000 meals distributed by the group, linking thousands of people eager to donate food with the volunteer chefs and service organizations who needed that food. A similar platform could easily be developed to coordinate and connect people who have boats and trucks with people who need them, Beitler said.

Should I stock up on extra canned goods and water so I can have them on hand when the storm hits? 

By all means stock up, but be sure you are getting the right things when it comes to giving. The Houston Food Bank is already in preparation mode for this year’s hurricane season, assembling 25,000 disaster boxes of shelf-stable food to have on hand in the event of a mass emergency, said communications director Adele Brady. Lessons learned from last year’s disastrous flooding of the streets around the food bank: The organization is moving towards a hub-and-spokes delivery model, moving resources out to collaborating service centers throughout the city. 

What else should I do to prepare?

Take care of yourself and your family first. That way you can be prepared to step in and help with others. Locate your closest shelter and get to know the evacuation route. Have your essentials packed just in case: all family members’ identification, medical records, prescriptions. Pack a “first-day kit” with all the water, food, medicine and anything else you need to survive for a couple of days. Fill your gas tank.

And don’t wait until a hurricane is on the horizon to offer your assistance. Thousands of people still lack adequate housing, furniture, trauma counseling, and other essential needs after Hurricane Harvey. Scores of local organizations are engaged in ongoing recovery efforts, and will be for some time — and they need help.

“After the disaster, everyone wants to help – but maybe think of helping at other times, not just one week after a disaster,” said Escobar. You can sign up with a group like Volunteer Houston, which matches people and their talents with relevant local nonprofits, and develop an ongoing relationship with one of them. You can also register with the group you want to commit to so that they will have your name, contact information and special skills on hand in case of an emergency. 

WHEN DISASTER STRIKES

What if I don’t want to evacuate?

Mandatory evacuation is serious, says Fontenot with the Cajun Navy. He and his crew spent valuable hours going back every day to check on people who weren’t ready to leave — time that could have been spent rescuing others. Be aware of what’s going on around you and follow the protocols, he urges.

And be aware that others in your midst might not understand what’s going on — because of language and cultural barriers or disabilities — and that they may be in need of individual help, advised Jannette Diep of Boat People SOS Houston, which has been serving the Vietnamese community of Houston since 1999. An estimated 120,000 Vietnamese immigrants live in the greater Houston area, plus thousands more Southeast Asians of different ethnicities. “These people come from war-torn countries and they’ve already been displaced; they’re afraid of being displaced again,” Diep cautions.

Others aren’t aware of the massive chemical discharges that can and did occur in the industrial corridor of East Houston, said Bryan Parras, director of the Texas Sierra Club and organizer of the People’s Tribunal on Hurricane Harvey Recovery. Or in many cases, they are aware, but they have nowhere else to go. He, like many of his neighbors, suffers from skin rashes and respiratory problems, collateral damage from petrochemical spills.

What should I donate? 

Most organizations, like the Houston Food Bank, Juan Diego House and Boat People SOS Houston, will be posting lists of what they need on Facebook or their websites. Check those first.

“When you hear the media talk about how people have lost everything … people inherently start literally bringing everything,” said Creech. “That is wrong in epic proportions — because then you need a warehouse to sort things and hundreds of volunteers to do the sorting. People in a shelter don’t want your dress slacks, they don’t want your stuffed animals, they don’t want your old ceiling fan.”

For those who are in shelters, provide the basics: dry goods, tuna, water, toothpaste and toothbrushes, comfortable clothes, clean socks and underwear. It’s helpful for clothes to be clearly labeled for gender and size for fast processing.

If you’d like to donate used goods to help families with long-term recovery needs, do it during the year, not during the disaster, and give to an establishment that has a warehouse and a staff set up to process and distribute it. Organizations like Helping Hands, the Houston Furniture Bank, and Star of Hope take donated items for distribution among the needy. The city of Houston’s Reuse Warehouse and the Habitat for Humanity ReStore accept reusable building materials and other items that can be used in reconstruction efforts. Some agencies even offer pickup services.

For the civilian rescue crews, bear in mind that they are risking their lives and in many cases their daily bread to save others. Rather than giving your money to big international nonprofits, give directly to the people you see doing the work on the front lines, says Fontenot. They’ll take cash anytime, as well as food, fuel and water during the disaster. 

“If that stuff is handled, we can just stay in the water and keep working,” he says. 

Tracy L. Barnett is an independent writer based in Guadalajara. She aspires to a zero-waste lifestyle but hasn't yet found a substitute for Rancheritos. 

By Clifford Pugh

With only a few months until her planned departure, Angela Blanchard was looking forward to an informal “Thank You” tour, featuring long appreciation lunches with the colleagues and friends who supported her over 30 years in community development — most recently as CEO of the Houston-based nonprofit BakerRipley.

Then Hurricane Harvey changed her plans.

On the morning of August 29, 2017, Harris County Judge Ed Emmett called Blanchard with an urgent plea. The shelter at Houston’s George R. Brown Convention Center was filled past capacity with residents who’d been forced out of their homes by the hurricane. Another mass shelter needed to be opened immediately. Frustrated by the slow progress of FEMA and the Red Cross, Emmett turned to Blanchard and her staff to get a shelter open at NRG Center.

BakerRipley (formerly Neighborhood Centers) has a long history of helping people recover from disasters. It handled 27,000 new cases after Hurricane Katrina flooded New Orleans in 2005, when evacuees from that city sought safe haven in Houston. But the nonprofit had never managed a shelter of this magnitude — much less have one open and functioning in a few hours.

A friend warned Blanchard she’d be crazy to take on the task, because if things went badly, she would get the blame. But Blanchard, who had helped open George R. Brown to Hurricane Katrina evacuees — along with assisting in long term recovery after floods and fires devastated Australia and visiting shelters for Syrian refugees in Germany — was confident that her team could pull it off. 

Still, as the first buses rolled up, just hours after her conversation with Emmett, who was standing by to welcome the evacuees, she thought to herself, “Please, God, let this work as well as we think it will.”

It did. The shelter took in 850 people within the first 60 minutes. For the next month, 8,500 people from 111 cities in southeast Texas and Louisiana called NRG their temporary home.

“They set up a shelter that I really believe is the model the world is going to use,” Emmett says.

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How did they pull it off? Blanchard believes that having a strong staff with varied talents to draw upon, along with a willingness to improvise, was instrumental. So were the trusting relationships she’d built long before the storm. “A key ingredient was that I trusted Ed. I knew that he wasn’t going to hang me out to dry. I could throw everything I had at it, knowing that we had shared intentions,” she says.

Emmett’s wife, Gwen, is on the board of BakerRipley and is now its chair, so he was familiar with the nonprofit’s work, although he had only known Blanchard for two years. “Your job in the middle of a crisis is to get through the crisis,” Emmett says. “I was confident (Blanchard) was the right person and that organization was the right organization.”

Likewise, BakerRipley had resources Blanchard could rely on in a pinch. “We knew we could call on H-E-B, Chevron and Shell to help, and they did come, along with many others.” she says. “They had worked with us before and they knew what we were doing would be well run. That mutual understanding of capacity and strength was important.”

In a time of crisis, an effective leader is one who gets people to put the welfare of others over their own self-interest, says D. Brent Smith, senior associate dean for executive education and associate professor of management and behavior at the Jones Graduate School of Business at Rice University.

“Good crisis leaders, whether they’re in the military or a corporation or a community organization, are good at getting people to identify personally with them and have trust in the agenda that they’re promoting at the time,” Smith says. “They can get someone to set aside their self-interest for that moment.”

“Obviously, the other attribute that I’m sure assisted Angela is the network of resources and relationships that she has accumulated over time,” Smith adds. “Her social capital was absolutely immense. I guess that’s why Emmett called her.”

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When Emmett called, Blanchard happened to be on another line with the BakerRipley executive team, assessing the condition of the nonprofit’s various centers. Everyone was working from home, since much of Houston remained underwater.

But when Emmett’s call came, they immediately sprang into action. Former Houston Mayor Annise Parker, an executive vice president of BakerRipley at the time, swung by to pick up Blanchard and they made their way to NRG, where they were joined by the other team members who were able to get there. Those who couldn’t make it worked the phones from their homes to get needed supplies. 

“In every organization, you have your thinkers and your planners. You have people who are more deliberative and more reflective. They are vital to any organization. If you don’t have them, you’re rudderless,” Blanchard says. “But you also have those people who will run toward the fire or stay at the hurricane. You have to know who they are because you can drop them into any chaotic situation and they can figure out how to act and how to create some order and response out of it.”

Oriana Garcia, now Baker Ripley’s chief of staff, was a prime example, Blanchard says. “I knew Oriana had experience running really large community events for BakerRipley. She was indispensable when it came to laying out the shelter — all the elements of support. And she was willing.” 

People came running toward the fire — or in this case, the flood — from multiple organizations. NRG staff helped Blanchard’s team sketch out a basic layout of the facility, arranging the space to include a welcome check-in area, dormitories (separate areas for single women, seniors, families and single men), a kitchen commissary, a lounge area, a dispensary for clothes and toiletries, and a medical care area, as well as a command center away from the main floor. The plan also included a children’s play site and a pet area, as residents are sometimes reluctant to leave a disaster unless they can bring their pets along. The City of Houston Bureau of Animal Control (BARC) set up cages and Barrio Dogs provided volunteers.

But when Emmett gave them an estimate of how many evacuees to expect, Blanchard realized she still needed more volunteers to get the shelter open.

“I walked into the room and said, ‘I need every single person that’s here to find three more people like you. Call anyone like you,’ ” she recalls. (This turned out not to be a problem. Before long, so many volunteers showed up that they had to be turned away because they outnumbered the residents of the shelter.)

By late afternoon, the shelter was ready to open — except for one major problem. There were no cots. FEMA had promised to supply them, but said they had no drivers to deliver them. So Blanchard and her team got on their phones and called everyone they knew who could possibly help. Aztec Rental came to the rescue, sending over an 18-wheeler full of cots. “They drove into the back bay of NRG, and by that time, we had enough volunteers to unload the cots,” Blanchard says.

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The NRG shelter was no Ritz-Carlton, but Blanchard made it clear from the beginning that everyone who came to stay would be referred to as “guests” or “neighbors.” “I remember distinctly, painfully, after Katrina when people were mistakenly referred to as ‘refugees’ or ‘survivors,’ ” she says. “These are, in fact, our neighbors. Your neighbors. Mine. And for the time of the shelter, they were guests. I think that terminology matters. Words matter.”

Blanchard’s respectful tone permeated the entire operation, recalls Annise Parker. “The one thing that Angela said that resonated all the way through was that these are not your poor evacuees. They should be treated like guests, and that’s going to be our attitude. We’re not doing you a favor. We’re partners in this,” Parker says. “That makes a huge difference in how they feel coming into the shelter and it set the tone for the thousands of volunteers. That was 100 percent Angela. I was astounded by how much of a difference it makes.”

As the first buses began pulling up after 9 p.m., guests found the set-up much like a hotel. After going through security, arrivals were each met with a hug from a volunteer, who took information and then escorted them to a cot that became their “room” during their stay. More than a third of those who checked in had a medical concern, so they were escorted to the clinic and also to the dispensary for supplies.

By 2 a.m., things had settled down, but Blanchard and her team had another crisis: Where was the food to feed the arrivals when they woke up?

An initial supplier couldn’t make it because of high floodwaters, so the NRG employees pulled out all the food they had, like breakfast bars and packaged snacks. BakerRipley staff began sending out calls for help to companies via Facebook and Twitter.

“The next morning I was staggering around like a zombie and I see (H-E-B Houston president) Scott McClelland walking down this massive hallway. And I knew it was going to be alright,” Blanchard recalls. “I’m always glad to see Scott, but this time, I truly was.”

For the first 38 hours, Blanchard, Parker, and BakerRipley executive vice president Claudia Aguirre (who succeeded Blanchard as the nonprofit’s president and CEO) were constantly monitoring the shelter, with occasional naps. “Until we could get enough people organized into shifts, we didn’t want anything to go wrong,” Blanchard says.

Then, for the next 26 days, until the shelter closed on September 23, Parker and Aguirre co-managed the shelter, each working overlapping 18-hour shifts, with Parker as daytime manager and Aguirre as nighttime manager. 

“We had lots and lots of agencies working with us, but decisions were made very quickly,” Parker says. “We had very clear lines of command and a lot of folks with a lot of operational experience on the ground from the beginning.”

The staff and volunteers all wore BakerRipley T-shirts, but Parker soon discovered that visiting police units had trouble figuring out who was in charge. So on the second day, she went home and pulled out one of the polo shirts emblazoned with her name from when she was mayor. She noticed that when she wore it, she commanded more respect.

“That little bit of authority made a huge difference,” Parker says. “In essence, for 30 days we had a small city set up. The only difference in running the city of Houston and (the shelter) is I didn’t have to provide three meals a day for the city of Houston. But you have the same issues, and the most important are safety and public health.”

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Blanchard finally did retire from BakerRipley at the end of last year. But she’ll continue to make disaster assistance her life’s work because, she says, the disasters are only getting worse — and more frequent. 

As the shelter population dwindled down after Hurricane Harvey, the nonprofit switched to long-term recovery efforts. Over the past 11 months, BakerRipley has worked with more than 5,500 households and distributed more than $5.2 million in financial assistance for furniture and appliance replacement, emergency and temporary housing, work-related expenses and medical bills. More than 16,000 households have been helped at the nonprofit’s six Neighborhood Restoration Centers through partnerships with the City of Houston and Harris County.

“We have people out here that are still coming in because they cannot make their way through the convoluted bureaucracies,” Blanchard says. Among them is Houston resident Chanel Caston. After the roof of her southwest Houston apartment caved in, soaking all her possessions, Caston made her way to the NRG shelter with her husband and two children, one of whom has autism. “We didn’t have nothing; only the clothes on our back,” she recalls.

They spent most weekdays at the shelter until it closed, leaving on weekends to be with Caston’s mother at a senior citizen’s facility. “Our condition [at the shelter] was A-1 to me,” Caston says. “It’s nothing like home, but due to the circumstances it was wonderful.”

Now she faces a new set of problems because her housing assistance ran out in July and she pays $975 in rent for a one-bedroom apartment to house her family of four. She travels to several food banks to feed the family and is working with a case manager at BakerRipley to secure other basic needs.

“(Harvey) left me in a predicament,” Caston says. “We’re still trying to get back on our feet.”

But Caston has hope for the future. So does Blanchard. Her experience during Harvey taught her that leaders are not always in front — and that moments of crisis tend to bring out the best in most people.

“There’s no joy in the devastation of a hurricane. It’s heartbreaking,” she says. “But there’s an extraordinary satisfaction that happens after disasters — the pure pleasure of working with people when the mission is compelling, the urgency is clear, and you do whatever it takes. And it’s encouraging to see everyone doing all they can to help one another. The generosity of the human spirit.”

Based on research by Ajay Kalra and David Soberman

• Most firms emphasize speed over finesse. Both, though, are necessary for marketing success.
• Building a competitive corporate culture is great — unless it saps the company’s efficiency and profits.
• Corporate managers need to do a better job of asking critical questions, doing comprehensive research and synthesizing results.

You’re the regional brand manager for a light beer company based in Houston and you happily dominate the competition. You’ve got the best light beer in America and everybody knows it.

Then you learn that a rival beer company, which for years has sponsored the Dallas slow-pitch softball tournament, no longer has cash to support their signature event. True, it’s not clear that the tournament is the right fit for your brand. But the head of sales tells you he wants to get behind it. So you buy in.

Then reality hits. Those slow-pitch softball players don’t like light beer — and they won’t drink it. Your sales languish. You may be the tournament sponsor, but anyone can see the players are drinking something else. What to do?

If you’re like countless American firms, you declare the sponsorship a success year after year regardless of what is really going on.

Rice Business professor Ajay Kalra joined David Soberman of the University of Toronto to investigate just this kind of mishap. While prevailing wisdom blames marketing failures on CEOs and other senior management, such failures often begin at the bottom and work their way up. This triggers a chain of bad analysis, bad decisions and worse results.

Most brand managers, the researchers found, make decisions by setting market objectives, developing a strategy and implementing it. The results of that strategy are then used to evaluate the next set of decisions to be made.

The problem with this approach is that it leaves out a crucial set of prior questions. What, for example, are the consumer perceptions about the product that may affect their behavior over time? What analysis exists about the competition?

Once brand managers have asked key questions, they need to get the answers. In some cases that may entail a market study or other original research. Over the past half-century, some of the biggest advances in marketing management have to do with data collection and analysis techniques, including focus groups and attitude surveys. Once the research is complete, it needs to be synthesized, and usually presented to a cross-section of people within the firm.

Sounds simple enough. Why, then, do so few brand managers follow this rational sequence before launching a new campaign?

One answer is time. It takes roughly two-and-a-half months for a firm to launch a marketing campaign. Most brand managers, the researchers argue, want to shorten that time as much as possible to stay ahead of the competition. Strategic analysis typically gets short shrift.

When you’re short on time, the pressure mounts. Lacking serious strategic analysis, managers tend to look to their most experienced colleagues for advice. The result: The quality of decision-making depends almost entirely on the quality of advice the manager gets. Maybe she’ll get lucky and find a visionary to guide the team through a thicket of issues. Often, however, she won’t.

Short-circuiting the decision-making process, in fact, often becomes a part of the corporate culture. This happens in part because companies have developed such a culture of rivalry that they are willing to make what are essentially irrational decisions in order to be seen as “winners.”

In 2004, in Scotland for example, Ryanair and EasyJet were engaged in such a fierce competition that the airlines were literally giving away seats for free: great if you’re a customer, but not generally good for business.

All of this points to the need for a serious rethink around strategic planning, research and even corporate culture, Kalra and Soberman say. Speed is important to the planning process, but so too is finesse. Training needs to de-emphasize competition with the enemy in favor of strategies that maximize profits. Instead of relying on what is often half-baked, informal advice from colleagues, firms need to identify sources of expertise at each level of the organization.

To boost this expertise, managers who are too good to fire but not good enough to promote can be moved laterally, allowing them to accumulate meaningful expertise. After all, almost anyone is capable of learning. There is no reason why people — or firms — should commit to repeating their mistakes.

Ajay Kalra is the Herbert S. Autrey Professor of Marketing at Jones Graduate School of Business at Rice University.

To learn more, please see: Kalra, A., Soberman, D. The Forgotten Side of Marketing. Journal of Brand Management, (2010). 301-314.

By Tracy L. Barnett

For some, it was the baby albatross whose autopsy revealed a belly full of bottle caps and other plastic debris. For others, it was the video of the sea turtle with the plastic straw stuck in its nostril, a team of marine biologists trying to remove it with a pair of pliers as it struggled in anguish.

It’s hard to say what finally catapulted the global plastics crisis, generations in the making, into the mainstream. The environmentalist Annie Leonard addressed the issue over a decade ago in a short film, The Story of Stuff, which has become a movement in itself. But far from slowing, the plastic juggernaut is set to triple in the next decade. A million plastic bottles are being purchased around the globe every minute; in that same minute, the equivalent of a truckload of plastic hits the world’s oceans. Plastic waste was discovered recently in Antarctica, revealing that the substance has now become quite literally ubiquitous.

The problem appeared on our doorsteps when China — until recently the main importer of plastic waste from Europe and the U.S. — stopped accepting 24 types of waste in January, including PET and PVC plastics. The recycling market has gone into a tailspin, but the result has been a public awakening.

The list of cities, states, countries and businesses around the world that have adopted or are considering bans on single-use plastic items has exploded in recent months. California passed a statewide plastic bag ban in 2016, and now New York City and Hawaii stand poised to follow suit, with the cities of Malibu, Miami Beach and Seattle, among others, having already passed plastic straw bans or restrictions. In the private sector, Starbucks, Hyatt, Marriott, American and Alaska Airlines, Disney, SeaWorld and Royal Caribbean have banned single-use plastic drinking straws, while Swedish homeware giant IKEA announced it will remove all single-use plastics by 2020.

Plastic is out, and an army of innovators is at work designing its replacements.  

Caoilin Krathaus and Lila Mankad, now sixth-graders at Houston’s Hogg Middle School, were already on the case more than two years ago. For them, the catalyst was seeing their beloved Woodland Park filled with plastic bags — dangling from tree branches, snagged on rocks, choking the Little White Oak Bayou that flows through it.

“Our Girl Scout troop cleans up the park, but after every flood, it just comes back,” said Lila. “So we realized the solution isn’t to keep on cleaning after it; it’s to stop it at its source and ban plastic bags altogether.”

The two consulted with the experts — their parents, their fourth-grade teacher and, of course, the internet — and came up with a plan: To ban the ubiquitous bags in the city of Houston, following the lead of Austin, Laredo and hundreds of other cities around the world.

They posted a petition on Change.org that garnered more than 4,000 signatures. They met with the mayor, testified before Congress, participated in press conferences and rallies. Then they waited, along with the rest of the state, to find out if the Texas Supreme Court would strike down the Laredo plastic ban and with it, the initiatives of nearly a dozen other Texas cities.

On June 22, that’s exactly what the Supreme Court did. But Lila and Caolin, and their allies throughout the state, vow that the battle is far from over. They realize that prohibition alone isn’t enough: there will have to be alternatives to plastic products for bans to work.

And there are. The recent wave of restrictions is seeing a corresponding surge in innovations: edible straws, bamboo toothbrushes, bioplastics made of everything from avocado pits to algae.

“These regulations are going to compel people to work within the constraints and find ways around it,” said Scott Sonenshein, a professor of management at Rice Business and the author of Stretch: Unlock the Power of Less – And Achieve More Than You Ever Imagined.

Some people freeze up when a constraint is placed on them, he says — they can’t imagine how they’ll cope. “But there’s a very different response, what I call ‘stretching,’ which is trying to not just work through it but to find a better way because of the constraint. For example, some restaurants have been experimenting with straws that are pasta: they are actually edible in themselves. So, one, you have the novelty of something that looks different; but two, you’ve turned what could have been a problem into an opportunity to make your drinks more interesting.”

Houston entrepreneur Christie Nugent saw the challenge of reducing plastic waste as an opportunity. Last year, she launched Plum Vegan Catering, Houston’s only catering service offering a “zero-waste” option. She gets her produce from local growers and provides reusable dishes for the events she caters. When the event is over, she swings by and picks them up — along with all organic waste, which goes back to the farm for compost.

More recently, former hairstylist Megan Dye saw a need for a community support group to take waste reduction to the next level.

“I started noticing the quantities of trash I was consuming while working as a hairstylist,” said Dye. She began researching waste reduction strategies and discovered that plastic cannot be recycled indefinitely — and some kinds of plastic can’t be recycled at all. After seeing the massive amounts of garbage generated in the aftermath of Hurricane Harvey, she decided to do something about it. Armed with information, Dye founded a Facebook group, Living Zero Waste Houston, to help streamline the process of waste reduction.

Farther from home, former Los Alamos Laboratories waste management engineer Emma Cohen was so fed up with the pollution caused by plastic straws that she quit her job to promote the foldable steel Final Straw, raising $1.8 million on Kickstarter.

“I think more and more information is coming out about the devastating effects of plastics on our environment,” she said. “When you throw something away, where is that mythical land of ‘away’?”

The answer to that question is becoming painfully evident — more so in developing countries that don’t have the infrastructure to contain the mountains of debris. In India, plastic bags choked Mumbai’s storm drains, causing disastrous flooding that led to the city’s initiative to charge a fee for plastic bags. Prime Minister Narendra Modi recently announced a plan to eliminate all single-use plastics throughout India.

Other countries have followed suit. In the span of a single week, the European Union moved to ban single-use plastic products with readily available alternatives and Chile became the first South American country to ban plastic bag use by retailers. In Mexico, Veracruz became the first state to ban of both plastic straws and bags.

To Manuel Maqueda, founder of the Plastic Kills campaign and the Plastic Pollution Coalition, a day of reckoning long in the making has finally arrived.

“The fact that humans have chosen a material that the planet cannot digest — that we’ve chosen to design things so that their sole purpose is to become garbage…struck me as such an invisible and large problem I decided to turn my eyes to it and I promised myself that I was going to do something about it,” he says. 

Maqueda, author of the upcoming book The Meaning Economy: How Meaning is Transforming Our Economy and Our Future, teaches social entrepreneurship and innovation at the University of California, Berkeley. He says the decline of plastic is a powerful moment in many ways: It’s a unique opportunity for entrepreneurship, innovation and creativity. But it’s also indicative of a larger trend, he says.

“People are realizing we don’t need to make compromises; we can have an economy that brings abundance to people while nurturing life,” he says.  

Studies have found that at least 60 percent of the public is willing to pay more for a product that is environmentally or socially sustainable, said Maqueda. “The best thing about this change is that it’s being supported in a 360-degree manner not just by entrepreneurs but by investors and citizens,” he says. “Everybody is getting behind this.”

That includes Houston middle-schoolers Lila and Caolin, who are finding new ways around the constraints placed on their activism. Faced with opponents who argued that banning plastics would cost jobs, Lila and Caolin teamed up with a former refugee Afghan artisan, Khatera Khorushan, through The Community Cloth to create a micro-enterprise selling reusable designer bags — all made with “upcycled” materials destined for the landfill.

Like Lila and Caolin, Megan Dye has found that many people are eager to cut back on their consumption. “I’ve found Zero Waste strategies that I could use every day that are easy and in a lot of ways an upgrade to our standard of living,” she said. “Houstonians lead very fast-paced lives so I want to create a supportive environment that makes waste reduction quick and easy. Each citizen has the power to make a difference; we just need to be given the tools to make good decisions.”

Tracy L. Barnett is an independent writer based in Guadalajara. She aspires to a zero-waste lifestyle but hasn't yet found a substitute for Rancheritos. 

Based on research by Yuhang Xing, Steven E. Sibley, Yanchu Wang and Xiaoyan Zhang

• New research builds on behavioral finance findings to explore the factors driving stock returns.
• Economic fundamentals, rather than sentiment, likely predict stock returns.
• Rational explanation, not behavior, can describe stock pricing.

How many wealth advisors and investors have stories about the disastrous “hot” tip picked up at a cocktail party? Who hasn’t listened to bar buddies crow about the winning stock that will make them rich?

Most traditional finance models ignore the exuberance or despair that often drive investors’ choices. But back in 2006, two professors interested in behavioral finance, Malcolm P. Baker of the Harvard Business School and Jeffrey Wurgler of the NYU Stern School of Business, created a model to capture those emotions. The result was the Sentiment Index, a proxy that convincingly showed that less-than-rational behavior can predict stock returns.

Now Rice Business professor Yuhang Xing and a team of colleagues have challenged this finding. Building on Baker and Wurgler’s research, Xing and her associates explored what gives the Sentiment Index its predictive power. Does it really come from investors’ feelings? Or do rational economic fundamentals predict returns?

To answer these questions, they first focused on the factors comprising the Sentiment Index. These include the unemployment rate, inflation, the interest rate, market volatility and liquidity and the Treasury Bill rate, as well as seven other macroeconomic factors. They then developed mathematical tests to look for what predicts future returns.

Now, why did they first look at the Sentiment Index’s factors?

Like a connoisseur at the bar, they wanted to know the growing conditions, the production methods and the history of the producer for the ingredients making their cocktail.

Xing’s team found that the Treasury Bill rate and market liquidity conditions alone provide a significant explanation of future returns. This gave them enough evidence to suggest that the power to predict returns actually lies with the economic fundamentals to which sentiment is related.

In other words, investor sentiment by itself does not cause capital to suddenly rush into a market or change hands.

This would not be the first time researchers found that a seemingly emotional behavior within economic markets is, in fact, rational. IPO waves and the NASDAQ “bubble” are two examples of irrational behavior that, with additional study, turned out to have rational explanations.

So the next time you hear a story about what happened when someone acted on a friend’s stock tip, think about what macroeconomic factors are at play. While investors are reacting to cocktail chatter, media reports or the flow of private capital, their feelings might not predict future returns. Instead, there is a strong chance that responding to macroeconomic trends will get you better returns on your investments. 

Yuhang Xing is an associate professor of finance at Jones Graduate School of Business at Rice University.

To learn more, please see: Sibley, S. E., Wang, Y., Xing, Y., & Zhang, X. (2016). The information content of the Sentiment Index. Journal of Banking & Finance, 62, 164-179.

By Jennifer (Jennie) Latson

How do you use Head On? Apply directly to the forehead. How do you know? Because you’ve heard it a million times.

A decade ago, before viral videos were even a thing, Head On was making a mint using a marketing technique as old as advertising: repetition. More than six million tubes of the headache balm sold in less than a year (despite reports that it might not actually work), thanks to a 2006 ad campaign that simply repeated the phrase “Head On. Apply directly to the forehead,” over and over.  

The marketing term “effective frequency” refers to the idea that a consumer has to see or hear an ad a number of times before its message hits home. Essentially, the more you say something, the more it sticks in — and possibly on — people’s heads. It doesn’t even have to be true — and that’s the problem. What advertisers call “effective frequency,” psychologists call the “illusory truth effect”: the more you hear something, the easier it is for your brain to process, which makes it feel true, regardless of its basis in fact. 

“Each time, it takes fewer resources to understand,” says Lisa Fazio, a psychology professor at Vanderbilt University. “That ease of processing gives it the weight of a gut feeling.”

That feeling of truth allows misconceptions to sneak into our knowledge base, where they masquerade as facts, Fazio and her colleagues write in a 2015 journal article. (One example they give is the belief that vitamin C can prevent colds, blowing the minds of those of us who’ve taken this as fact our entire lives, which is about how long we’ve heard it repeated.)

Even in the absence of endless repetition, we’re more likely to believe what we hear than to question it objectively, thanks to yet another psychological principle: confirmation bias. 

“In general, human beings, after hearing any claim, behave like naive scientists and tend to look for information that confirms the initial conjecture,” says Ajay Kalra, a marketing professor at Rice’s Jones Graduate School of Business. “In an interesting experiment, a group of consumers were told a leather jacket (Brand A) was very good. When they later examined several brands, they tended to spend more time looking at Brand A and evaluating it more highly than other brands.”

The same principle applies to a coffee company’s claim that its coffee is the “richest” in the world, Kalra says: It’s hard to find contradictory evidence for a statement so vague. “Confirmation bias typically applies to situations where information is ambiguous and hard to refute,” he explains. “The more often you hear a message, the more the confirmatory bias likely comes into play.”  

So it’s no wonder that many of us fall for false claims on social media, especially when we see them tweeted and retweeted again and again. And if it feels like we’re seeing more falsehoods repeated more frequently these days, we are — especially from America’s top elected official, according to the Washington Post’s Fact Checker team.

The social implications are huge. For example: the fear that immigration drives crime, which Trump recently stoked on Twitter. “Crime in Germany is way up,” he tweeted June 18. “Big mistake made all over Europe in allowing millions of people in who have so strongly and violently changed their culture!”

Fact checkers quickly noted that German crime rates are at their lowest level since 1992, but Trump repeated the claim the following day. “Crime in Germany is up 10% plus (officials do not want to report these crimes) since migrants were accepted. Others countries are even worse. Be smart America!” he tweeted.

What happens when a powerful person makes — and repeats — a false claim? In this case, the danger is a backlash against immigrants. But the cumulative effect of constantly repeated falsehoods is even more insidious: it undermines truth altogether, leaving public discourse unmoored from fact.

“The constant repetition of the lie is the way to make truth meaningless,” Timothy Egan writes in a New York Times op-ed. “After a while, people come to ‘believe everything and nothing, think that everything was possible and that nothing was true,’ wrote Hannah Arendt, the German-born philosopher, in describing how truth lost its way in her native land.”  

So how can we fight back? Inoculating ourselves against the power of repetition is harder than you’d think. Common sense tells us that knowing the truth should be the antidote — but that’s not enough, as Fazio and her colleagues demonstrate.

“The prevailing assumption in the literature has been that knowledge constrains this effect (i.e., repeating the statement ‘The Atlantic Ocean is the largest ocean on Earth’ will not make you believe it),” Fazio and her team wrote. “[However,] illusory truth effects occurred even when participants knew better.”

Janet Moore, director of MBA communications program at Rice Business, agrees that inoculation may be impossible — but there are ways to lessen the influence of repeated claims, she says. One of the best: don’t rely on a single source for information. Read stories from multiple news outlets and listen to a variety of opinions. Commit to staying open-minded, and consult with friends and colleagues whose perspectives differ.

“Especially if you have trusted friends with different viewpoints, openly discuss the repeated story,” she says. “Explore whether it’s really worth repeating.”

And Moore, who began her career as a lawyer, says it couldn’t hurt to think like one. “Try to examine every assertion ‘on the merits,’ as is done in the legal profession,” she suggests.

Fazio’s research backs this up. Just taking a second to consider how you know something is true can stymie the effects of repetition, she’s found. “It’s a matter of getting people to consult something other than that gut feeling,” she says. “It’s a great thing to do on social media: before you share something, take that second and pause.” Otherwise, you risk becoming part of the echo chamber that keeps falsehoods circulating.

Of course, our tendency to assume that people are telling the truth is not a bad thing in and of itself, Fazio points out. “If you had to constantly verify and second-guess others, you wouldn’t get very far in terms of relationships and social order,” she says.

Until recently, American society ranked relatively high in measures of trust, Fazio says: We’ve tended to believe what we hear from institutions and the media. That trust seems to be eroding. But even a newfound skepticism of the government and the press won’t change our basic cognitive processes.

“It’s still going to be harder to notice errors in things we hear over and over,” she says. That’s a universal human trait. Which also means it’s bipartisan — and that may at least level the playing field when it comes to fake news.

A recent study by Yale researchers finds that “[the] ‘illusory truth effect’ for fake news headlines occurs despite a low level of overall believability, and even when the stories are labeled as contested by fact checkers or are inconsistent with the reader’s political ideology.”

According to the study, even if a headline goes against your political leanings, you’re more likely to find it believable after seeing it multiple times. If nothing else, this finding may offer some consolation when we fall for falsehoods: It happens to the best of us, against both our better judgment and our own interests.

“What the research shows is that this isn’t something that just happens to stupid people,” Fazio says. “It’s part of how our brain functions. And it happens to everyone.”

Jennifer Latson is a writer and editor at Rice Business and the author of The Boy Who Loved Too Much, a nonfiction book about a rare disorder sometimes called the opposite of autism.

This article also appeared in the Houston Chronicle's Gray Matters as "How can we separate the truth from a lie?" 

Based on research by Erik Dane, Michael G. Pratt and Douglas A. Lepisto

• Trust grows either from concrete knowledge or leaps of faith.
• Firefighters develop — or bolster — leaps of faith by labeling coworkers as certain types such as “book smart” or “paycheck’’ and telling stories about how each type performs at work.  
• Such leaps of faith are maintained by shutting out new information, leading to a closed-loop system.

In May 2018, fire broke out an industrial warehouse in Houston. The four-alarm blaze spun off a pyrocumulus cloud visible miles away, a Channel 13 meteorologist tweeted.

More than 150 firefighters from at least four different fire departments rushed to the scene before the fire was put out. Four suffered minor injuries. What gave the firefighters the confidence to enter and attack the life-threatening flames? Trust: in their own abilities and training and, perhaps in equal measure, in the coworkers who faced the same danger and uncertainty they did.

But forming trust by relying strictly on real-life observation is difficult in firefighting, where only 4 percent of calls firefighters respond to are actual fires. When they’re not responding to calls, the majority of firefighters’ time is spent prepping equipment, making meals, doing fire inspections or making routine medical runs.

So firefighters rely heavily on another basis for deciding whether to trust their coworkers: a leap of faith.

Former Rice Business Professor Erik Dane joined Michael G. Pratt of Boston College and Douglas A. Lepisto of Western Michigan University to learn how these leaps of faith start and survive. Their main data source was interviews with 63 firefighter conducted for the study. The scholars also observed firefighters at stations and on fire calls.

Leaps of faith, Dane and his team found, are fueled by supporting and sustaining dynamics that feed off each other. This interconnectedness “creates a type of closed loop that allows firefighters to continue to willfully accept the uncertainty that accompanies their job,” they write.

One of the most important of these dynamics is the widespread labeling of fellow firefighters as specific “types,’’ then telling stories or making assumptions about how each type will act. To further protect the faith that the firefighters place in these labels, firefighters then block out or avoid seeking new information that contradicts the initial belief. The “types” themselves are as recurrent as Jungian archetypes. In the interviews, firefighters cited four general types of colleagues and the narratives they routinely attach to them.

Paycheck: On the job for “not the right reasons” and seeking money, benefits or time off. They will be unprepared at a fire scene.

Book smart: Firefighters with college degrees. Viewed with suspicion and deemed to lack common sense. As one firefighter put it: “Many of those folks are the ones that can’t find their butt with both hands when they get to a scene.”

Worker: They do their jobs, emerging from a fire covered in water, sheet rock or plaster. Workers “earn” their dirt, and are communal and physical people. They won’t leave you trapped in a building.

Spark: Passionate firefighters, always looking to learn new information in firefighting and safety. Some sparks, however, seek fires to fight even when they are off the job, raising questions about self-discipline.

To apply these labels, firefighters use cues from both in and out of daily life at the fire station. Does someone help with cleaning and food shopping? Does someone party too much? If someone has a second job, what is it?

The labels are applied quickly, decisively and out in the open. “I can tell right away,” one firefighter said.

Once these label are applied, the researchers found, “new forms of data that could be relevant to assessing trust among firefighters are systematically ignored.’’ This closed-mindedness helps sustain the firefighters’ leaps of faith — even though actual evidence about their coworkers’ performance may be increasingly available as many local governments ask firefighters to take on EMT roles.

Self-fulfilling practices then kick in. Although fires were exceedingly rare, researchers found that when they did occur, “firefighters labeled in particular ways were assigned to corresponding roles.”

Because paychecks and book smarts are regarded as less effective at fighting fires, firefighters with these labels are put in less critical positions. If that isn’t possible, a chief might use extra men to back them up, leaving other areas short-handed.

“These actions made the labels self-fulfilling,” Dane and his team write, “because they helped to reinforce what firefighters already believed about their colleagues: that paychecks and book-smart firefighters could not be trusted at a fire.”

The researchers also found that firefighter dynamics are sustained by a love for tradition — another possible block against new technology, practices and mindsets. On the whole, though, mindsets that reinforce set labels “facilitate the acceptance of uncertainty,” the scholars say.

Dane’s findings may also apply to industries such as nuclear plant operation, where dangerous activity is a threat but rarely occurs. And the team’s insights may further shape our understanding of how trust is formed in other types of work and personal relations where actual knowledge is rare. Take marriage, for example: A spouse may go for decades without ever getting proof of his or her partner’s fidelity. Instead, the relationship must operate on a leap of faith.

Erik Dane is a former professor and was the Jones School Distinguished Associate Professor of Management (organizational behavior) at Jones Graduate School of Business  at Rice University

To learn more please see: Pratt, M., Lepisto, D., & Dane, E. (2018). The hidden side of trust: Supporting and sustaining leaps of faith among firefighters. Administrative Science Quarterly, 1-37.