Lord Acton says: judge talent at its best and character at its worst. This is a wise principle, yet it fails us miserably when misapplied, as it often is in modern society. Why is that? The world is large, so our knowledge of each is extremely sparse. We often lack the information necessary to judge either talent or character well well. The consequence of information sparsity in judgment of talent is the existence of celebrity. It’s better to have everyone know that you’re a 6, than to be a 10 in secret. This itself is not so dangerous, but the contest for visibility, even in supposed meritocracies like the software industry, gets destructive quickly. Even in small companies, more effort is often expended to gain control of the division of labor (thus, one’s own visibility and reputation) than is spent actually completing the work. The fact that awful people are excellent at office politics is so well-known that it requires no documentation. It becomes visible within the first 6 months of one’s working life. This makes assessment of character as important as the judgment of skill and talent. Is the guy with the flashy resume a legitimate 99.99th-percentile talent, or a degenerate politicker and credit-taker who managed to acquire credibility? Reference checking is supposed to solve that, and it doesn’t work. I’ll get to that, a little bit later.

Information sparsity in the assessment of talent is a known danger, but I tend to see it as a short-term and minor threat. There’s probably an eventual consistency to it. Over time, people should converge to levels of challenge, responsibility, and influence commensurate with their ability. More dangerous, and infinitely more intractable, is the information sparsity that pertains to character. People tend to overestimate, by far, their ability to judge other peoples’ ethical mettle. In fact, the vast majority of them are easy to hack, and their excessive confidence in their own assessment is, in truth, easily used against them by the bad actors.

This problem is pretty much impossible to solve. Most people know from experience that the worst people– the psychopaths– are superficially charming, which means that personal impressions are of low value. What about getting access to the person’s history? In employment, that’s what reference checks are for, but shady characters often have great references. Why? Because they lie, extort, and manipulate people until their histories become not only socially acceptable but outright attractive. They hack people with as much skill and malice as the worst black-hat “crackers”. The people who are harmed by intensive reference checks are honest people with difficult histories, not the degenerate and dishonest who are the real threat.

My experience is that people lack the tools to judge others for character, at least at scale. Any fair punitive structure is predictable, and the most skilled of the bad actors will adapt. Any unpredictable punitive structure will be unfair, and rely on decisions made by influential humans, who are more likely than average to be psychopaths, and will certainly have psychopathic courtiers (whom the powerful person has not yet detected). The best one can do is to judge people by their actions, and to punish bad deeds swiftly and objectively. This is not a trivial art, of course.

Laws and imprisonment serve this punitive purpose, but most of the people in our jails are impulsive people of low social class, with only moderate overlap between the imprisoned population and the psychopaths. In employment, there’s a naive hope that, while psychopaths can climb high within corporations, they will eventually be unable to escape their histories and be flushed out of respectable careers. It never happens that way. Moral degenerates don’t get blacklisted. They acquire power and do the blacklisting.

One acquired strategy for dealing with such people is “Distrust everyone”. That’s how most seasoned managers and executives, having been robbed a couple times by dishonest subordinates, tend to view the people below them– with implicit, prevailing distrust. That strategy fails especially badly. Why? First, there are degrees of trust and distrust. Becoming a managerial favorite (managers are not always psychopaths, but managerial favorites almost always are) simply requires superiority in relative trust, not any level of absolute trust. Second, it’s functionally impossible to get a complex job done (much less lead a team) with prevailing total distrust of everyone, so people who “distrust everyone” are desperate for people they can give partial trust. Psychopaths play people with that attitude quite easily. It’s not even work for them. A boss who thinks his subordinates are all morons is surprisingly easy to hack.

The conclusion of all this is that, in defending scalable institutions such as corporations against psychopaths, we’re basically helpless. We don’t have the tools to detect them based on affability or social proof, and any strategy that we devise to deal with them, they will subvert to their own ends. We can’t “beat” them when they look exactly like us and will be undetected until it’s too late. Our best shot is not to attract them, and to avoid engaging in behaviors that make our institutions and patterns most easily hackable.

Despite our complete lack of ability to assess individuals for character at scale, we develop metrics for doing so that often not only fail us, but become tools of the psychopath. A going assumption that people make is that the small is indicative of the large. If Fairbanks is chilly in the summer, it must be frigid in the winter. (This applies to most climates, but not to San Francisco.) People who make occasional misspellings in email must be stupid. People who have mediocre accomplishments (by adult standards) at young ages are destined for adult brilliance. People who regularly take 75-minute lunches are “time-stealing” thieves.

Talent is judged in the workplace based on minor accomplishments, largely because there are so few opportunities for major accomplishment, and those are only available to the well-established. The guy who reliably hits a “6″ is judged to be capable of the “9″ (see: Peter Principle) while the one who gets bored and starts dropping “5″s is flushed out. Character is judged, similarly, based on useless and minor signals. The person who regularly arrives at 9:00, never says the wrong thing, and projects the image of a “team player” (whatever the fuck that means) gets ahead. What takes the place of character– which, I contend, cannot be assessed at scale and amid the extreme information sparsity of modern society– is superficial reliability. The people who pass what a company thinks are character and “culture fit” assessments are, rather than those of pristine character, the superficially reliable.

Who wins at this game? I wouldn’t say that it’s only psychopaths who win, but the best are going to be the psychopaths. The earnestly honest will break rules (formal and informal) to get work done. They care more about doing the right thing than being perceived the right way. Psychopaths are not by-the-word rule-followers with regard to formal policies, but they always follow the informal social rules (even to the breach of formal and less-powerful informal rules). They figure them out the quickest, have few distractions (since they rarely do actual work; that’s not what the office game is about!) and, fairly early on, find themselves in the position to make those rules. 

Superficial reliability works in favor of the worst people. Why? It evolves into a competition. Once everyone is in the office from 9:00 to 6:00, the new standard becomes 8:00 to 7:00. Then it’s 7:00 to 8:00, with expected email checking to 11:00. People start to fail. The noncompliant are the first to drop away and judged by the organism (the team, management) to have been the least dedicated, so it’s not seen as a loss. The next wave of failures are the enervated compliant, who meet the increasingly difficult standards but underperform in other ways. They spend their 13 hours at the office, but start making mistakes. They turn into temporary incompetents, and are flushed out as well. They’re not seen as a loss either. “We have a tough culture here.” As those burn off, people who were formerly at the center of the bell curve (in reliability, status, and performance) are now on the fringe, which means that there’s an atypically large set of people on the bubble, generating a culture of anxiety. They become catty and cutthroat now that the middle is no longer a safe place to be. People fight, and some come out of it looking so terrible that their reputations are ruined. They leave. Psychopaths rarely enter these contests directly, but evolve into puppet masters and arms dealers, ensuring that they win regardless of each battle’s outcome. Soon, the psychopath has entrenched himself as a key player in the organization. He’s not doing most of the work, but he’s feared by the actual stars, enough that they’ll let him take credit for their work and (in management’s eye) become one.

Most reliability contests work this way. There’s some performance metric where the bottom few percent justly deserve to be fired. As a limited measure, such a “sweep” is not a bad idea. (“Let’s stop paying the people who never show up.”) Management, however, is not measured or limited. It’s faddish, impulsive, absolute, and excessive. Whatever policy is used to separate from true underperformers (about 2%) must also be used to “stack rank” the other 98 percent. It’s no longer enough to enforce an honest 8-hour day; we must require an 11-hour day. This overkill damages the work environment and culture, and psychopaths thrive in damaged, opaque, and miserable environments.

Another example is reference checking in employment. The real purpose of the reference check is to discourage the morally average from lying about their histories, and it works. The moral “middle man” at the center of the ethical bell curve would probably lie on his resume given the right incentives, but would stop short of asking 3 friends to support the lie by posing as peers at jobs the person did not hold. Most people won’t make that kind of demand of people who aren’t close to them, but few people want to be seen as unethical by close colleagues. That is the point where the average person says, “Wait a minute, this might be wrong.” The classic, three-reference check also filters out the honest but undesirable candidates who just can’t find three people to recommend their work. It’s a reliability test, in that anyone who can’t find 3 people in his last 5 years to say good things about him is probably in that bottom 2% who are undesirable hires for that reasonl alone. Yet, at senior ranks in large companies, reference checking becomes a reliability contest, with 10 to 20 references– including “back channel” references not furnished by the candidate– being required. At that point, you’re selecting in favor of psychopaths. Why? Most honest people, playing fair, can’t come up with 20 references, nor have they engaged in the intimidation and extortion necessary to pass an intensive “back-channel” reference check in a world where even a modestly positive reference means no-hire. It’s those honest people who fail those cavity searches. A psychopath with no qualms about dishonesty and extortion can furnish 50 references. Beyond the “classic 3″, reference checking actually selects for psychopathy. 

Why do psychopaths never fail out, even of reliability contests designed to cull those of low character? The answer is that they have a limited emotional spectrum, and don’t feel most varieties of emotional pain, which makes them exceptionally good at such contests. They don’t become upset with themselves when they produce shoddy work– instead, they plan a blame strategy– so they don’t mind 15-hour days. (Office politics is a game for them, and one they love to play, so long hours don’t bother them.) They are emotionally immune to criticism as well. While they care immensely about their status and image, they have no reason to fear being dressed down by people they respect– because they don’t actually respect anyone. While psychopaths seem to despise losing, given the awful things they will do to avoid a minimal loss, even defeat doesn’t faze them for long. (This is an erroneous perception of the psychopaths; when we see psychopaths doing awful things to avoid minor losses, we assume they must have a desperate hatred of losing because we would require extreme circumstances in order to do such bad things. In truth, the difference is that they have no internal resistance against bad action.) Losses do not depress or hamper them. They pop right back up. Psychopaths are unbeatable. You can’t find them out until it’s too late, and whatever you try to kill them with is just as likely to hit someone innocent. Indeed, they thrive on our efforts to defeat them. When they are finally caught and prone, our punishments are often useless. There is truly “no there there” to a psychopath, and they have nothing to lose.

For an aside, I am not saying that we are powerless to curtail, punish, or rehabilitate the larger category of “bad actors”. Laws, social norms, and traditional incentives work well for normal people. Petty theft, for example, is rare because it is punished. Plenty of non-psychopaths would– out of weakness, desperation, curiosity, or even boredom– steal if they could get away with it. Jail time deters them. Prison is an environment to which normal people adapt poorly, and therefore an undesirable place to be. Psychopaths are different in many ways, one of which is that they are extremely adaptive. They love environments that others cannot stand, including prisons and “tough” workplace cultures. Punishing a psychopath is very hard, given his imperviousness to emotional pain. You could inflict physical pain or even kill him, but there would be no point. He would suffer, but he would not change.

Why does psychopathy exist? It’s useful to answer this question in order to best understand what psychopathy is. My best guess at it is that it has emerged out of the tension between two reproductive pressures– r- and K-selection– that existed in our evolutionary environment. An r-selective strategy is one that maximizes gross reproductive yield, or “spray and pray”. K-selective strategies are focused more on quality– fewer, more successful, offspring. The r-selective “alpha” male has a harem of 20 women and 200 children, most neglected and unhealthy. The K-selective “beta” has one wife and “only” 8 or 9 offspring, and invests heavily in their health. Neither is innately superior to the other; r-selective strategies repopulate quickly after a crisis, while K-selective quality-focused strategies perform well in stability. Human civilization has been the gradual process of the K-strategist “betas” taking over, first with monogamy and expected paternal investment, which was later extended to political and economic equality (because high-quality offspring will fare better in a stable and just world than a damaged one). Almost certainly, all humans possess a mix of “alpha” and “beta” genes and carry impulses from both evolutionary patterns, with the more civilized beta strategy winning over time, but not without a fight. Indeed, what we view as morally “good” in many societies is intimately connected with beta patterns– sexual restraint, nonviolence, positive-sum gradualism– while our concept of “sin” is tied to our alpha heritage. Psychopathy seems to be an adaptation in which the beta, or K-selective, tendencies of the mind are not expressed, allowing the alpha to run unchecked. In evolutionary terms, this made the individual more fit, although often at the expense of society.

Psychopaths (for obvious evolutionary reasons) like sex, status, and resources, but that alone doesn’t identify them, since almost everyone does. What differentiates the psychopath is the extreme present-time orientation, as well as the willingness to make ethical compromises to get them. The future-oriented, positive-sum mentality is absent in the psychopath. Unhampered by conscience, psychopaths quickly acquire resources and power, these being key (at least, throughout most of our evolutionary history) to reproductive proliferation. In business, their sexual appetites are not of major interest. What’s most relevant to our problem is their attraction to power and status. That is what they want. It’s only about money for them so far as it confers social status.

If we cannot defeat psychopaths, then what should we do? This turns out not to be a new problem– not in the least. Why, for example, do American elected officials draw such mediocre salaries? Why do we need all the checks and balances that make even the presidency so much damn work? Making power less attractive is one of the first principles of rational government, as the concept was developed during the Age of Reason. The reactionary clergies and hereditary aristocracies had to go– that much was clear– but how could one prevent a worse and more brutal lord from filling the vacuum? The idea was to compensate for power’s natural attractiveness by limiting it and attaching responsibilities. In the U.S., this even came to the matter of location, with the nation’s capital being chosen deliberately in an undesirable climate. In elected politics, I would say that this has mostly worked. We’ve had some downright awful political leaders, but a surprisingly low number (by corporate comparison) of psychopaths in top political positions. I wouldn’t go so far as to say that elected office doesn’t attract them, but other positions of power attract them much more. With the first-rate psychopaths making millions in the corporate world, the psychopaths who are attracted to elected political positions are the C-students in psychopath school.

Taking a macroscopic perspective, psychopathy is a very hard problem to solve. A closed system such as a nation-state has some probably invariant population of psychopaths that, inevitably, will be attracted to some variety of social status and dominance over other people. Flush them out of politics, and they end up in business. Yet if business were made unattractive due to an overpowered state (e.g. left-wing authoritarianism) they would end up back in government. They have to go somewhere, and it is impossible to identify them until they’ve done their damage (and, often, not even then). Yet the microeconomic problem for an individual firm is much easier– don’t attract psychopaths.

In technology, one strategy is Valve-style open allocation, under which employees are permitted to work for the firm directly rather than requiring managerial approval. Want to change projects? Move your desk and start. The typical extortion that middle managers use to build their careers– work for me or you don’t work here at all– doesn’t exist, because no one has that authority. Managerial authority attracts psychopaths like little else– more than money or prestige– and if one can do without it, one should consider doing so.

Much of the appeal of startups in technology is the perception (sometimes, an inaccurate one) that small technology companies haven’t yet been corroded and politicized by managerial extortions. In the ideal case, a startup operates under a constrained open allocation. It’s not yet “work on whatever you want”, because the startup requires intense focus on solving a specific problem, but employees are trusted to manage their own contribution. When do those companies go to closed allocation? Often, “hot” companies lose their cultural integrity in the process of hiring executives. The flashy career office-politician with impressive titles and “a track record” demands authority from the go, and it’s given to him. Five direct reports is not enough; he demands ten. He gets 15. Over time, employees lose status and autonomy as it’s chipped away to feed these people.

Most of the cultural losses that companies endure as they grow are suffered in the quest to hire executives from the outside, but what kind of person are you going to attract if you’re immediately willing to sell off your employees’ autonomy to “close a deal”? The people you’re most likely to get are those who enjoy power over people. Not all of these are psychopaths (some are mere narcissists or control freaks) but many are. Your culture will disappear rapidly.

If you’re running a typical VC-funded, build-to-flip operation, then hiring power-hungry external executives might be the way to go. A great way to buy an important decision-maker (an investor, an executive at an acquirer) is to give his underperforming friend an executive position at your company. You might take on a psychopath or few, but you’re not going to be in the company for very long, so it’s not your concern. On the other hand, if you want to build a stable company whose culture and values will still be worth a damn in 20 years, then you can’t do that. To the extent that your organization needs positions of power to function, you need to make them undesirable to the psychopath. This is one of the major reasons why you need intrinsic limits (checks and balances) on power.

Unfortunately for corporate executives, making a company less psychopath-friendly means equalizing the distribution of power and reward within companies. It means moving away from the CEO-as-king model and the eight-figure pay packages. Over the past forty years, we’ve been paying more and getting less when it comes to corporate management. Flushing out the psychopaths requires that we pay less, both financially and in terms of authority over other people, for managerial positions. The whole concept of what it means to be an “executive” will require reinvention as radical as the replacement of hereditary monarchs by elected legislators.

The stupid, superficial reliability contests that corporations use to assess character and protect themselves against psychopaths don’t work. In fact, they do the opposite, becoming the psychopath’s favorite tools. Companies that want to avoid being invaded and controlled by such people will have to reinvent themselves in a form radically unlike the traditional, hierarchical corporation.