Educational Pension Investments

Educational Pension Investments $($EPI$),$ located in New York, invests pension funds for educational institutions. It employs approximately $75$ people, $25$ of whom are responsible for actual investment activities. The company manages about $$5$ billion of assets and derived an income of about $$10$ million.

The firm was incorporated almost $30$ years ago by a group of academic professionals who wanted to control the destiny of their retirement years by pursuing investments that would be consistent and safe. The firm has weathered rapid technological change and economic volatility. Leadership has consistently resisted opportunities to "make it big" and instead stayed with less profitable but relatively secure investments.

Dan Richardson has an MBA from Wharton and is one of the founders of EPI. He started out working in the research department and has worked in every department since then. The other partners, comfortable with Dan's conservative yet flexible nature, elected him to the position of CEO $13$ years ago. After that, Dan became known as "the great equalizer." He works hard to make sure that all the partners are included in decisions. Over the years, he has become the confidant of the other seniors and the mentor of the next generation. EPI's employees look to Dan for leadership and direction. Dan's management philosophy is built on the concept of loyalty. As he is fond of saying, $"$My dad was a small town banker. He told me$,$ 'Look out for the other guys and they'll look out for you.$\text{'}$ Sounds corny, I know, but I firmly believe in this philosophy."

Given Dan's practice of consistent and safe investing, EPI's growth has not kept pace with other investment opportunities. As a result, Dan has reluctantly begun to consider the merits of a more aggressive investment approach. Part of Dan's reconsideration is that several of the younger analysts are beginning to refer to EPI as "stodgy." Some are leaving EPI for positions in more aggressive firms.

One evening, Dan talked about his concern with his racquetball partner and longtime friend, Mike Roth. Mike also happened to be an investment broker in another firm. An MBA graduate from the University of Illinois, Mike's accomplishments in research had brought him widespread recognition. Everyone respected him for his knowledge, his work ethic, and his uncanny ability to predict trends.

When Mike heard Dan's concerns about EPI's image and need for an aggressive approach, he suggested to his friend that what EPI needed was some fresh blood, someone who could infuse enthusiasm into the organization$$someone like him. He told Dan, "I can help you get things moving. In fact, I've been developing some concepts that would be perfect for EPI."

Dan brought up the idea of hiring Mike at the next staff meeting, but the idea was met with caution and skepticism. "Sure, he's had a brilliant career on paper," said one senior partner. "But he's never stayed in one place long enough to really validate his success. Look at his r$$sum$.$ During the past seven years, he's been with four different firms, in four different positions."

"That's true," said Dan, "but his references all check out. In fact, he's been described as a rising star, aggressive, productive. He's just what we need to help us explore new opportunities."

Another partner responded, "A friend of mine worked with Mike a while back and said that while he is definitely good, he's a real maverick$$in terms of both investment philosophy and lifestyle. Is that what we really want at EPI?"

Throughout the discussion, Dan defended Mike's work record. He repeatedly pointed out Mike's impressive performance. He deflected concerns about Mike's reputation by saying that he was a loyal and trusted friend. Largely on Dan's recommendation, the other partners agreed, although somewhat reluctantly, to hire Mike. When Dan offered Mike the job, he promised Mike the freedom and flexibility to operate a segment of the fund as he desired.

Mike took the job and performed his responsibilities at EPI in a superior manner. Indeed, he was largely responsible for increasing the managed assets of the company by $150$ percent. However, this increase came at a price. From the day Mike moved in$,$ junior analysts enjoyed working with him very much. They liked his fresh, new approach, and were encouraged by the spectacular results. This caused jealousy among the other partners, who thought Mike was pushing too hard to change the tried$-$and$-$true traditions of the firm. It was not uncommon for sharp disagreements to erupt in staff meetings, with one or another partner coming close to storming out of the room. Throughout this time, Dan tried to soothe ruffled feathers and maintain an atmosphere of trust and loyalty.

Mike seemed oblivious to all the turmoil he was causing. He was optimistic about potential growth opportunities. He believed that voice$-$activated technology, $3-$D printing, and cloud databases were the "waves of the f