Advisors play the stag hunt game just about every day, whether they realize it or not. Here’s an example. Two advisors are working at the same firm but have different ideas about modernizing, integrating or improving one of their firm’s key platforms, such as its investment or operations platform. (It really could be any strategic endeavor.) They could cooperate and arrive at a new approach that works best for both of them. Alternatively, they could both defect and continue to use the firm’s old platform without change. This solution is less ideal, but it would allow the firm to continue operating for some period of time. Finally, one of the advisors could decide to move forward with at least some changes while the other does nothing, resulting in great inefficiencies and possibly leading to the firm’s downfall or breakup. In this example, cooperative change is the stag, while no change is a hare for each. A split decision leaves one advisor with at least a hare while the other advisor may end up with nothing. If the advisors can simply learn to trust each other and cooperate, they will successfully hunt the stag—achieving the optimal result for both.

Another example might be two advisors within a firm who are considering a merger or another strategic transaction that would improve the firm and help it prepare for a more dynamic and secure future. If they cooperate in pursuing a transaction, they and their clients will be secure for many years to come. If they both defect, they will continue to operate for some time but will not address the issues that could have been solved through a transaction. If one wants to cooperate and the other does not, then the former might depart, leaving the latter to falter. Here, cooperation toward the transaction is optimal, while mutual defection is suboptimal but survivable. A split decision yields something less than optimal for the advisor pursuing change and possible disaster for the one remaining behind.

There are countless ways these dynamics can play out at advisory firms, and countless ways advisors fail to get the best results—mainly because they are pursuing their own self-interest, which hinders trust and cooperation among other team members. The firms that get the best results do so because their members have learned to work together. These people have learned that while they individually may be tempted to pursue a safe or selfish solution that makes the most sense to them at the time, they can achieve a better solution by working together and allowing for a solution that is best for the whole group.

Make sense to you? Well, if it does, then you are in good company. Rousseau, Pareto and Nash would likely agree. (Nash won the Nobel Memorial Prize in Economic Sciences in 1994.)

Let’s now look at larger firms, where there are more people involved in decision-making. What would happen at a bigger firm when most people are willing to cooperate for the greater good but a small minority are not? Time to introduce another theory—the “theory of constraints,” made famous by Eliyahu Goldratt. It effectively states that an organization’s potential is limited by the constraints within it. Some describe it by using the physics analogy that a chain is only as strong as its weakest link. Or, if there were a knot in a garden hose, the output of the hose would always be limited until the knot could be removed. So it is with organizations.

Even in a company of mainly collaborative members, a few defectors can hold back the organization’s potential. Thus, cooperation must be pervasive within the organization to achieve optimal results. In the parlance of the stag hunt game, all of the hunters must cooperate.

In fact, without trust and cooperation, that game becomes an altogether different one—the prisoner’s dilemma, devised by mathematicians Merrill Flood, Melvin Dresher and Albert Tucker. This is a single game in which two prisoners in solitary confinement face interrogation by the authorities, and each must decide whether they should trust the other by remaining silent or defect and betray the other to the authorities. If both stay silent, they will get a light sentence. If both defect, the sentence will be harsher but still not as severe. If one stays silent but the other defects, the defector will be set free while the other receives a heavy sentence. Unlike the stag hunt game, the prisoner’s dilemma has only one Nash equilibrium—both prisoners must defect and betray each other. This is not a recommended formula for success at an advisory firm!

So, getting back to the questions posed at the beginning of this article, why are some advisory companies more successful than others? Is there a single secret of success? I believe the answer is this: While successful companies may possess all or many of the traditional elements of success, they are all made up of people who consistently trust each other and are willing to compromise their own self-interest and pursuits to cooperate for the benefit of the greater good, thereby—ironically—optimizing their self-interest. They are successful stag hunters. And those who act selfishly or without regard to their colleagues? They’re prisoners of their own making, waiting to betray their peers. It’s all a matter of math and logic.  

Michael J. Nathanson, JD, LLM, is chairman and chief executive officer of The Colony Group.