The lucky post

I was having a great conversation with my 9-year old the other day about the role of luck in success.  You know my take– sure I work reasonably hard and I’m smart, but it is little more than luck that I was born to highly-educated upper-middle class parents in an educated, stable community and that I have a brain that is good at processing information and deferring gratification.  I think we all know that luck (and context– which is closely related) matter, but I think in most things, people tend to under-estimate the impact of luck and random factors and I think this is especially so among political conservatives.  Anyway, it reminded me of this article from back in February that I meant to blog about back at the time.

This is great– it’s about a CEO, who for the purposes of the upper-hand in a divorce case, argues that his success is about luck, not his own skill.  It may be largely a cynical legal ploy (or not).  Regardless, I think he’s right:

The divorce of the oil billionaire Harold G. Hamm from Sue Ann Arnall has gained attention largely for its outsize dollar amounts. Mr. Hamm, the chief executive and founder of Continental Resources, who was worth more than $18 billion at one point, wrote his ex-wife a check last month for $974,790,317.77 to settle their split. She’s appealing to get more; he’s appealing to pay less.

Yet beyond the staggering sums, the Hamm divorce raises a fundamental question about the wealth of executives and entrepreneurs: How much do they owe their fortunes to skill and hard work, and how much comes from happenstance and luck?

Mr. Hamm, seeking to exploit a wrinkle in divorce law, made the unusual argument that his wealth came largely from forces outside his control, like global oil prices, the expertise of his deputies and other people’s technology. During the nine-week divorce trial, his lawyers claimed that although Mr. Hamm had founded Continental Resources and led the company to become a multibillion-dollar energy giant, he was responsible for less than 10 percent of his personal and corporate success…

In a filing last month supporting his appeal, Mr. Hamm cites the recent drop in oil prices and subsequent 50 percent drop in Continental’s share price and his fortune as further proof that forces outside his control direct his company’s fortunes.

Lawyers for Ms. Arnall argue that Mr. Hamm is responsible for more than 90 percent of his fortune.

While rooted in a messy divorce, the dispute frames a philosophical and ethical debate over inequality and the obligations of the wealthy. If wealth comes mainly from luck or circumstance, many say the wealthy owe a greater debt to society in the form of taxes or charity. [emphases mine] If wealth comes from skill and hard work, perhaps higher taxes would discourage that effort.

Sorting out what value is created by luck or skill is a tricky proposition in itself. The limited amount of academic research on the topic, which mainly looks at how executives can influence a company’s value, has often found that broader market forces often have a bigger impact on a company’s success than an executive’s actions.

Of course, skill, hard-work, etc., matter.  Just not as much as most political conservatives think they do.  Furthermore, I would argue that brains and a good work ethic are themselves substantially determined by luck.  Not to argue that these things should not be rewarded in the marketplace, but things look different when you realize how much luck is involved.