“Most people say that it’s the intellect which makes a great scientist. They are wrong: it is character.”
Those are the words of the genius that was Albert Einstein. He was not only able to figure out the law of the photoelectric effect (which makes solar panels and digital cameras possible), he also discovered and was humble enough to note that character supersedes intelligence.
We all want someone who has good character – from an employee to a lifetime partner. But then, when it comes to putting a value on it, some people would push it down to the bottom of the list in favor of such qualities as “hardworking” or “handsome”.
As Bruce Nordstrom once said, “We can hire nice people and teach them to sell, but we can’t hire salespeople and teach them to be nice.”
Even in suretyship, character was previously overlooked resulting in a series of financial losses – lots of them. One of the biggest surety bond blunders (and most publicized) was the Enron crisis back in 2001.
That debacle is a huge lesson in suretyship. Because of that, surety bond providers quickly figured out that a person’s financial capability alone is not sufficient to protect the surety from any losses, and that putting emphasis on character would have saved them from such loss.
The 3 Great Essentials of Underwriting
George Wentz referred to character, capacity, and capital as the three great essentials of underwriting – the process of identifying bonding risks. The surety bond industry relies on these factors to evaluate whether a principal is up to the task or not.
Capital refers to the financial capability of the person to fund his or her business. The person should have a sufficient amount in order to respond financially to obligations that are stated on the bond.
Capacity, on the other hand, is the ability of the person to perform the obligations set forth in the bond. This is an umbrella term that pertains to the person’s education, knowledge, expertise in the field, as well as how competent the person’s employees are.
Out of all three, character is the factor that can be easily overlooked because it falls under the heading of things that many believe they understand, or at least, the easiest to determine.
Most of us believe that character is a pretty straightforward element. If a person is a thief, then he is of bad character. If he hasn’t done any bad deeds, then he is good.
To put it simply, many of us believe that we have a good understanding of others based on a few traits. This is why we end up putting people into categories based on assumptions about a person’s demeanor, physical bearing, or the way he talks.
But when you’re dealing with big risks, a few good or bad traits will not be enough to come up with a conclusion, hence the difficulty in assessing it.
When an underwriter would like to know if the person has enough capital, he can look at the person’s latest financial statement or credit reports. Or if an underwriter would like to assess a person’s capacity, he can check the person’s job performance history. Those are facts. Hard evidence.
Character, on the other hand, has the uncanny ability to flout quantification. Character is indeed highly complex.
Importance of Character
We’ve all heard or read stories about how character helps a person perform her role, inspire employees, and ultimately propel the business to success. Those things have been quantified.
A few years ago, KRW International, a leadership consultancy firm, did research about CEOs' characters and their profound effect on the companies. The CEOs who got high marks from their employees had 5 times as much average return on assets than those who had low character ratings.
So, what does that mean? KRW International believes that “higher character leaders lower corporate risks and supercharge their workforce”. Simply put, they may have the highest ability to perform.
Underwriting is described as the art of applying subjective thinking and analysis to the science of facts and truth.
How is that definition applied to assessing a principal’s (the person who undergoes underwriting) character?
A principal’s character is assessed from application to execution of the bond. These will be solidified by reference checks.
The underwriter will delve deeper into any red flags that may come up on specific documents provided by banks or third-party creditors. The underwriter will also evaluate how cooperative the principal is or whether or not the principal submits the proper documents.
These are just a few ways in which an underwriter assesses a principal’s character. It’s not an easy task. Careful assessment is key.
An underwriter cannot simply approve nor deny an application based on a few hunches. That is against our tenet. Surety Bond Authority has provided and will continue to provide equal opportunity for all.