Sunday, June 19, 2005

Wearing out optimism

It is the peculiar gift of CEOs to be eternally optimistic. Whenever a CEO is reported to upbeat in the face of some calamity, I can only respond: well, duh... It's the CEO's job to see the silver lining in every situation. At least in public; in private they just as often have to be chest-thumping autocrats, finding fault in every particular, and so - supposedly - inspiring their tribe to greater success.

Such unreasonable optimism is a good and necessary thing. Employees and shareholders easily get disparities, often unreasonably. Someone who can always find the good news in any adversity keeps morale high, which is important for performance; so often, confidence is the magic surplus that stands between success and failure.

The trouble is, the trick loses its power through repeated use. When leaders are cheerful every single time, regardless of the evidence, they become less trustworthy. It's like a defense lawyer who can always argue why the prosecution case is flawed; the defendant may well often be innocent, but every single time?

Eventually the reaction becomes, "Well, they would say that, wouldn't they?," and the magic fades [1].

What's left is the power of their rhetoric, which shouldn't be discounted; the plausibility field surrounding charismatic leaders leverages some very deep human instincts [2]. Leaders can be particularly persuasive if they're good sales people, because as far as they're concerned, they're not spinning; they truly believe what they're saying [3].

However, once one notices that the positive spin never changes, one becomes aware of the mechanism: the power of their self-belief, the power of one's own desire to believe them. (I see the makings of another installment of Winning Against a Big Ego... stay tuned.)

Excessive optimism can be bad for business. In an article in the Harvard Business Review [4], Lovallo and Kahneman describe how executives and program planners often succumb to false optimism, resulting in inaccurate forecasts when defining new programs. They show that a combination of cognitive biases and organizational pressures lead managers to make overly optimistic forecasts in analyzing proposals for major investments. Rational weighing of the odds is overwhelmed by delusions of success; benefits are overestimated and costs are underestimated.

So, three cheers for pessimists! Any endeavor needs balance to make good decisions, and keep people motivated. Sometimes the glass is half full, but just as often it's half empty. Pessimists get a bad rap, because they're depressing to have around. They're typically not good leaders: "Let's go take that hill, boys, even though the odds are that we're going to be cut to ribbons by that machine gun nest." However, a general would do well to have a pessimist or two on staff. Pessimists can limit the number of follies one falls into. Pessimists are also a good foil for the optimistic visionary; the leader doesn't have to be on top form all the time, just more optimistic than the resident grinch.


[1] For those not versed in British culture: Mandy Rice-Davies uttered this immortal line in the Profumo case. During the trial of one of the protagonists, the prosecution alleged that Rice-Davies had received money from Lord Astor in return for sex. When she was told Lord Astor had denied ever sleeping with her, she uttered the immortal line: "He would, wouldn't he?" See for more.

[2] In Influence: The Psychology of Persuasion, Robert B. Cialdini argues professional persuaders exploit six psychologically hard-wired and evolutionarily advantageous responses. The one at play here is "deferring to authority"; the one which led students to apply (faked) shock therapy to test subjects in a famous experiment because their professor told them to. Listening to leaders is normally a healthy behavior, though, since it leads to cohesive communal action, and leverages the insights of those who are usually more skilled than their followers.

[3] cotes some researchers who believe that charismatic liars are effective because they believe their own lies. Note that I am not claiming here that leaders in general or CEOs in particular are liars.

[4] How Optimism Undermines Executive Decisions, D. Lovallo and D. Kahneman, Harvard Business Review, July 2003, p. 57, summary, purchase details; paraphrased in

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