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think again: why good leaders make bad decisions Sydney Finkelstein, Jo Whitehead, Andrew Campbell D ecision-making lies at the heart of our personal and professional lives. Every day we make decisions. Some are small, domestic and innocuous. Others are more important; decisions that affect peoples’ lives, livelihoods and wellbeing. Inevitably, we make mistakes along the way. We are only human – even when we are at work. Indeed, the daunting reality is that enormously important decisions made by intelligent, responsible people with the best information and intentions sometimes go wrong. Good leaders make bad decisions. Even great leaders can make bad decisions. President Kennedy is famous for his blunder over the Bay of Pigs. President Hoover failed to inflate the economy after the great crash of 1929. British Prime Minister Margaret Thatcher championed a “poll tax” that contributed to her being ousted by her own party. Paul Wolfowitz, the former U.S. Deputy Secretary of Defense, was asked to resign as President of the World Bank because of a pay settlement related to his partner who also worked at the bank. And it’s not just politicians and public servants who get it badly wrong; business leaders, too, are prone to misjudgment. Juergen Schremp, CEO of Daimler Benz, led the merger of Chrysler and Daimler Benz against internal opposition. Nearly 10 years later, Daimler was forced to virtually give Chrysler away in a private equity deal. Kun-Hee Lee, CEO of Samsung, pushed his company into a disastrous investment in automobiles. As losses mounted, he was forced to sell the car division for a tenth of the billions he had invested. An Wang, founder of the electronics company Wang, insisted on a proprietary operating system for his company’s personal computer, even after it was clear that the IBM PC would become the industry standard. The company is now history. Richard Fuld refused to accept the consequences of the worsening credit crisis and consider a sale of Lehman until it was too late. When he was ready, there were no buyers to be found. And CEO Jerry Yang insisted that his Yahoo! was worth much more than the market, or Microsoft, believed it to be. In the end, his stubborn refusal to consider Microsoft’s overture to buy the company cost shareholders $30 billion, and Jerry Yang his job. Whether the decision is a personal one, as in the case of Wolfowitz, or of global importance, as in the case of the meltdown of the financial markets in 2008, mistakes happen. But, why do good leaders make bad decisions? And, how can we reduce the risk of it happening to us? tHe deciSive Heart To find out we traveled to the heart of decision-making in organizations of all shapes and sizes throughout the world. We began by assembling a database of decisions that went wrong. Let’s be clear, we were not looking for decisions that simply turned out badly. We were looking for decisions that were flawed at the time they were made. This is an important point. It isn’t that with 20-20 hindsight we identified these decisions as flawed. We sought out decisions that any clearheaded analysis at the time of the decision would have led to the conclusion that it was the wrong decision. Of course, many indifferent outcomes are due to bad luck or to taking calculated risks. In the business and political worlds in particular, sensible decisions based on considered thinking can come unstuck thanks to the unavoidable risks involved. Sometimes people are just unlucky. As you can imagine, trying to distinguish between flawed decisions and calculated risks that turned out badly is not easy. For each we made an assessment. Given the information available at the time, did we think that a reasonably competent person would have made the same decision? We also looked for dissenting views in the decision making process. The existence of contrary views is not proof that a decision is wrong. Many decisions have contrary views. But, if there were no contrary views at the time, we excluded the decision from our rapidly expanding collection. We quickly found there are an awful lot of bad decisions out there! Indeed, in unfamiliar circumstances, like businesses entering new markets or politicians coping with new challenges, flawed decisions abound. We ended up studying 83 different decisions by leaders in business and government. We are not claiming that we have a unique ability to spot flawed decisions. Indeed, some of the decisions we examine may be considered by others as wise choices that turned out badly. Fortunately, our argument does not depend on whether our examples are correctly categorized. Our understanding of why flawed decisions are so common comes from the work that has been done by neuroscientists and decision scientists to understand how the brain works when faced with a set of circumstances that require a decision. FlawS oF tHe JUngle So, what did we find in our quest to understand why capable people make errors of judgment? The answers were simpler and more powerful than we were expecting. There are two factors at play in a flawed decision: an individual or group of individuals who have made an error of judgment; and a decision process that fails to correct the error. Both have to be present to produce a bad decision. This was an important realization. A bad decision starts with at least one influential person making an error of judgment. But normally, the decision process will save the day: facts will be brought to the table that challenge the flawed thinking, or other people with different views will influence the outcome. So the second factor that contributes to a bad decision is the way the decision is managed: for whatever reason, as the decision is being discussed, the initial erroneous views are not exposed and corrected. This article is adapted from Finkelstein, S., Whitehead, J., and Campbell, A. 2008. Think Again: Why Good Leaders Make Bad Decisions and How to Keep it From Happening to You. Cambridge: Harvard Business Press. h o s p i t a l i t y d es ign s ummit 2 0 0 9

Hospitality & Design Summit 2009

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