There are two key responsibilities every great CEO must carry out effectively: allocating resources and developing the senior management team.
To do so requires an unfettered intellectual process on which one bases decisions and makes choices. The challenge, however, is conquering one’s natural cognitive bias.
To put this simply, we do not like to be proved wrong and we believe our own hype. When hiring someone for example, one might select the candidate one likes best rather than the person who is more qualified for the role. Doing so is irrational yet it validates what we believe to be right.
A CEO with a gift for sales but who finds management more challenging, for example, may favour visiting a client over holding an appraisal. Favouring the easier task over the more difficult will undoubtedly be to the detriment of the business yet bias allows this to continue.
What makes cognitive bias even more challenging for a CEO is the propensity of those around us to tell us what we want to hear. Employees may be reluctant to point out that sales have been prioritised while team reviews have been neglected, fearing retribution for drawing attention to perceived failings. This lack of criticism only serves to reinforce the CEO’s bias and creates a vicious circle.
A CEO needs to have the right information upon which to base their decisions and drive the company in the appropriate direction.
If an individual bases a view on cognitive bias, it doesn’t necessarily make that position incorrect, but it needs to be validated. CEOs need to receive feedback from people who are willing to speak the truth and to have their views heard. As noted above, this may rule out internal players, but there are other sources.
CEOs should have a network of peers to whom they can refer for opinions, sound out ideas and request recommendations. In the same way one might ask a friend to refer a plumber or mechanic, the same is true in business.
However, five or so opinions do not constitute adequate empirical data on which to make an informed decision. Indeed, the more information and data that one can source to challenge our assumptions the better.
When using online sites such as TripAdvisor to inform hotel or restaurant choices, one knows that five positive reviews and one negative review of an establishment does not reveal as much as 1000 positive reviews and five negative reviews. At the same time, we also know that our own experience of a meal might differ from the many reviewers, but at least additional data has fed into the process.
Eventually, however, the most reliable form of feedback will most likely come from an impartial, independent expert. Talking to a specialist consultant with experience in a particular field, who also appreciates the presence of bias, can provide invaluable intelligence. They will likely have research and vast knowledge that is otherwise unattainable.
Of course, not all consultants are made equal; some will be far more knowledgeable, communicative and approachable than others. CEOs will need to use their own intuition to choose the right one. However, the goal is not to attempt to have 100% irrefutable proof that a decision is correct; the 80/20 rule is more than adequate.
So far, we have looked at cognitive bias, which covers areas where we are aware of our own inclinations and preferences.
However, humans are also carrying unconscious bias. This is far more challenging to manage since we are simply not aware that hidden prejudice is driving our actions.
The Johari Window is a useful way to understand unconscious bias.
The top left quadrant shows behaviours that we are aware of and so are others. We can all see our own current hair colour for example. The bottom left quadrant shows something we know about ourselves that others do not – that we have dyed our hair, for example. The top right quadrant is behaviour that we others are aware of that we are not – talking too loudly perhaps. Finally, the bottom right is elements of ourselves that none of us are aware of. The right quadrants deal with the unconscious.
A great CEO has excellent self-awareness. This means they recognise they have unconscious bias and work to reveal it and deal with it. They know that it is not enough to merely identify unconscious bias, they need to be able to adapt their behaviour to make intelligent choices.
Wihtout identifying and reacting to unconscious bias there is a very real risk that one will get one’s tie caught in the machine and rather than turning int off or cutting the tie, one continues to be dragged towards the inevitable ugly accident.
It is relatively straightforward for an outsider to identify blind spots in another person, however attempting to find an unconscious bias that is hidden completely, requires further analysis.
External validators can look for patterns of behaviour that have appeared irrational or led to destructive conclusions and see where these are repeated.
For example, a CEO repeatedly raised venture capital funding to expand the business, she spent this far too quickly in her desperation to grow before the company and its management team were ready and was forced to return for further funding in exchange for equity. Again, she spent the money far too quickly and was obliged to give away even more of her business.
All too often the positive motivation to make more money has – unconsciously – turned into the negative greed. This was evidenced by the Hunt Family who were successful oil tycoons in America. In the 1970s Nelson, along with brothers William and Lamar, attempted to corner the world silver market. Initially they were successful, dominating the global silver market and amassing a £4bn fortune. However, their desire to monopolise silver production completely, led to government intervention and the price of silver collapsed, taking the Hunt fortune with it.
If Nelson and his brothers has stopped and listened to an external voice they might have been aware that they had their collective ties caught in the machine. With impartial, intelligent feedback, they could have walked away unscathed but instead they lost the lot.
The failure to recognise conscious bias means a failure to process risk which can be catastrophic. It may be that in a CEOs head it makes sense to risk 100% of the company’s assets to triple their profits, but if there is a 99% risk they could lose it all, it does not make sense to proceed. Sense checking and the ability to weigh up the downside as well as the up are imperative skills. We will also explore in a later chapter how to filter out the emotional interference which often feeds bias.
By dealing with cognitive bias – both conscious and unconscious – CEOs can protect themselves from unnecessary risk. Sometimes the desire to succeed at all odds is what leads a person to become a CEO in the first place, but once they are at the top it is time to step back and learn new skills.
Having bias in and of itself is not a bad thing, but how one accepts that bias and ensures it does not influence decision-making is key.
A great CEO needs to recognise bias exists, talk to trusted others to challenge assumptions, and use external experts and empirical data to inform final decisions.