The Heath Bros. new book, Decisive, is in line with the great stuff they’ve been putting out
for several years now: based on sound
research, easy to read, full of great stories, and relevant to just about
everybody, their new book is subtitled “How to Make Better Choices in Life and
Work.” They have a mnemonic for remembering their 4-step process for
implemented their strategies: WRAP [Widen
your options; Reality-test your
assumptions; Attain distance before
deciding, and Prepare to be wrong].
Jump-starting their discussion of “reality testing your
assumptions,” (pages 92-94) they tell the story of two business school
professors (Hayward and Hambrick) who
were puzzled by the number of CEOs who make expensive acquisitions that rarely
pay off. Buying another company is a
risky business, but the number of managers who did it suggested otherwise. Their
theory? “…[A]cquiring CEOs were being led astray by their own hubris.” Looks like they were right: they tested three
factors to see if managers’ overconfidence was leading them to overpay.
They were [here I quote directly]:
1.
Praise by the media.
2.
Strong recent corporate performance (which the
CEO could interpret as evidence of his/her genius
3.
A sense of self-importance (which was measured,
cleverly, by looking at the gap between the CEO’s compensation package and the
next-highest-paid officer—a CEO must think a lot of himself if he’s paid quadruple
the salary of anyone else).
And they were right on all counts. They discovered a decided correlation
between CEO ego (thus measured) and the acquisition premium.
This may not be so surprising (at
least if you’re not a CEO). But it’s a bias that emerges for all of us non-CEOs as well when we
think we know something. The antidote is surprisingly simple—and effective.
Disagreement—and encouraging it in the
people around you. Don’t believe it? Go ask your spouse.
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