The danger of hubris

Excessive confidence is a dangerous thing, says Chris Ingram.

One Oxford English Dictionary definition I like is: ‘Excessive pride or presumption towards the gods, leading to nemesis.’ This seems particularly apposite today. At that time, I gave as examples Napoleon and Hitler, both monsters in their own ways – each of them relied less and less on their detailed planning and insight, stopped listening to anyone except sycophants, and became ever more convinced of their own uniqueness, until they fortunately imploded. I also mentioned my own hubristic moment that cost me
£2 million in a very public dispute with some TV companies.

Leaders of all kinds face the challenge of striking the right balance. They must emanate confidence without slipping into over-confidence and arrogance, regardless
of how much success they enjoy.

Unholy trinity
There seem to me to be three different levels of hubris: there’s the small level, bumptious stuff that we can have a chuckle about; then there’s the management hubris leading to the CEO using the company for personal gain alone; and finally, there’s the hubris that leads to dangerous corporate activity, putting shareholders and staff at risk. Two recent, unsolicited emails are good examples of amusing hubris: ‘Fantastic double offer: Hear me speak and save £30!’ and one from a potential recruit headed ‘Opportunity to work with a living legend’. Yes, he was describing himself! And I could tell a good few stories against myself in this category.

Much more serious is the second category: a great example is former Tyco CEO Dennis Kozlowski and his personal spend (the legendary $6,000 shower curtain charged to the company is but a small example).

This prompted Jim Kouzes, co-author of The Leadership Challenge, to warn: ‘Don’t confuse ascendance with divinity. We often misattribute the permission we’re given to lead by our constituents, to a permission to behave as we want.’

Conrad Black clearly didn’t take this message to heart. He was seen to have looted his company in order to support the extraordinary lifestyle of himself and his wife, Barbara Amiel. His quote, ‘I may make mistakes, but I can’t think of any’, has to be in the all-time top ten of the hubris league.

Then we come to the third and most dangerous category, where companies’ very survival is put at stake. Only, as we all know, this has just gone one stage further in the financial sector, where the whole economy of the West has been put at risk.

Certainly a large part of the banking wreck has been caused by hubris. When you get a $200 million bonus, you just “know” you’re a Master of the Universe. Your contemporaries celebrate with $44,000 dinners and $2 million birthday parties. It’s difficult for one’s judgement to remain unclouded in such an environment.

The long upward financial surge had convinced many leaders they were divine beings. And so CEO Dick Fuld lost Lehman Brothers: not able to accept the fast unravelling situation, he prevaricated, misjudging how bad things were and destroyed the whole company, 30 per cent of which was owned by its employees. Thousands lost their jobs and their savings as a result. Yet his shameless performance before the Senate showed he still doesn’t get it.

Word of warning
As Chris Blackhurst wrote in the Evening Standard: ‘It’s as if nobody ever learns; nobody ever dares to stand back and ask ‘What if?’ and ‘Why?’ Every chief executive should have one word on their wall – HUBRIS.’

He’s absolutely right of course, but behind all the pride, the inevitable fall and the schadenfreude from the rest of us, lies something else. Several deadly sins seem to have come together to create the banking crisis – I don’t mean the obvious ones of greed and fear to which the City and Wall Street seem forever wedded, I’m talking
of Management Deadly Sins:

1. The top management had become totally out of touch with their business
In essence, their companies had expanded into sectors they didn’t understand, they lacked the controls to monitor when things were poised to go wrong and worse still, they didn’t have a clue which levers to pull when things had gone wrong.

2. The wrong incentives
Huge bonuses were awarded on a personal, ultra-competitive basis; there was no effort to balance or limit these incentives. In most companies, management realise that ‘incentives are good, too large incentives are bad’. If there’s no downside, they encourage excessive risk-taking. They distort people’s judgement: they encourage selfishness, divisiveness and sometimes fraud.

So most companies cap the size of a bonus. In particular, they limit the amount their senior management can earn (usually up to 50 to 100 per cent of the salary). The argument is that senior management should not be too tempted by short-term incentives to take actions that may put the company at risk or damage its long-term prospects. This sounds boring, but it’s a management responsibility that should never be forgotten.

But the top executives personally benefited hugely from whatever their employees delivered, like those $200 million bonuses. So one imagines the line of questioning with their staff has not been ‘Why?’ and ‘How?’, but ‘Keep it coming, Marky!’ or ‘Attaboy, Chuck!’

3. Very weak corporate governance
I’d always felt many companies were obsessed with corporate governance issues to the detriment of strategy following the Enron crash in 2001.

Now I feel I was wrong. Clearly the checks and balances that non-executive directors are meant to apply haven’t happened in the financial sector.

We can surmise this was because they didn’t want to own up to not understanding those complex new financial products. Also, they would be seen as party poopers if they questioned such extraordinary success.

Whatever the reason, boards have shown a dereliction of duty on an unprecedented scale.

These ‘big swinging dicks’, as they were described in Michael Lewis’ novel about Wall Street Liar’s Poker, look a bit limp these days.