Leadership & Your Gut

For all the ink that's been spilled on the evergreen topic of "leadership," very little of it has issued from the academy: Almost all is the product of management gurus, self-appointed and otherwise. Recent work from Harvard Business School and McKinsey research, however, may promise to bring a bit more intellectual rigor to what has largely been an armchair pursuit.

"If we look at the leading research universities and at the business schools within them, the topic of leadership has been actually given fairly short shrift," says Harvard Business School professor Rakesh Khurana.

The Handbook of Leadership Theory and Practice, recently published by Harvard Business Press, aims to give the topic its intellectual due. Edited by Khurana and Nitin Nohria, who will become the new Dean of Harvard Business School on July 1, 2010, the Handbook brings together critical writings by some of the world's foremost scholars in fields ranging from psychology to economics, sociology, and history.

In a coincidence that signifies nothing other than the close alignment of Harvard Business School and McKinsey, Khurana is the Marvin Bower Professor of Leadership Development at HBS--Marvin Bower, of course, being the creator of modern-day McKinsey as we know it. Bower was a Harvard JD/MBA and early in his career practiced at Jones Day in Cleveland. He lived to a few months short of his 100th birthday.

In any event, the reasons for the academy's neglect of leadership are not hard to fathom: It's hard. As Khurana puts it:

It's a phenomenon partly rooted in psychology with respect to the sense of identity that leaders have. It is rooted in sociology in the sense that leadership is a social construct. It's also a negotiated relationship that individuals have with other individuals or that individuals have with society. In addition, there is a cultural quality about what constitutes a leader that changes across social situations, whether we are discussing gender or issues in different countries where some styles would be regarded as leader-like and other styles would not being regarded as leader-like.

Leadership is also complex from an economic perspective because the consequences of leadership can't always be measured by financial measures. Some people we most honor as leaders sometimes have to deal with significant failure. So leadership can't be simply evaluated on its utilitarian outcomes.

Given the complexity of the phenomenon and its multidisciplinary nature, including its inability to answer basic questions such as whether leadership can be taught or developed, leadership research was neglected. This trend was exacerbated as research inside the academy moved more toward large computerized databases. Leadership largely dropped off the agenda in mainstream academic institutions.

Of all these reasons, I think the last is the most telling. Before data-intensive empirical number crunching came to be seen as the holy grail of academic inquiry, writers such as Max Weber and even Joseph Schumpeter were unabashed to write about what they perceived as the essential characteristics of leadership, especially as it expressed itself in individualistic or iconoclastic behavior (Schumpeter was convinced, correctly I believe, that "creative destruction" was driven by contrarians and noncomformists).

Somewhat amusingly, the declared mission of Harvard Business School is "We educate leaders who make a difference in the world," so neglect of this topic might have become an embarrassment.

And what is the early learning at this stage of the leadership-studies renascence?

News flash: (1) Leadership matters; and (2) it's complicated.

Given the profound challenges we face as a global society and the challenges we confront as an institution, it's not just that we don't have solutions: We increasingly see that these problems are not solved because of failure in leadership, be it leadership in business or politics. This changing context may have spurred an interest in, and help legitimate, the study of leadership.

and

Leadership is based on complex phenomena. The Handbook of Leadership Theory and Practice does not offer a set of simple prescriptions such as "here's the leadership style of Genghis Khan; it works in all situations under all conditions." Our chapters look at which elements of leadership are contingent on a situation versus those that may tend to be universal. There is no single "best" style of leadership nor one set of attributes in all situations. 

Lest I come across as sounding too harsh on these fledgling initiatives, leadership surely is not only an indisputably worthy topic of study, but one that has characteristics of what I've heard described as a "wicked" problem--meaning one that is difficult to solve or even understand until one sees the answer in a flash of insight. I suspect that HBS's efforts to systematically study leadership will actually bear fruit: But not as the result of any programmatic efforts. Rather, the stroke(s) of genius that illuminate the problem will only come after the groundwork has been laid through years of studious immersion.

Highly related to issues of leadership are those of decision-making.

Fortunately, a bit more concrete learning can be assayed about decision-making than about leadership. One of the most fascinating questions is the extent to which you can "trust your gut." McKinsey has recently written about just this question, as well as its close cousin, how to test your decision-making instincts.

Trusting Your Gut

Or, phrased differently, when should you rely on your intuition? Let's set aside situations (not often found in the practice of law, save perhaps in the totemic stressful contexts of, say, cross-examination of a recalcitrant witness or best & final offer negotiations) where time pressures obviate anything other than relying on your intuition--say, firefighting or ICU's.

Daniel Kahneman, 2002 Nobel laureate in economics (although he's a psychologist) and Gary Klein, a senior scientist at MacroCognition, were interviewed by McKinsey on just this topic, and the answer may surprise, but hopefully not disappoint, you. The bottom line is:

If you mean, "My gut feeling is telling me this; therefore I can act on it and I don't have to worry," we say you should never trust your gut. You need to take your gut feeling as an important data point, but then you have to consciously and deliberately evaluate it, to see if it makes sense in this context. You need strategies that help rule things out. That's the opposite of saying, "This is what my gut is telling me; let me gather information to confirm it."

Indeed, permit me to read ahead for you and tell you that the theme of this exploration of the validity of intuition is going to be that you should do everything in your power to disprove what intuition tells you--and only if you fail after exhaustive efforts should you proceed with your gut.

Still, it's important to understand and differentiate contexts in which intuition is more from contexts in which intuition is less reliable. Indicia of reliability are structured situations with a certain predictability to them. For example, a highly experienced knee surgeon has probably seen most of the complications that can arise with ACL surgery; but a hedge fund manager has surely not seen all the curve balls markets can throw at us. A second index of reliability is whether you have a chance to get feedback on your judgment before proceeding, in order to strengthen it, tune it, and add a dose of additional expertise.

These situations are called "high validity."

In contrast are relatively unique problems, where the risk is overconfidence. A particularly malevolent--but shockingly widespread--source of overconfidence is failing to anticipate that "the market gets a vote." In other words, competitors, and clients, will react to what you're thinking of doing. Beware the fallacy of static analysis! The world isn't static, it's dynamic.

But there's an insidious component of overconfidence, which goes well beyond how we as individual professionals may feel about our own judgment: It's the overconfidence we project: "[B]y the time executives get to high levels, they are good at making others feel confident in their judgment, even if there's no strong basis for the judgment."

Indeed, leaders are often selected precisely for their perceived confidence. So, assuming judgment is more or less normally distributed along a bell curve, organizations often select not for actual quality of judgment, but for decisiveness. We select, in other words, for John Waynes, not for the dithering.

Of course, there's often a cost associated with dithering, particularly in fast-moving situations, where the opportunity window can slam shut while your chief is mulling things over. (I won't offer any gratuitous generalizations about whether lawyers are more or less susceptible to "analysis paralysis" than your average bear, but you should feel free to form your own opinions at home.)

Here Klein and Kahneman introduce a fabulously useful and creative tool: The "premortem." (One CEO of a large corporation who heard of this technique at Davos told Kahneman it alone justified the cost of admission.)

A premortem is exactly what it sounds like: You gather your senior advisers and tell them that the project or initiative under consideration has failed, and you want them to take two minutes to write down all the reasons you think it failed.

Then stand back.

Premortems can change organizational culture, by encouraging people to show off their smarts not by imagining all the wondrous ways a project could succeed but by demonstrating imaginative and insightful ways it could fail:

"I want to come up with some possible problem that other people haven't even thought of." The whole dynamic changes from trying to avoid anything that might disrupt harmony to trying to surface potential problems.

Are there standard things you should be on the alert to watch out for?

Actually, there are:

• Limited sources, or even one source, of information, which are regurgitated, rather than multiple perspectives.
• "Correlated errors," which is academic-speak for the psychological reality that the first person to express an opinion inevitably affects what the second and third and so on people say. We see this in a classic experiment where the more people who are asked to guess at the number of marbles in a fishbowl--without being told what anyone else has guessed--the more accurate the average guess becomes. But if you tell people what previous guesses were, the first influences the second which influences the third and so on.
  • One neat way to avoid this is to ask everyone to write their initial judgment down on a slip of paper first, before vocalizing anything.
• We also see correlated errors arise, both tragically and comically, in jury deliberations where a foreman or other perceived leader's opinion often sways fellow jurors without regard to the analytic rigor of the first-expressed view: a steamroller effect.
• Try to postpone seizing upon your intuition as long as possible. For example, don't early on focus on what a proposed acquisition might cost--getting to specific numbers too early will serve only to "anchor" you on those numbers, almost assuredly beyond the weight they actually deserve.

Is there reason for optimism, then? According to Kahneman, "not really."

We are simply too tempted to find confirming rather than refuting information, and to overlook how much we may have assumptively explained away on the path to seeking confidence. Here, particularly beware the Power of Story: Those who can construct a simple and coherent story often feel confident regardless of whether the story has any basis in reality. (Trial lawyers know this to a fare-thee-well.)

But the real reason for Kahneman's skepticism that any of this will make a difference?

We shall give them the last words (emphasis supplied):

Daniel Kahneman: That's easy. Leaders know that any procedure they put in place is going to cause their judgment to be questioned. And whether they're fully aware of it or not, they're really not in the market to have their decisions and choices questioned.

The Quarterly: Yet senior executives want to make good decisions. Do you have any final words of wisdom for them in that quest?

Daniel Kahneman: My single piece of advice would be to improve the quality of meetings--that seems pretty strategic to improving the quality of decision making. People spend a lot of time in meetings. You want meetings to be short. People should have a lot of information, and you want to decorrelate errors.

Gary Klein: What concerns me is the tendency to marginalize people who disagree with you at meetings. There's too much intolerance for challenge. As a leader, you can say the right things--for instance, everybody should share their opinions. But people are too smart to do that, because it's risky. So when people raise an idea that doesn't make sense to you as a leader, rather than ask what's wrong with them, you should be curious about why they're taking the position. Curiosity is a counterforce for contempt when people are making unpopular statements.

Or, in the inimitable words of Dorothy Parker: "The cure for boredom is curiosity. There is no cure for curiosity."

Dear Reader, please stay "uncured."

Avoiding "Gut Bias"

Our second reading from McKinsey, closely related, talks about how to identify situations where your gut instinct is likely to be biased and strengthen the decision process to reduce the resulting risk.

Relying on findings in "decision neuroscience" (yes, there really is such a field), the goal is to escape from the trap posed by our habit of starting to feel a reaction even before we have rationally begun to think anything: Our feelings are triggered by whatever emotional tags the situation triggers--tags arising from memory, of course, but memories not necessarily rationally related to the situation we're about to explore. Nevertheless, those memories help "frame" our approach.

As a highly cerebral academic colleague recently commented, "I can't see a logical flaw in what you are saying, but it gives me a queasy feeling in my stomach."

Given the powerful influence of positive and negative emotions on our unconscious, it is tempting to argue that leaders should never trust their gut: they should make decisions based solely on objective, logical analysis. But this advice overlooks the fact that we can't get away from the influence of our gut instincts. They influence the way we frame a situation. They influence the options we choose to analyze. They cause us to consult some people and pay less attention to others. They encourage us to collect more data in one area but not in another. They influence the amount of time and effort we put into decisions. In other words, they infiltrate our decision making even when we are trying to be analytical and rational.

Four tests are suggested to determine the reliability of our gut feelings.

First, how familiar is this situation? Have we frequently experienced identical or similar situations?

The more familiar, the better for our gut instincts. Chess masters can select an appropriate move in as little as 5--10 seconds because they're good at pattern recognition. If we lack a reservoir of patterns or choose the wrong patterns, we go astray.

Second, did we get reliable feedback in the past?

This is another way of saying that past experience is a useful guide only if we learned the right lessons. Without candid and realistic feedback, we default to the assumption that all our decisions are universally brilliant. This is what makes "yes men" so corrosive.

Third, are the emotions we recall from similar situations "measured?"

Stated conversely, memories that come with highly charged tags tend to unbalance our judgment. Learning stoves can be hot is certainly valuable information, but suffering a disfiguring injury from an encounter with a hot stove may cause you to act irrationally in the kitchen.

Fourth, are we independent (personally) from the situation? Or, again stated conversely, do we have a conflict of interest--either in favor of or opposed to a particular course of action. This may seem obvious, but it's only obvious when it's obvious. It's far more important to try to suss out subconscious self-interest.

Now, what if one or more of these indicators points in the direction of our relying on our gut being risky?

All is not lost.

Three relatively straightforward techniques to enhance the odds of our exercising better judgment are available:

• Stronger governance. But this can have its own downsides: Just think of the US Senate.
• Better is more experience and data: And not just confirmatory data.
• And more dialogue--challenging dialogue. There's a reason the Catholic Church has "devil's advocates" involved in the sainthood-nomination process. And Warren Buffett systematically employs an "adviser against the deal" when he's thinking about a potential acquisition, who is compensated only if the deal does not go through.

Of course, there are in life no guarantees; but you can improve the odds. Failure to take some of these steps may be tantamount to managerial negligence.

But then, that could just be my gut speaking.