Is one of the secrets of your success your willingness to seize opportunities others shy away from? Do you believe your company's performance depends largely on your personal gifts? If so, you could be a great leader … or a dangerously overconfident one. The difference depends on how those beliefs about yourself translate into the choices you make.
As if a stunted economy weren't enough, sweeping government reforms such as the Dodd-Frank Wall Street Reform Act have sufficiently shaken the confidence of even the most tough-minded and self-assured executives. In a recent Accenture survey, nearly two-thirds of executives from financial service firms believed that Dodd-Frank will require them to rethink their business models completely and revise their long-term business strategies, and almost half believed it will decrease their profits. The study's authors, Chris Thompson and Samantha Regan, conclude that there will be "clear winners and losers," and only those firms that seek out hidden opportunities in the reforms will emerge on top.
When it comes to spotting and then acting on potential opportunities, all executives are not created equal. For example, let's say I give you a choice between two options. If you choose option A, you get an one-week, all-expenses-paid trip anywhere in the world. If you choose option B, I will flip a coin. If the coin turns up heads, you get a three-week, all-expenses-paid trip anywhere in the world. If it's tails, you get nothing.
Are You a Gambler, or Not?
If you're like most people, you'll choose the guaranteed one-week trip. One out of four people, however, will predictably choose the higher-risk, higher-reward option. These two groups of people don't just make different choices; they actually see the decision itself quite differently. Virtually everyone views decisions as a calculation between cost-benefit or risk-reward. Not everyone, however, weighs each side equally. The majority of people pay the risk part of the equation two to three times more attention than they do the reward part. That's why we describe most decision-makers as Risk Managers. In contrast, about 25 percent of people are Potential Seekers who zoom in on the reward part of the equation. So for Risk Managers, the answer to the little riddle above is a no-brainer: Option A presents a guaranteed trip with zero risk. It's equally simple for Potential Seekers, since Option B presents the potential for the highest reward … never mind the greater risk.
The law of averages means that half the time, the coin will turn up heads, and the Potential Seeker will be seen as the daredevil who defied the odds and won big. The other half of the time, the coin will turn up tails, and the Potential Seeker will be seen as reckless and be chided for brazen overconfidence and narcissism that blinded him or her to the "obvious" risk.
According to research I conducted with my team of industrial psychologists at TalentSmart, the average Risk Manager and the average Potential Seeker score about the same on every important outcome, from quality of life and job satisfaction to job performance and annual income. This seems to hold true not just for individuals but also for organizations.
Narcissism and Overconfidence
A few years ago, Don Hambrick and Arijit Chatterjee at Penn State University decided to determine how the ego and opportunism of chief executives affected their company's performance. The two researchers figured that if those traits were helpful anywhere, they almost certainly would benefit CEOs in the fast-paced, innovation-driven high-tech industry. So they analyzed 111 high-tech CEOs and their companies' performance. On average, companies led by the most narcissistic CEOs (as judged by such things as the number of times the CEO was quoted, pictured, or referenced in the annual report) performed no better and no worse than companies with more humble chief execs. Companies led by the most overconfident leaders, however, did experience greater volatility, constantly riding a wave of very high highs and equally low lows.
In challenging times like these, a willingness to see and seek opportunities where others see only risk and doom might be just what you need to come out a winner. Seizing the right opportunities, however, requires balanced potential-seeking. Too much caution poses a serious risk to your ability to adapt. Too much unrestricted risk-taking, particularly in a more regulated environment, could bury your company in legal battles and compliance issues. Here are some guidelines for achieving that balance.
1. Be bold, except in your financial reporting.
A leader's confident actions are vital to keeping the company moving forward. But that same confidence can be a ticking time bomb if applied in such areas as financial reporting or legal matters. A new study published recently in The Journal of Experimental Psychology found that we can reliably predict which college students cheat by identifying the narcissists. And last year, researchers Catherine Schrand at Penn's Wharton School and Sarah Zeckman at the University of Chicago's Booth School of Business found that these overconfident behavior patterns are likely to lead executives eventually to commit fraud.
Schrand and Zechman identify what they call "the slippery slope to fraud." They discovered that fraudulent managers often take advantage of gray areas in reporting guidelines by slightly over-reporting earnings in a given quarter—overconfident that they would make up for the gap in the following quarter's earnings. When the next quarter brings more of the same, they now have to cover their tracks for two quarters, which is when it becomes outright fraud. What's worse is that sometimes this over-reporting strategy works, which only reinforces the behavior. With new federal regulations mandating that compensation be directly tied to a company's stock performance, the temptation for a manager to fudge earnings will likely be even greater. Best not even to step foot on the slippery slope in the first place.
2. Consult the Anti-You to reveal your blind spots.
Effective Potential Seekers also increase their odds for success by making certain they always have a trusted Risk Manager to consult. As we learned above, Potential Seekers appear to be carelessly overconfident mostly because they aren't hard-wired to assess risks the way most other people are. If you are a Potential Seeker, before you make any strategic decisions, seek the help of a Risk Manager to frame the problem and possibly uncover risks lurking in your blind spots. Ultimately, the final decision will still be yours, and you may decide to take the risk. But it will be a more informed decision, with the risks more clearly identified.
3. Reflect and Redirect.
Potential Seekers live by the credo, "It's easier to ask for forgiveness than to ask for permission." Their willingness to try something new—and then change course if it doesn't work—can be an enormous advantage in a fast-paced environment. The trick is in recognizing when your idea isn't working. A narcissist's Achilles' heel is the tendency to protect his ego at all costs, which makes it difficult to admit mistakes. Think about it this way instead: You're too smart to follow the wrong course when circumstances don't cooperate with your plan.