Tuesday, December 6, 2011

Why we have horrible bosses? … Bayesian economics can help leaders avoid the pitfalls of horrible bosses!

Many of us share the frustration of ‘horrible bosses’…and as a valuations expert, I find ‘horrible bosses’ inconsistent with the ‘profit maximizing’ paradigm of companies…why would a company nurture a culture of ‘horrible bosses’? In this blog I try to explain the evolution of the ‘horrible bosses’ phenomena and how senior leaders are clueless.

Based on my research, inertia is a main contributor to the creation of a company culture that creates its own demise. Leaders lead under the faulty assumptions of growth even when the company stops growing. Inertia keeps leadership from accepting the new paradigm of maturity.


There is nothing more rewarding to be part of an organically growing organization where employee opportunities for growth and to be challenged are abundant. That environment attracts top talent and leadership has little to worry andhas little need to invest in maintaining top talent.


As organic growth begins to slow, the organization finds itself with a leadership team who grew up with the company during its growth phase and operates under outdated assumptions of growth.
When interviewing senior leaders of companies with recent growth history, I found a common thread of outdated assumptions that they all fell into.  Almost uninamously they said:

1. We are not hierarchical
2. We are pure meritocracy
3. We have plenty of growth opportunities
4. We value diversity
5. We are listed as one of the top places to work


What is unfortunate is that all these assumptions used to hold when today’s leaders were the new associates at the company. However, they fail to weigh in the new evidence. In fact, #5 blinds them further.


Well, #5 is the most dangerous of all as it typically holds true for mature companies. But what changes from the organization’s early growth phase is how and why and by whom it was voted as the best place to work. In its early stage, employees who value growth and challenging opportunities are the ones tipping the scale on the “best place to work” ranking; and these employees tend to be the top talent that brings the company’s success. However, as growth slows down, the middle talent who is more likely to value “flexible” hours and “work from home” abilities far more than “ability to make an impact” tips the scale. Therefore, evidence from the average employee working there is weighed more heavily than from the top talent the company needs to build up its pipeline of new leaders.

And, diversity falls prey to that as well for 2 reasons. As the company becomes more established, the stakes become higher to truly value diversity of opinions. Leaders will reward those who think and act like them. A lively example is when I heard a charismatic and Type “A” leader support the promotion of an associate with the remark “I think Jim is great and deserves a promotion! He takes a stand and defends it strongly even when he is very wrong; unlike Kim who is open to hearing different perspectives BUT does not hold her ground as strongly.”


Secondly, diversity falls prey to the slowness in growth and the failure of meritocracy based promotions. When promotions take 7 instead of 2 years, women lose the ground. As Sheryl Sandberg (Facebook COO) says “Women leave before they lead”; the longer women have to wait for the well deserved promotion the more likely they will be at-risk of leaving the promotion arena…well, women are the ones with the most child rearing responsibility…. (Even Harvard Businss School recognized this pitfall in MBA recruiting when it used to require 5-6 years of pre-MBA experience and opened enrollment to students with no work experience – simply to accelerate women to leadership positions)…and thus, the organization’s pipeline of leaders will begin to skew towards male dominance, risking to lose its truly diverse culture.


Well the slowness of growth kicks meritocracy out the door. Technicalities become more important to filter down the promotion pipeline. Promotion guidelines grow and thus it will be rather easy to find an unchecked box from that long list to hold back a truly deserving candidate. Rather than “ability to manage and lead” being the primary criteria, the mature organization begins to generate leaders who are their mirror images (of personality and not of talent)...after all, Jim got the promotion even though he is opinionated and is often wrong compared to Kim – but he is loud and outspoken just like his boss.


Yet, when interviewing senior leaders I was shocked at their stronghold belief that their organizations are flat, meritocratic and diverse!!! Leaders may be the victim of the 80/20 rule where the average talent may be satisfied, but not the top 20 and most deserving talent.


How many of us have had bosses that we have questioned how did they get so far ahead? Well, when technicality overrules meritocracy and promotions begin to take longer and longer, the truly deserving talent leaves the scene and the average Joes rule the team.


Therefore, questioning their stronghold beliefs is necessary for leaders to resist the powerful pull of inertia. And, that is what Bayesian economics suggests. Bayes’s theorem addresses this issue: How should we modify our beliefs in the light of additional information? Bayesian asks three questions:


1. How confident am I in the truth of my initial belief?
2. On the assumption that my original belief is true, how confident am I that the new evidence is accurate?
3. And whether or not my original belief is true, how confident am I that the new evidence is accurate?

Leaders need to re-evaluate their apriori beliefs of meritocracy in light of evidence of company’s growth slowing down. They need to question the rise of unhappiness among top talent, and question whether true top talent is falling through the cracks or being recognized.  And, if it is truly the top talent with morale issues, leaders need to alter their original hypotheses and develop new guidelines for promoting a truly meritocratic culture away from technicalities. Well, the recipe for such culture is not  simple and companies need to devote resources to identifying what works best for them. However, ignoring the issue and still operating blindly under old beliefs can be suicidal for the company. After all, leaders are known to act only when employee morals hits bottom low.
The one advice to our leaders is that if you are not thinking like a Bayesian, perhaps you should be.