One of the things that made this FIFA World Cup extra interesting has been the string of upsets. It started off with Saudi Arabia’s shocking victory over Argentina. With a FIFA ranking of #51 against Argentina’s #3 ranking, no one expected them to pull off a draw, let alone a victory. But more followed.
Tunisia beat France, then the Germans received a very Japanese lesson, South Korea humbled Portugal, and Cameroon showed Brazil they couldn’t take them for granted. In some games, the bigger teams just didn’t play to their potential, in others, they grievously underestimated their opponents. Often when they were ahead, they grew overconfident and were stunned by a last-minute goal, as Brazil was by Croatia in the quarter-finals. These same upsets happen in the business world.
The recent arrest of Samuel Bankman-Fried (SBF) was a riches-to-rags case of a leader much feted, but then sliding into the bankruptcy cauldron with a mixture of both competence and character failings. The rapid climb to dizzying heights is only matched by the suddenness and swiftness of the humiliating fall.
As they climb, they are applauded by the press, envied by their peers, sought out by celebrities, flattered by employees. They seem to be insulated from the scrutiny that ordinary mortals face.
Sequoia Capital had an effusive blog post on SBF that included such cringe-worthy gems as: “The math couldn’t be clearer. Very high risk multiplied by dynastic wealth trumps low risk multiplied by mere rich-guy wealth. To do the most good for the world, SBF needed to find a path on which he’d be a coin toss away from going totally bust.”
After the volcano erupted Sequoia deleted the now-embarrassing profile post. It sent a note to investors that it was marking down its $214 million investment in FTX to $0. How can leaders stave off this disastrous fall?
Don’t believe your press
Carlos Ghosn was superman in the automotive world. After working his magic at Renault, he became a hero in far away Japan as he turned Nissan around. He was being featured in manga comics and soon his behaviour began to show traces that he actually believed everything being said about him — he started to wear shoes that made him look taller, probably did a hair transplant — in effect decided to play the celebrity he was being made out to be. He soon bit off more than he could chew.
He was to hand over Nissan to a successor but instead, he thought he could run both the mammoth companies himself and he held on to both. Eventually, he was arrested in Japan for financial jugglery. He had to choose an ignominious escape in a box smuggled onto an aircraft to his native Lebanon.
Leaders gorge on the praise and success that comes their way as they climb the mountain of fleeting success. In his bestseller Think Again, Adam Grant refers to the overconfidence cycle that starts with pride, which leads to conviction that clouds up with confirmation and desirability biases and actively sees validation that again reinforces pride. He urges the rethinking cycle which begins with humility that leads to doubt which triggers curiosity and the thrill of discovery.
Humility is strengthened and the self-growth cycle continues. Doubt seems an odd thing for a leader to possess. But it’s a good way for a leader to check on himself, to test his convictions, his vision. As Voltaire noted: “Doubt is not a pleasant condition, but certainty is absurd.”
This also means that leaders need to surround themselves with people who can challenge them. Ghosn’s tendency to pack his team with yes-men meant he received more adulation and fawning admiration even within the confines of his leadership team. There was no scope for the hard truths that every leader needs to hear, to lead well.
Know what you don’t know
David Dunning and Justin Kruger in their paper, “Unskilled and Unaware of It: How Difficulties in Recognizing One’s Own Incompetence Lead to Inflated Self-Assessments” (1999) showed how sometimes when we lack competence we are also likely to have an inflated opinion of our capability in that same competence.
In their original studies, test subjects who scored the lowest on logical reasoning, grammar, and a sense of humour had the highest overestimation of those same capabilities.
As Professor Dunning notes, “The knowledge and intelligence that are required to be good at a task are often the same qualities needed to recognise that one is not good at that task — and if one lacks such knowledge and intelligence, one remains ignorant that one is not good at that task.”
A study of high-tech firms discovered that 32-42 per cent of software engineers rated their skills as being in the top five per cent of their companies. In another study, faculty at the University of Nebraska, 68 per cent rated themselves in the top 25 per cent for teaching ability, and more than 90 per cent rated themselves as above average! This blindness can often be seen in leaders who eventually self-destruct. As Dunning once put it: “ The first rule of the Dunning-Kruger club is you don’t know you’re a member of the Dunning-Kruger club.”
Leaders need to challenge themselves to move through the Dunning-Kruger curve from the peak of Mount Stupid where their confidence is high though their knowledge and competence is low, to a humbler phase of the Valley of Despair where they realise their confidence needs to drop to match reality. Then the truly tough ones find the courage and perseverance to climb the Slope of Enlightenment with confidence growing more in step with their increasing knowledge and competence.
Test your motives
Motives often lie at the heart of inflation beyond reality and the inevitable fall. Whether it is Cristiano Ronaldo chasing personal glory over what’s right for the team or Ghosn wallowing in the media adulation, leaders need to test their motives against the truth. The ‘delusions of grandeur’ cause the masking of real motives with publicly palatable ones. SBF used ‘effective altruism’ to cloak his ‘commingling’ of funds between FTX the crypto exchange and Alameda his hedge fund — incompetence and ignorance at best, criminal at worst.
Faced with criticism there’s a tendency to tap dance around the truth. In his interview with New York Times reporter Andrew Ross Sorkin, SBF was asked if he had been truthful in the interview itself. His answer reveals more than it hides. “I was as truthful as I — you know, I’m knowledgeable to be — there are some things I wish I knew about more. But, yes, I was.” A squint-eyed answer if there ever was one.
The irony of SBF’s fall is that crypto and blockchain tom-tommed the idea of a trusted network shorn of interference from Governments and regulators. But as Derek Thompson, writing in The Atlantic insightfully put it, it turned out to be a great way of ‘centralising wealth and decentralising losses.’
SBF isn’t the first — we had Elizabeth Holmes of Theranos infamy, ride a similar roller coaster, receiving her jail sentence a few weeks ago, Adam Neumann of WeWork left investors holding the can — and he won’t be the last. Leaders must have the courage to place themselves before mentors and colleagues who can act as a jury to test decisions, push back on behaviour, and hold a mirror to their values. This courage is much needed but is also very rare.