Max Baz­er­man

Rotman Management Magazine - - FROM THE EDITOR - By Karen Christensen

In our sen­sory-over­loaded en­vi­ron­ment; fo­cus is gen­er­ally thought to be a good thing; but you be­lieve it can also be dan­ger­ous. Please ex­plain.

The prob­lem is, many of us are so fo­cused that we miss out on crit­i­cal in­for­ma­tion around us. The key is to re­main fo­cused most of the time, but oc­ca­sion­ally pick your head up and look around.

Many peo­ple who are now in lead­er­ship po­si­tions came up through more tech­ni­cal, nar­row parts of their busi­ness, where fo­cus was a good thing be­cause they had a nar­row task to com­plete. But once you be­come a leader, the abil­ity to no­tice chal­lenges, op­por­tu­ni­ties and threats in the en­vi­ron­ment be­comes crit­i­cal.

Be­fore mak­ing any im­por­tant de­ci­sion, you be­lieve we need to ask our­selves a key ques­tion; what is it?

It’s re­ally three ques­tions: What in­for­ma­tion do I need to make this de­ci­sion? What in­for­ma­tion is avail­able to me? And what else is go­ing on in the en­vi­ron­ment that I should know about? So of­ten, we show up at a meet­ing and some­body shows a nice Pow­er­point pre­sen­ta­tion. The prob­lem is, its con­tents end up hav­ing a tremen­dous in­flu­ence on what we pay at­ten­tion to and think about. The fact is, we can never as­sume that the in­for­ma­tion we need to make a good de­ci­sion is right in front of us.

Where should we look for miss­ing data?

The first step is to put this line of ques­tion­ing on your agenda by ask­ing your­self, What crit­i­cal chal­lenges, threats and op­por­tu­ni­ties are fac­ing my or­ga­ni­za­tion? What do I wish I knew? and, What ad­di­tional in­for­ma­tion would help to in­form this de­ci­sion?

You can also ask your col­leagues these same ques­tions. What I find — over and over again — is that when you ask some­one about the threats they are fac­ing (and ig­nor­ing), they know

the an­swer: it’s ‘out there’, but in the busy­ness of daily life, they don’t stop and pay proper at­ten­tion. This is called ‘inat­ten­tional blind­ness’, and it can be dan­ger­ous.

Talk a bit more about our fail­ure to no­tice. What lies be­neath it?

The term ‘inat­ten­tional blind­ness’ comes from the fa­ther of Cog­ni­tive Psy­chol­ogy, Ul­ric Neisser, who made what is known as ‘the bas­ket­ball video’. In his experiment, peo­ple watched a video of two teams — one in white shirts, the other in black — pass­ing a bas­ket­ball to each other. The sub­jects were asked to count the num­ber of passes made be­tween play­ers in white t-shirts. In the orig­i­nal video, a woman with an um­brella walks right through the mid­dle of the bas­ket­ball court, and some­thing amaz­ing hap­pens: very few peo­ple see her, be­cause they are com­pletely fo­cused on the white-clad team pass­ing the ball. The more fa­mous ver­sion of this experiment was done by one of Neisser’s stu­dents, Dan Si­mons, and in his ver­sion, the woman was re­placed by a go­rilla. Again, most peo­ple watch­ing the video didn’t see the go­rilla.

My col­league Dolly Chugh of NYU and I use the term ‘bounded aware­ness’ to de­scribe this phe­nom­e­non. As the literature on inat­ten­tional blind­ness de­vel­oped over the years, it re­ally be­came a per­cep­tual literature: it looked at what we lit­er­ally see and don’t see with our eyes. What Dolly and I fo­cus on is the fact that, in many cases, lead­ers don’t no­tice crit­i­cal in­for­ma­tion that isn’t vis­ual.

A tragic ex­am­ple is 9/11. Be­fore it hap­pened, many were aware that there were peo­ple out there who hated Amer­ica, and who were will­ing to be­come mar­tyrs for their cause. The ter­ror­ists in­volved had pre­vi­ously bombed the World Trade Cen­ter and tried to hi­jack 12 U.S. com­mer­cial air­planes on the same day; and they had tried to turn an air­plane into a mis­sile aimed at the Eif­fel Tower. And yet, as of the mid-1990s — when all of these things were known to be true — you could still board a flight with small weapons that could ef­fec­tively be used to take con­trol of the plane. The data was there, but peo­ple didn’t no­tice that there was an enor­mous threat lurk­ing. As lead­ers, I firmly be­lieve that it is our job to no­tice these things and put all the dots to­gether.

Bounded aware­ness also per­me­ates our per­sonal lives. For in­stance, pa­tients of­ten ac­cept one of two op­tions that a doc­tor presents to them. What is the smarter ap­proach?

I bor­rowed that in­sight from my col­league Richard Zeck­hauser, who teaches at the Kennedy School. I was in the au­di­ence a few years ago when he pre­sented the fol­low­ing prob­lem: you have mildly high choles­terol; your doc­tor puts you on a medicine that has a mi­nor side ef­fect — some trem­bling of the hands; and the medicine is only work­ing to a mod­er­ate de­gree to re­duce your choles­terol. The ques­tion he asked the au­di­ence was, ‘Do you stay on this medicine or not?’ At first, no one re­sponded, so I yelled out, ‘Yes, you stay on it’. Then he said to me, “Why would you do that, when there are so many other med­i­ca­tions that also treat choles­terol and might not make your hands shake? Why wouldn’t you ask to try another drug?”

Doc­tors — and lots of other peo­ple, as well — of­ten frame a de­ci­sion as, “Should we do A or B?”, when so of­ten, the an­swer is C. When­ever some­one gives us an ei­ther/or choice on some­thing that is rel­a­tively im­por­tant to us, we should get in the habit of first ask­ing, “Are those the only two op­tions I should be con­sid­er­ing?” That is not a very com­plex thought, and yet when a prob­lem is po­si­tioned as A or B, many of us sim­ply de­fault to an­swer­ing the ques­tion as posed. And to the ex­tent that it comes from an au­thor­ity fig­ure, like a physi­cian, that only in­creases our propen­sity to do so.

In terms of what you term ‘lead­er­ship-driven notic­ing’, you have been par­tic­u­larly tough on cor­po­rate boards. Please ex­plain why.

The de­gree to which very smart peo­ple on boards don’t no­tice crit­i­cal in­for­ma­tion as­ton­ishes me. There were some very im­pres­sive peo­ple on the En­ron board who should have no­ticed that some­thing was wrong; and there were smart peo­ple on the Satyam board, as well. This keeps hap­pen­ing, over and over.

When peo­ple de­cide to ac­cept an of­fer to sit on a cor­po­rate board, they should re­al­ize that they are tak­ing on a se­ri­ous fidu­ciary re­spon­si­bil­ity, and they must go into it with a cer­tain de­gree of skep­ti­cism and pre­pared­ness to ask the right ques­tions. Too of­ten, boards are heav­ily in­flu­enced by the CEO. Rather than over­see­ing this in­di­vid­ual, they end up in­for­mally work­ing for them. Sim­ply put, it is the job of the board to make sure that the or­ga­ni­za­tion is be­ing led in an ap­pro­pri­ate way, and all­too-of­ten, board mem­bers shirk their re­spon­si­bil­ity to pro­vide true over­sight.

You have also ac­cused the au­dit­ing in­dus­try of blind­ness’. What needs to hap­pen in this arena?

‘mo­ti­vated

I ac­tu­ally view the Big Four au­dit­ing firms as play­ing a sig­nif­i­cant role in pre­vent­ing us from get­ting to au­di­tor in­de­pen­dence. Cer­tain steps have been taken, but these have typ­i­cally been very small, po­lit­i­cally-com­pro­mised steps fo­cused on keep­ing the gov­ern­ment from tak­ing ac­tion to cre­ate true au­di­tor in­de­pen­dence.

Think about it this way: if you ask a par­ent, How smart is your child?, no­body as­sumes that the par­ent is an ob­jec­tive source of that in­for­ma­tion. At the same time, no one as­sumes that the par­ent is evil if they give you a more pos­i­tive re­sponse than is war­ranted. When we care about the data that we’re re­port­ing on, it is hu­man na­ture to see that data in a pos­i­tive way.

What has hap­pened is that au­dit­ing firms — and par­tic­u­larly the Big Four — have de­vel­oped con­sult­ing prac­tices along­side their au­dit­ing ser­vices, and they have de­vel­oped gov­ern­men­tap­proved pro­cesses that al­low cor­po­ra­tions to make the de­ci­sion as to whether or not they are re­hired — as ei­ther con­sul­tants or au­di­tors. When some­one leaves an au­dit­ing firm, where are they most likely to go to work? For one of their for­mer clients. And when you cre­ate this kind of re­la­tion­ship — where the au­di­tor has lots of in­cen­tives to make sure that the firm is happy — I would ar­gue that they are no longer ca­pa­ble of in­de­pen­dence.

This dis­cus­sion has been go­ing on since 1997, when my col­leagues and I wrote a pa­per called “The Im­pos­si­bil­ity of Au­di­tor In­de­pen­dence”. We ap­peared be­fore the SEC as early as 2000, and var­i­ous agen­cies and pan­els have since talked about how the Big Four have done a highly ef­fec­tive job of be­ing po­lit­i­cal play­ers in this arena.

If we want truly in­de­pen­dent au­dits, what needs to hap­pen?

The an­swer is ob­vi­ous to me: au­dit­ing firms should only au­dit. They should not be al­lowed to sell con­sult­ing ser­vices, and firms should not be al­lowed to hire in­di­vid­u­als who have au­dited them. These very sim­ple ac­tions would be in the in­ter­est of so­ci­ety and in­vestors. True, they would cre­ate short-term tech­ni­cal dif­fi­cul­ties for the client firms, and they would be very up­set­ting to the Big Four; but with­out tak­ing these steps, it is mis­lead­ing to call what these firms are do­ing ‘in­de­pen­dent au­dits’. Ev­ery­thing we know about psy­chol­ogy sug­gests that they are pro­vid­ing bi­ased au­dit­ing, and they will con­tinue to do so un­til we make the re­quired reg­u­la­tory changes.

Is it pos­si­ble to be in­volved in un­eth­i­cal be­hav­iour and not even re­al­ize it?

Def­i­nitely. If we con­tinue with the au­dit­ing theme for a minute, imag­ine an au­di­tor who has lots of in­cen­tives to keep her client happy, and imag­ine that this per­son is a per­fectly nice, honourable per­son — kind of like the par­ent I de­scribed ear­lier. What I’m ar­gu­ing is that even this nice, hon­est per­son is likely to see the data in a bi­ased way, with­out know­ing that she’s do­ing any­thing wrong. I’m not talk­ing about crooks here — I’m talk­ing about hu­man be­ings, and when peo­ple have a de­sire to see the data in a par­tic­u­lar way they are no longer ca­pa­ble of in­de­pen­dence.

We also have ex­ten­sive literature show­ing that peo­ple can be­have in a sex­ist or racist man­ner with­out any in­ten­tion of do­ing so. They might have noth­ing but good in­ten­tions, but still, they im­plic­itly act in ways that favour their own in-group. My col­leagues and I have spent a lot of time iden­ti­fy­ing some of the pre­dictable ways in which per­fectly good peo­ple en­gage in bad be­hav­iour with­out rec­og­niz­ing that they’re do­ing any­thing wrong.

Is mo­ti­vated blind­ness an in­evitable fact of life in the cor­po­rate world?

While it is per­va­sive, I do be­lieve that it is sur­mount­able, as count­less whistle­blow­ers in­di­cate. More and more peo­ple are re­al­iz­ing that ef­fec­tive de­ci­sion mak­ing — and con­se­quently, ef­fec­tive lead­er­ship — can hinge on over­com­ing mo­ti­va­tional blind­ness.

How can we turn this into com­mon prac­tice? First, as in­di­vid­u­als, we can learn to more fully no­tice the facts around us. Sec­ond, we can make de­ci­sions to no­tice and act when it is ap­pro­pri­ate to do so. Third, we can cre­ate clear con­se­quences for lead­ers when they fail to act on facts that in­di­cate un­eth­i­cal be­hav­iour. And fourth, lead­ers can pro­vide de­ci­sion mak­ers through­out the or­ga­ni­za­tion with in­cen­tives to speak up.

What is Sher­lock Holmes’ trick of ‘hear­ing the dog that didn’t bark’, and how can we learn it?

In Arthur Co­nan Doyle’s 1892 story, “Sil­ver Blaze”, Sher­lock Holmes solves an al­leged mur­der case, not by de­duc­ing what hap­pened, but by notic­ing what didn’t hap­pen. In this case, a dog rel­e­vant to the crime scene mys­te­ri­ously did not bark when he should have. To ac­quire the power to no­tice means learn­ing ‘to hear the dog that didn’t bark’ and notic­ing the out­ly­ing fact that doesn’t seem to fit.

Here’s a real life ex­am­ple: I’m 59 years old, and my al­ter­nate ca­reer path in life — which I turned away from at age 22 — would have been as a card player. When I think back to my life at that time, play­ing cards was def­i­nitely a de­mand­ing cog­ni­tive task, and I’m cer­tainly aware at age 59 that my mind does not work as well as it did when I was 20. So, I prob­a­bly would not be as good of a card player if I did re­turn to it. How­ever, one thing I could do a far bet­ter job of is to make ob­ser­va­tions and in­fer­ences about the other play­ers at the ta­ble — not based on what they do in a par­tic­u­lar round, but on what they don’t do.

The same is true in a cor­po­rate con­text: lead­ers can — and should — make in­fer­ences about the com­pe­ti­tion, about what other com­pa­nies or coun­tries are think­ing about, not only based on the ac­tions they take, but also on the ac­tions they don’t take.

What does a ‘first-class no­ticer’ look like?

That’s a term that War­ren Ben­nis first brought to the lead­er­ship literature, and I think it is some­thing that we should all strive to be. First-class no­ticers are peo­ple who make an ex­tra ef­fort to iden­tify what in­for­ma­tion is needed and avail­able with more ef­fort. They no­tice when some­thing seems ‘off ’, and rather than ig­nore it be­cause they don’t know what it is, they work hard to fig­ure out what it is. In an or­ga­ni­za­tion, it’s the per­son who makes sure that the in­cen­tive struc­ture isn’t driv­ing peo­ple to not no­tice things — which is what au­dit­ing firms are cur­rently do­ing. It’s also the per­son who thinks about what norms are be­ing cre­ated within their or­ga­ni­za­tion for speak­ing up, be­cause so of­ten, the way we can no­tice is through the eyes and minds of the peo­ple around us. In the end, un­der­stand­ing what is at work when we fail to no­tice is cru­cial to learn­ing to pay at­ten­tion to what we’re miss­ing.

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