Are we really smarter than our peers?
Leadership without values is rudderless. However, all leaders are human, and suffer from aberrations like narcissism. In fact, this affects all human beings to some degree. Unlike personal narcissism, leadership narcissism damages many due to the footprint of leaders. In writing on this subject, I am influenced not only by published literature, but also by my experiential learnings.
Much can be achieved by getting rid of illusory superiority and by embracing knowledge. Illusory superiority is everywhere. See the recent surge of nationalism all over the world. For example, Winston Churchill is presented as a valiant upholder of democracy and liberty, though his behaviour was as though it both began and ended at the English Channel. Vladimir Putin thinks he is the reincarnation of Peter the Great. Fake history, the lifeblood of exceptionalism and political populism, thrives on the illusion of supposed superiority or a deep yearning for the good old days! Societies, companies, and individuals, all suffer from this malaise.
On a recent visit to Paris, I revisited the Eiffel Tower. I learned of a 1900s story about a benefactor in Paris offering a large reward to anyone who could land safely after a jump from the top using a parachute. The offer was made in the context of a series of parachute mortalities and failures.
Franz Reichelt, an Austrian-czech tailor in France, had been working on a parachute design based on his tailoring skills, rather than knowledge of wind velocity and aerodynamics. Despite his earlier parachutes having failed to protect test mannequins, he was sure that his “practical design” was superior to the “engineered design”. By contrast, the Wright brothers observed how birds bend their bodies to meet oncoming winds and replicated the design for aeroplanes.
Franz Reichelt convinced the authorities to permit a trial from the top of Eiffel Tower. They gave permission for a trial with a dummy. At 8.22 am on February 4, 1912, contravening the granted permission, Franz
Reichelt jumped down himself. Three seconds later, he was dead at the foot of the Eiffel Tower. Photographs were splashed across the Le Petit Journal. A silent film shows Reichelt standing at Eiffel Tower, speaking to two onlookers, perhaps affirming his great confidence about success in the ensuing demonstration.
Reichelt was a victim of the Dunning-kruger effect, enunciated in 1999 by two social psychologists, David Dunning and Justin Kruger. Their paper suggested that a cognitive bias occurs when “people of limited knowledge, competence, or ability wrongly imagine themselves to be highly proficient.” I quote three examples of cognitive bias.
At the Tata Management Training Centre, I used to ask attending managers to rate their professional competence versus their peers. An overwhelming majority of respondents rated themselves as superior to their peers. In a 1977 study in America, 97 per cent of university professors rated themselves as superior to their peers. In a 1983 study, 96 per cent of Americans and 69 per cent of Swedes rated their driving skills to be in the top half. All three are statistical impossibilities. Dunning-kruger effect applies not to patently stupid people, but to people like us. Watch the video. (We are all flawed intellects: https://youtu.be/iq3t0g_zadq.
Dunning-kruger is more obvious with others’ flaws and with hindsight. Through his six-volume magnum opus, The Second World War, Churchill placed himself at the centre of the Second World War. He delayed and prevaricated on decisions, for example, during the invasion of Normandy. However, his books bent the narrative to overstate his glory in the Normandy victory. During his tenure as chief executive officer of GE from 1981 till 2001, Jack Welch was lauded as the genius who did everything right. He became the personification of alpha capitalism through ruthless downsizing, persistent deal-making, and the new art of financialisation. (Recall Enron’s financialisation debacle). Welch was honoured as “Manager of the Century.” Then he retired. And then, with hindsight, a different perspective started to emerge, telling a different story. The latest book by David Gelles about the man who supposedly broke capitalism, states, “Welch’s strategies ultimately destroyed what he loved so dearly.”
We can see this played out in the Indian initial public offering (IPO) market, where start-ups raise capital with the “kahin pe nigahen kahin pe nishana” syndrome. They grow up with a laser-sharp focus on funding and valuation. The highly adored and widely reported ones build up huge losses and demonstrate gravity-defying pyrotechnics that are contrary to the well-established principles of business management. After a successful IPO, some plots unravel, as could well happen to some edtech companies. This is despite capital markets cognoscenti knowing that IPOS are sensitive public matters.
S Ramadorai, former vice-chairman of Tata Consultancy Services, has devoted a whole chapter in his fascinating book, The TCS Story. He explained how it was meticulously detailed and time consuming for the TCS management to prepare for an IPO in 2004. Former Infosys chairman Narayana Murthy recently referred to how careful his leadership team was with their IPO in the 1990s. Despite the awareness and knowledge that IPOS are not just another method to raise funding, fund-seekers come to the markets. Stranger still, there are enthusiastic subscribers for the share offering. Desperate institutions, who were flush with low-cost funding, inadvertently inspired retail investors to invest. Later foreign institutions fled, but poor retail investors were left to bear the brunt, acting “like shock absorbers” to quote our finance minister.
Everybody quotes the examples of Amazon or Google. Their exceptionalism is what it is. Such a philosophy regarding IPOS is a bit like my emulating Rafael Nadal’s tennis strokes at my weekend club. Regrettably, the IPO adventure is infinitely more harmful to many more than my tennis!
We don’t know what we don’t know. Even worse, we don’t always know what we think we know.