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Your Turn Hubris: Bad for Business A good case could be made for the argument that hubris is at the root of most of the ills that have plagued busi- ness in recent years. Overconfident CEOs have overpaid for acquisitions, overstepped their legal bounds, and overlooked signs that their compa- nies might be in trouble. Executives at all levels fall victim to a sense of hubris. Entrepreneurs running startup companies ought to be familiar with the statistic that more than two-thirds of all new ven- tures fail. Yet a staggering number of entrepreneurs are overwhelmingly confident that they will beat the odds. In fact, many entrepreneurs believe that their ventures are as likely to succeed as the sun is likely to set in the West. Seasoned executives have the same overconfidence. In 2006, the value of mergers and acquisitions achieved around the globe was $3.8 trillion globally—but much of that includes money that need not have been spent. In my research with Don Hambrick of Pennsylvania State Uni- versity, we identified hubris as the No. 1 reason that CEOs overpay for M&As and, therefore, destroy value from newly acquired companies. When executives are overcon- fident, they also tend to believe they can get away with egregious corporate conduct—even crime. It's disturbing that at least some of the executives who have been convicted of criminal misdeeds came from prestigious business programs. For instance, Jeff Skilling of Enron and Walter Forbes of Cendant are gradu- ates of Harvard Business School. In fact, I believe that one reason 66 BizEd NOVEMBER/DECEMBER 2007 by Mathew Hayward hubris is such a problem in the business world is that it is rife in busi- ness schools, among faculty and students alike. As a faculty mem- ber myself, I know that we professors tend to overestimate our teach- ing skills. A majority of us think that we're above-average teachers, and we discount evidence that we are not. Because we don't realize that we should improve our classroom per- formance, our students suffer. Students are already suffering from a malady of their own—an overconfidence that rivals ours. For proof, ask a classroom of students to close their eyes and raise their hands if they consider themselves to be above-average students. Most of the hands will go up. One reason stu- dents have such an unjustified belief in their talents is that grade inflation is rampant in American education, a situation that is discussed at length on www.gradeinflation.com. The results of this overconfidence can be disastrous. Students become unrealistic about how smart they are and how prepared they are to face real-world situations. All too often, I've had former students return to tell me they can't understand why they're not getting ahead or, worse, why they've been fired—even though they're smarter than their workplace colleagues. It's as though our students believe that their top grades will create value at their new workplaces. They don't realize that they must create fresh value for themselves by building new relation- ships and acquiring a vastly different skill set. Sadly and unnecessarily, these students often take a fall. It's true that a cer- tain amount of confi- dence can be beneficial. It helps drive success, making all of us more persistent, passionate, and persuasive in our projects. But that atti- tude is valid only to the extent that confidence is driven by our capabil- ities and situations. Too much con- fidence is as injurious as too little— and deans and professors need to be wary of exhibiting overconfidence or allowing students to develop it. I've drawn on the tenets of behav- ioral decision theory to distill four sources of unwarranted confidence: False sense of self. Excessive pride leads people to take an inflated view of their achievements and capabili- ties. While people with this attitude often require external validation, they are deeply convinced that they know more than they really do. Laypeople who fancy themselves expert inves- tors are prone to this same syndrome. Unilateral decision making. Pride can lead people to make decisions on their own that would be better made in conjunction with trusted advisors. Obviously, there are times when no individual is fit to make a decision single-handedly, either because he or she doesn't have the skills or because the situation is too broad for one person to manage alone. Only by having the right foils around them will leaders avoid this trap, as Carly Fiorina discovered at HP. Refusal to see the true situation. Peo- ple indulge in false confidence when they fail to see, seek, share, and use full and balanced feedback to gain a more grounded assessment of their situations. Leaders need accurate, pertinent, timely, and clear feedback,