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IF NOBEL LAUREATES LIKE MYRON SCHOLES AND ROBERT MERTON ARE OUT OF THEIR LEAGUE AS MANAGERS OF HEDGE FUNDS, IT IS CONCEIVABLE THAT FABULOUSLY SUCCESSFUL ACADEMICS ARE OUT OF THEIR DEPTH AS LEADERS OF BUSINESS SCHOOLS. whether positive or negative, to understand what's going on around them. As Merck executives illustrat- ed in their handling of Vioxx, that's easier said than done. It's difficult to assemble reliable information when our projects take time to complete and the feedback we receive is delayed and inaccurate. Denial of probable consequences. Because executives may not realize they're acting with unhealthy con- fidence, they must play out—not plan out—the consequences of their decisions ahead of time. Planning increases leaders' confidence without increasing their ability to complete the tasks at hand. By contrast, exper- imenting and probing allow them to gain a better idea of what the results of their decisions might be. Trying to determine conse- quences is particularly important when someone is dealing with finance techniques, because those methods are particularly prone to heroic assumptions. When Dean Kamen estimated demand for his two-wheeled scooter, the Segway, he forecast that it would capture 0.1 percent of the total global popula- tion of more than 6 billion people, giving him sales of 6 million units per annum. Since 2001, Kamen has sold fewer than 30,000 Segways. Curing the Disease False confidence is to hubris what bad cholesterol is to heart disease. Just as the cure for heart disease is to reduce bad cholesterol rather than all cholesterol, the cure for hubris is to fight the sources of false confidence, rather than to reduce confidence altogether. If business school admin- istrators are to fend off false confi- dence at their schools, I believe they must recognize four truths: Ego management must start at the top. If Nobel Laureates like Myron Scholes and Robert Merton are out of their league as managers of hedge funds, it is conceivable that fabulously successful academ- ics are out of their depth as leaders of business schools. The skill set required to lead a large organiza- tion is vastly different from the skill set needed to produce high-quality research. The problem is exacer- bated when deans hire yes-men as associate deans. In those situations, it will be difficult for the leadership of a business school to get a true read on its situation. Business schools should consider hiring as deans those individuals who have displayed some flair for managing large organizations— whether those are faculty chairs who have proven themselves gifted in administration or outside pro- fessionals who have run successful businesses. And professors who take on the role of dean should listen to opposing voices to make sure they are not falling victim to their own overconfidence. Ego management must be accepted by faculty as their own responsibility. With their privileged positions, ten- ured faculty can become immune to advice. I've known my share of professors who were better teachers before they got tenure than after- ward. Tenured faculty should make sure they do not insulate themselves from candid feedback; they must be open to ideas that will improve their research and teaching skills. Ego management must be embedded in the curriculum. Fortunately, behavioral decision theory has now developed a body of pedagogy in negotiations and organizational behavior courses that lends itself to ego manage- ment techniques. The idea is to put students in real business situations where they must work through the implications of different decisions. As an example, I have collaborated with Rakesh Khurana of Harvard Business School to develop a case on Jean-Marie Messier at Vivendi— a dramatic example of what happens when an executive cannot control his ego. Ego management must be brought to life by executives who have experienced it. The Tuck School offers an MBA course in which students visit corporate criminals in a local federal peniten- tiary. Students who go on such vis- its report long-lasting and indelible impressions. Other schools invite guests in to describe the different kinds of business decisions they made when their egos were out of control compared to the times when their egos were in check. Naturally, not every executive falls victim to hubris. Many CEOs have run profitable, admirable companies without overreaching their abilities or overstepping their bounds. And certainly not every MBA student fits the stereotype of the driven, ambi- tious, self-assured individual who is willing to sacrifice everything to achieve success. If business schools are able to curb any tendency toward overconfidence in their stu- dents, they will be doing their part to mold sensible decision makers who lead their companies through talent—not hubris. ■ z Mathew Hayward is an associate professor of management at the Leeds School of Business at the University of Colorado in Boulder. He is also author of Ego Check: Why Executive Hubris is Wrecking Companies and Careers and How to Avoid the Trap. BizEd NOVEMBER/DECEMBER 2007 67