LEADERSHIP: AVOIDING BLACK-SWAN DISEASE

Published: 2010-07-26   please add a comment below

Nassim Nicholas Taleb, the best-selling economist and author of The Black Swan, is famous for his arresting insights. His recent postscript to The Black Swan is no exception: presenting ten lessons from the Global Financial Crisis. Above all, he recommends learning from “Mother Nature” – by making our global financial system more robust via a series of simple but dramatic changes to our thinking and policies. However, his lessons apply way beyond finance and I’m going to apply some of them to leadership. How do you think colleagues would rate you on the issues below?

Before starting, let me summarise a couple of Taleb’s general concerns about our society. We make our systems so complex that if one part fails, the whole is in danger of collapse. This was nearly the case with the financial system post Lehman Brothers in September 2008. With excessive complication, too few people know what’s going on. And, we make this worse with ill-conceived optimisation. For example, by overusing debt or specialising skills too narrowly. In contrast to us, nature has learnt to build in protection via redundancy – as in the body’s two eyes, lungs and kidneys. There’s a cost but it provides insurance, and survival. But, let’s turn now to your ratings on the following leadership actions.

• Giving young leaders the chance to fail. So they learn “how to learn” – from failure as well as success. That’s the road to wisdom, particularly acknowledging one’s own fallibility.
• Ensuring consequences for repeated failure. Notwithstanding the first point above, accountability is essential if lessons are to be taken seriously. This is missing in much post-GFC policy.
• Creating incentives where risk and rewards are properly shared. Beware if people gain personally from success but the organisation (or society in the GFC case) carries the cost of failure.
• Counterbalancing complexity with simplicity. If your operations are necessarily complicated, make sure there are clear and simple values, operational guidelines and controls.
• Understanding the products and systems offered by your organisation. A lot of senior financial executives were in the dark as to what their whiz kids were up to. Where do you stand?
• Having controls that prevent doubling up on mistakes. Are there people and processes in your organisation with power to prevent you or others throwing good money after bad?
• Requiring a complete remake if things go really pear-shaped. Too often people say “Oh well, that won’t happen again” and make minor changes that only paper over the cracks. Do you?

For Taleb, Black-Swan events have three characteristics: they lie beyond regular expectations; they have extreme impact; and, after the event, we fudge up explanations for their occurrence. Companies as well as societies have this tendency … and, as a result, history just repeats itself.

In making his case, like many writers, Taleb simplifies and overstates – as in his approach to debt. But this doesn’t negate his core concerns. And, it’s our job as leaders (in our workaday world) to build businesses and develop people in ways that balance the web of ever-changing and often unpredictable demands. So, if you want to prosper across a long career, beware Black-Swan disease.

Try our Leadership Tool Kit now: to solve a leadership problem

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Dr. Timothy Pascoe AM
PhD (Cambridge), MBA (Harvard), BE & BEc (Adelaide)
Creator, V|E|C|T|O|R Leadership^®

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