HR directors must point out irrational leadership decisions
David Fairhurst, December 22, 2014
December is the month where we pause to assess the year ahead. When you look at predictions from a whole range of economic commentators for 2015 you find a clear consensus, which can be summarised in a single word: uncertainty.
If there’s one thing people find difficult to deal with, it is uncertainty. Economic theorist Daniel Ellsberg demonstrated this in an experiment where people are given the opportunity to be a lottery contestant.
The lottery consists of two boxes. Box A contains 100 balls – 50 black and 50 white. Box B also contains 100 balls, but the colour division is unspecified.
Blindfolded, you are invited to take a ball from either box. If the ball is black, you win £100.
The ball is returned and you’re given another go. This time, however, you get £100 if the ball is white.
Most people select Box A on both occasions, but Ellsberg points out that if you were behaving totally rationally, you would only have made your initial decision to select Box A if you believed that the percentage of black balls it contains (50%) was higher than the percentage of black balls in Box B.
In other words, you would have selected it because you believed that Box B contains more white balls than black balls. Logically, therefore, to then select Box A when you’re asked to draw a white ball is irrational.
The fact that this takes a bit of thinking through highlights the issue we’re facing. Avoiding uncertainty is so hard wired into us that going for the 50:50 bet intuitively feels like the rational option, even when it’s the polar opposite.
For me, Ellsberg’s thought experiment is a useful reminder of what I believe could be the biggest challenge – and the biggest opportunity – facing some HRDs in the year ahead. That is: spotting the tell-tale signs CEOs and other leadership colleagues are making irrational decisions to try and avoid uncertainty.
These signs have been well documented. Organisational theorists Richard Cyert and James March argue there are two major observable symptoms.
First, the leadership team will seek to avoid uncertainty by focusing on knee-jerk responses to short-term fluctuations in KPIs. They will be fixated on dealing with ‘pressing’ tactical issues rather than exploring sustainable strategies.
Second, they will set out to impose even greater control over those things they can control. This leads to a tightening of rules and regulations, the standardisation of operating procedures, and a hard-line approach with suppliers to push the impact of any market uncertainties in their direction.
Many of these individual actions could, in themselves, be prudent management responses to difficult economic conditions of course. But if they start to become the primary focus of the leadership team, or become obsessively and dogmatically applied, it’s a clear sign that a tipping point may be about to be reached. And, as the executive responsible for people, it’s the HRD’s job to tell the leadership team that their hard wiring might be about to take them down a dangerous path.
That takes guts. But I think that if an HRD is going to move their career to the next level, they need to be prepared to take a stand.
As professor Cary Cooper said in November’s HR Most Influential supplement in HR magazine: “Many HRDs are reticent to exercise the power they have with the CEO for fear of losing their jobs. I would love to see more robust and outspoken HRDs. We need people out there who take more risks.” I totally agree.
David Fairhurst is chief people officer for Europe at McDonald's and in HR magazine's HR Most Influential Hall of Fame