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A straight-up cure for CEO hubris 
By Al Lewis, Staff Columnist
Denver Post
Friday, January 19, 2007

This week it was Walter Forbes, former chairman of Cendant Corp., sentenced to prison for fraud.  Forbes follows Enron's Jeff Skilling, WorldCom's Bernie Ebbers, Tyco's Dennis Kozlowski and Adelphia's John Rigas.  In March, former Qwest chief executive Joe Nacchio stands trial.

"It's the same story," said Mathew Hayward, an assistant professor at the Leeds School of Business at the University of Colorado at Boulder.  "All of these guys were tremendously successful, and yet they still had this desperate need to purport to be something they were not."

Hayward is the author of a newly released book, "Ego Check: Why Executive Hubris is Wrecking Companies and Careers and How to Avoid the Trap."

Anyone who is handsomely paid to make judgments or predictions should read this book.  It's filled with examples of how hubris can kill otherwise charmed careers, from Hewlett-Packard's Carly Fiorina to America International Group's Hank Greenberg.

Hayward has been a student of destructive egos since the 1980s, when he worked as an investment banker and then a venture capital investor in Australia, advising high-profile CEOs on mergers and acquisitions.  He has battled this problem in making his own decisions.

"The best deals we ever made were when our egos were in check," Hayward said.  "The worst were when our egos were out of control."

This is the paradox of success:  The very traits that launch people to the top -- supreme confidence and unabashed salesmanship -- can also send them tumbling to the bottom, which in some recent cases has included prison cells.

"Overconfidence is rife in corporate America," Hayward said.  "It's the most fundamental error of judgment that any executive can make."

It takes overconfidence just to be in business.  History shows that most startup enterprises flop and that as many as 80 percent of all mergers and acquisitions fail to deliver on their promises of higher value.  But the people involved in these pursuits never make mention of these probabilities.  Instead, they focus on the slim chances of success.

This overconfidence becomes insidious when it is based on falsehoods.  Too often, corporate executives are surrounded by praise just because they are the boss.  The worst CEOs simply start to believe their own press releases and dismiss any information to the contrary.

"There's a tremendously fine line between being supremely confident and having an out-of-control ego," Hayward said.  "And you can cross that line at any minute of any day in a way that can destroy the reputation of your company."

Here are four things Hayward recommends to avoid crossing the line:

Leaders need introspection to be sure they are not getting too full of themselves.  They should not be motivated by a need for incessant praise or validation.  This isn't as easy as it sounds, with all the suck-ups that surround a top executive:  "The more successful and powerful you become, the harder it is to have a good sense of yourself," Hayward said.

Leaders need trusted advisers, not sycophants.  "Warren Buffett won't make an investment decision without running it by (his associate) Charlie Munger," Hayward said.  "Steve Balmer (of Microsoft) always gets Bill Gates to buy in."

Leaders must constantly gather and respond to new information, or they risk kidding themselves about their situation.  In his book, Hayward discusses how Merck mishandled allegations regarding the safety of arthritis drug Vioxx, ignoring feedback that could have prevented billions in claims.

Leaders must manage the possibility that their actions may have undesirable consequences.  Only the arrogant believe they can predict the future.  Wise leaders try to anticipate all possible outcomes.

It's not likely Hayward's book will change the world.  I say this because people with big egos don't recognize their often fatal flaws.  They are like alcoholics who do not believe they have a drinking problem -- and don't want to read about it, either.

"I've written the book in the hopes that some people will try," Hayward said.

If nothing else, it makes a great gift ... for the boss.

Al Lewis' column appears Sundays, Tuesdays and Fridays. Respond to Lewis at denverpostbloghouse.com/lewis, 303-954-1967 or alewis@denverpost.com.

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