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Brain Circuits
How to tell if you’re an overconfident leader – and when it might cost you most
Leaders need to exude confidence and authority. But how do you know if you are veering towards overconfidence? Take this short test to find out.
Results of market trials of an important new product are ambiguous.
Do you:
a. Interpret the data as aligned with your strategic choices;
b. Threaten to fire the entire product-testing team unless they produce acceptable results; or
c. Order further trials to test your strategy?
A new exec suggests the company invests in a backup plan for an impending geographic expansion.
Do you:
a. Say that investment in a backup plan is a waste of resources;
b. Reply that plan Bs are for those who shouldn’t be on the A team; or
c. Slap the newbie on the back and put them in charge of contingency planning?
The business is hit by a sudden downturn.
Do you:
a. Double down on expansion plans, because uncertainty means opportunity;
b. Dial the command-and-control button up to 11, because tough times call for tough talk; or
c. Re-examine your strategy and try to mitigate the risks involved?
Answers
Mostly As: You are definitely erring on the side of overconfidence. While this can be a useful – and even necessary – trait in leaders, it can lead to problems, particularly if things are not going to plan or the business is hit by a downturn.
Mostly Bs: This is not overconfidence – it is egomania. You need to learn how to put the interests of others, including every stakeholder in the company, ahead of your personal agenda.
Mostly Cs: You’re leading with calm authority and appropriate confidence. Keep up the good work!
When overconfidence can hurt
Overconfidence is not always a bad thing in a leader. In fact, recent research suggests that overconfident CEOs are associated with better firm performance; exactly because of their willingness to take risks.
But overconfidence in cyclical and volatile markets is dangerous. There are two scenarios in particular where overconfidence can lead to a company’s downfall: inexperienced executives during market expansion, and experienced executives during a downturn.
Key learning
Leadership biases are amplified in unpredictable markets and when executives enjoy more power. To protect against this risk, companies need to put checks and balances in place. Top execs should also be encouraged to practice ‘metacognition’ – systematically thinking about how to think. Practicing this can be a powerful tool to help leaders combat their biases, prevent overconfidence, and future-proof their companies.
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