How to tell if you’re an overconfident leader – and when it might cost you most

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.