Why do smart people do stupid things?

15 Apr

It’s a question that has occupied philosophers for centuries and one that coaches and mentors often encounter in their conversations with clients. Sometimes, it’s people in the client’s environment, who make stupid decisions; sometimes it’s the client him/herself. But a high proportion of the issues coaches and mentors help people deal with involve smart people doing dumb things. One of the exercises I sometimes do with groups of managers or professionals in large organizations is to ask them “How many of you observe that your boss or your boss’ boss has made a really dumb decision in the past three months?”  Almost everyone has at least one example – some people have lots!

Some of this, of course, is a matter perspective – people at more senior levels in theory have a wider pool of information to take into account. But all too often, the decisions are dumb. People below don’t challenge dumb decisions because they:

  • Assume that those more senior have access to better information than they do
  • Fear the consequences of being the person who points out that the emperor has no clothes
  • Follow the herd (if they all think it’s OK, it must be)
  • Have a misplaced loyalty (putting the interests of powerful individuals ahead of those of the organization, its customers etc)
  • Only see the results of their own actions, rather than the larger picture of combined actions of many people.

A recent study of financial services companies shed some light on this issue[1].  Academics at Cass Business School in London and Lund University in Sweden found that, while these companies expended great effort in hiring bright people, they then created the kind of environment that cultivated suspension of rationality – in short, they encouraged stupid behaviour in smart people.

The root of the problem seems to be that these organizations manage risk by attempting to create certainty. This isn’t really possible, so a great deal of energy goes into suppressing doubt and avoiding conversations that question prevailing wisdom. Instead of valuing and encouraging dissenting or ambiguous opinions, these organizations actively seek to prevent them being expressed.

The results are to be seen in the collapse of much of the financial services sector, mis-selling of financial products and Libor rate-rigging.

A critical question for such organizations is therefore: “How do we create the environment, where these conversations can be honest, unpressured, multi-perspective and tolerant of the inherent ambiguity within complex situations?”

Part of the cure for what Alvesson & Spicer call “functional stupidity” comes in the raising the quality of reflexive dialogues that people have: with themselves, within work teams, within the multiple team structures that make up divisions, and within an organization overall. Some practical ways to do this include:

  • Auditing the RQ (Rationality Quotient) of individuals and decision-making teams. (RQ is a measure of people’s ability to assess the validity of their own knowledge.) This isn’t easy – you can’t yet assess using a validated questionnaire – but it is possible to follow the narrative of how decisions were made and periodically re-examined, and hence to identify the cognitive biases that were applied.
  • Using internally and externally resourced “ethical mentors”, whose role is both to help people work through specific ethical dilemmas and to raise their overall ability to recognise and manage ethical issues with greater levels of RQ. The institute of Chartered Accountants in England & Wales has this year introduced a programme to train experienced finance professionals to perform this role.
  • Introducing external perspectives that may challenge functional stupidity. For example, some organizations invite informed outsiders (including customers) to audit key systems and practices. Had this happened in the context of Libor rates, for example, it could potentially have stopped the illegal behaviour dead, before it became endemic.
  • Reward constructive dissent. Instead of labelling people as disloyal, engage with them in seeking to incorporate their concerns into the design of systems and procedures. Perhaps the greatest incentive for constructive dissent occurs when people, who speak out, get promoted. (If this never happens, or is perceived never to happen, it can only reinforce functional stupidity!)
  • Create processes to review regularly entire systems, in terms of both long-term and short-term outcomes, and operational and reputational risk. Again, having outsiders involved on this process is important.
  • Regularly review the honesty of dialogue across the organization. What are the things that can’t be said, if you value your career? With few exceptions, these will always be indicators of functional stupidity at work!

Working with individual clients, coaches and mentors can apply the same principles. Additionally, they can help clients understand their own decision-making style and when their cognitive biases are most likely to lead them to make dumb decisions. (Dr Sheryll Kennedy and her colleagues have recently developed a practical diagnostic that does this.) Other specific ways of helping include:

  • Enabling the client to take a broader systemic perspective of organizational practices
  • Surfacing “values dissonance” – the often unconscious gap between the values they individual holds and the values they are required to act out in their job role
  • Exploring ways, in which the client can challenge functional stupidity, with least personal risk

What’s for sure is that, without radical action on the part of organizational leadership and HR, functional stupidity will continue to be a feature of large organizations’ culture and consequent behaviours. Yet there is little evidence that either leaders or HR generally are having these honest dialogues, even in those sectors where the need is demonstrably greatest.

© David Clutterbuck 2013


[1] Mats Alvesson& André Spicer (2012) A Stupidity-Based Theory of Organizations, Journal of Management Studies, Vol 49 (7)  1194–1220, November

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