Latest / Fit Happens: Why CEOs and Leaders Succeed or Fail / Don't Cast a Halo: Why Great CEOs Get Blamed for Bad Luck
Transcript
- Jason Baumgarten 00:00 I'm Jason Baumgarten and you're listening to Fit Happens, the podcast where top leaders, investors and board directors share the stories, surprises and hard earned lessons behind finding the right fit. Let's get into it. Jason Baumgarten 00:17 Let me describe two different leaders to you. The first is bold, visionary, decisive. He's known for moving fast, trusting his gut, betting big, doesn't get bogged down in consensus and what other people think. The press writes prolific profiles about his relentless drive and risk taking. And business schools build cases around his impossible success. Jason Baumgarten 00:46 The second leader is reckless, arrogant, impulsive. He bulldozes people who he doesn't agree with. He gambles. He refuses to listen to people who disagree. The press writes damning profiles about his hubris. Jason Baumgarten 01:03 And business schools build cases around his downfall. But here's the thing. It's the same leader, the same person, the same decisions, same temperament. The only difference between the two descriptions is timing. What happens to the stock price after the numbers went up or after they go down? Jason Baumgarten 01:25 Those same traits read as strengths or fatal flaws. I'm Jason Baumgarten and this is Fit Happens, the show about why talented people fail in the wrong roles and thrive in the right ones. Today, no guest, just me and one of the most powerful and least understood forces distorting how we judge talent. It's called the halo effect. And once you see it, you can't unsee it. Jason Baumgarten 01:52 You can't evaluate someone or even yourself the same way. So let's get into it. The halo effect is not a new idea. It's more than a century old. And it comes from one of the founding figures of American psychology, a man named Edward Thorndike. Jason Baumgarten 02:08 In the 20s, Thorndike published a paper in the Journal of Applied Psychology with a pretty dry title, A Constant Error in Psychological Ratings. And here's what he noticed. He had commanding officers in the military rate their soldiers on a bunch of different qualities. Intelligence, physique, leadership, character, skill. Totally different traits. Jason Baumgarten 02:31 And he found out something kind of strange. All of these things were pretty perfectly correlated. A soldier rated high on physical appearance was rated by the same officer as being more intelligent, a better leader, more honest. The list goes on and on. And this makes no sense. Jason Baumgarten 02:50 And because we all know that being tall and good looking has nothing to do with being honest or smart or a good problem solver or having high integrity. But it turned out in the officer's mind that a strong impression that this was an impressive young man bled across every category. And this single positive trait cast a halo over over all the others. Hence the name. And this is why this matters far beyond the 1920s army. Jason Baumgarten 03:19 The halo effect is what happens when one salient and important impression of something seeps into our judgment of everything else about it. We form a general feeling, good or bad, and then we reason backward from that feeling to the specifics, convincing ourselves we evaluated each piece independently, when the reality is, we never did. I see it all the time in interview settings, and it's one of the most robust findings in all of psychology. It shows up again and again across decades of research. And one of the most expensive places it operates and where it does real damage to people and companies is how we judge leaders. Jason Baumgarten 04:00 So let me bring this into the business world, where a researcher named Phil Rosenzweig made the definitive case in a book called the Halo Effect. His argument was pretty simple. When we try to explain why a company succeeds or fails, we think we're being analytical. We point to its strategy, its culture, its leadership, its focus on customers. But he shows that most of the time, we have the arrow pointing at the wrong things. Jason Baumgarten 04:25 We don't observe those things and then conclude the company is strong. We observe the results. Great stock price, phenomenal growth, and then we backfill in all these others to match. And if you've read any business books, they tend to follow the same pattern. They look at a bunch of successful companies and then they tell you all the wonderful things those leaders and companies did to be successful. Jason Baumgarten 04:52 They don't find all the companies that did those same things and were unsuccessful. So let's talk about how this works in practice. Company is crushing its numbers. So we look and we see a brilliant strategy, a vibrant culture, an amazing visionary CEO who takes appropriate risk, and an organization that has amazing operational rigor. So the press starts writing articles about this as the model of leadership, whether it's GE or Amazon or you name the company of the day, and then they go back when the company hits a rough patch, when things don't look so good, when the stock drops, and they look at the same culture, the same leadership, the same strategy, and they say now it's become complacent, or the CEOs arrogant, or the strategy's not clear, or the company lost its way. Jason Baumgarten 05:42 Now, occasionally this is true, and things have changed quite dramatically, but more often than not, nothing really changed. The company is kind of exactly the same. The results changed. And it was the results. It was the output that rewrote the story, not the contributors to that output. Jason Baumgarten 06:01 So Rosenzweig went through case after case of these celebrated companies. Again, he had lots of literature in just about every business book ever published and watched how those flattering descriptions got reversed the minute the results changed. It was literally like the secrets of their success turned into the secrets of their undoing. It was the win that we invented, the reasons or the drivers of. Now, what's interesting about this is in psychology, and certainly in individual assessment of people, there's truth to this. Your strength is often your weakness. Jason Baumgarten 06:39 We've all been taught this in business school or in psychology classes in college, that our super strengths are our weaknesses. But this shouldn't necessarily magnify at this level, should it? Why does all this business wisdom suddenly look so shaky? Because we know why leaders are successful. Because, right. Jason Baumgarten 07:01 We've studied what the winners did, but it turns out what the winners did was already influenced in our minds because they won. It must have been. Right? So let me talk about why this is so important to what I do. Because in really important executive searches, whether it's a board member or a CEO or a C suite executive, this halo effect is hidden in the way that most people assess other people. Jason Baumgarten 07:32 They look at their track record, they look at their resume. And let's think about what a resume really is. It's a list of outcomes that somebody was quote, unquote, responsible for. The company grew while they were there. The deal closed on their watch. Jason Baumgarten 07:46 The division hits its numbers while they were in charge of it. And each time this happens, this halo effect, it sparks into work. It goes to work instantly. We see these good outcomes. They were at the tech company that doubled, and they must have been amazing. Jason Baumgarten 08:00 And we attribute those successes to that person. They must be brilliant. They must have good judgment. They must have great character. But we don't always dig into causality. Jason Baumgarten 08:12 And that's something I care a lot about. What did they do to cause, or perhaps in some cases, not cause, those phenomenal results? In fact, were they even doing anything that caused them? And this connects to something that I talk about a lot on this show, the difference between experience and expertise. And the halo effect is one of the reasons we confuse them or co found them. Jason Baumgarten 08:36 A leader who is present for great results gets this halo of being a great leader, whether or not what they did actually had anything to do with it. They could have simply been at the right time, at the right place, with a rising market, a predecessor's groundwork, or, let's be honest, just plain luck. But when that scoreboard says win in big halo letters, literally the halo does the rest. We anoint them a great leader. And unfortunately for many of us, it runs just as hard in the other direction. Jason Baumgarten 09:07 And people don't like to talk about this. There are genuinely excellent leaders that have the scarlet letter of a bad outcome that wasn't their fault. They made all the right disciplined decisions and the dice just rolled up wrong. The market collapsed, a pandemic hit, a bet that was right on. Every single bit of information they had just didn't pay off. Jason Baumgarten 09:29 And the halo effect in reverse paints them as a failure. And we pass them over time and time again because, hey, their scoreboard is blinking red. But we don't always dig into how they played their hand. And this is where I want you all to think about a success or failure you were a part of and be really critical about how much you played a role in that success or failure. My guess is deep down we want to take a little more pride and ownership of the success and a little more distance from the failure. Jason Baumgarten 10:01 But if we're really honest, we might find that we're along for the ride in both cases. And bad reference calls, this tends to show up. If you ask a vague question about a candidate, what does a person tend to talk about? The outcome. The project was a disaster. Jason Baumgarten 10:18 And then they talk about how the person must have been a disaster. He wasn't organized, he wasn't a good communicator. Talk about the outcome first and then you sort of backfill. That casual reference check doesn't give you great independent read on a person. It just talks about this halo effect again and again. Jason Baumgarten 10:36 So what I want you to hold on to, because it's the whole craft in a great reference report is to check them better. Don't ask about how things turned out. Get really detailed on what a person did. What did they decide? What did they get right? Jason Baumgarten 10:51 What did they get wrong? What changed? How did they change when the information changed? With rigor, a reference is not about the outcome, certainly not alone, but it's about pulling back the covers on what that human actually did and what happened after they did those things. And it's entirely about how you ask the question, how did that day start? Jason Baumgarten 11:16 How did the meeting start? How did the person open the meeting? How did they set an agenda? How did they set up roles? Get into the nitty gritty, slow it down. Jason Baumgarten 11:26 It's awkward. It's actually really awkward because what people want to say is, that person's great. They accomplished great things, or they made me feel great, or they promoted me. But they don't tend to want to get into the details. So my push is get into the details of what they did and then the granular next step of what they did. Jason Baumgarten 11:47 So here's what breaks this whole spell. And there's another piece of research that helps us get into this. In the late 80s, there were two researchers, Jonathan Baron and John Hershey, and they ran a series of studies that were published in the Journal of Personality and Social Psychology. And they had people evaluate decisions. So, for example, they said, was a doctor making the right choice to do a risky surgery? Jason Baumgarten 12:12 And they looked at the same decisions with the same information available at the time, described identically, and the only thing that varied was the outcome. So in the case of surgery, sometimes the patient lived and sometimes the patient died. Now, you probably can guess the punchline here. The same exact decision was rated as good when the patient lived and bad when the patient died. Even though when they made the decision, and this is the crucial part, it was identical. Jason Baumgarten 12:48 They had the same information. The outcome, which the decision maker couldn't have known in advance, completely changed how people judged the quality of the choice at the time. And they named it the outcome bias. Super creative, I know, but the tendency to judge the quality of a decision by how it turns out rather than by whether it was a smart decision, given what was noble at the time, is everything in leadership. Now, just to show you how strong this is, even when people were told they shouldn't let the outcome influence them, even when they agreed that it shouldn't, they did it anyway. Jason Baumgarten 13:26 The bias operated so deeply that they couldn't help it. And this has been replicated a few times since. And it keeps coming up. It keeps being confirmed the same way. So let's put this outcome bias and the halo effect together, and you have this total trap that we all fall into. Jason Baumgarten 13:41 We judge leaders by their results. Their results are heavily shaped by circumstance and luck and things out of their control. The halo spreads that single result over our entire judgment of their character, their skill, their fitness, their self discipline, whatever trait you want to throw at it. And let's be honest, then, we're not evaluating the leader at all. We're evaluating sort of the luck of the draw and giving the leader the credit of the blame. Jason Baumgarten 14:09 So here's how you can train yourself to get past these psychological traps. And it's a lot of what we do. First, you separate the decision from the outcome. You don't ask about how it worked out. You ask about what they knew at the time and whether it was the right decision at the time, not did it work out. Jason Baumgarten 14:32 A great decision can have a bad outcome and a terrible decision can be lucky. And if you only reward outcomes, you'll keep promoting lucky over wise. And we know that's not actually what we want. Second, ask about the losses, not just the wins. So when somebody's results are growing great, they're glowing. Jason Baumgarten 14:52 They did great things, dig into the failures. What was a decision that didn't pan out? What was a choice that didn't work out? What would they do the same, knowing what they knew then. And the leaders worth hiring can tell you about a well made decision that failed and badly made decision that succeeded. Jason Baumgarten 15:08 It's actually the sign of a leader who understands their own approach and who isn't just trying to get you to surf their halo. It's actually a really important distinction because it means that they're not recreating history, they're not telling you all the things that they did won. They're actually willing to say, hey, I made this call. And in retrospect, it might have even still been the right call, but here's what I learned about either some other approach or just admits that the market didn't treat them well. It's important that they have the humility of understanding whether they were right to make the call and how it worked out and what they wish they could go back and redo and what they learned from it. Jason Baumgarten 15:51 And then the third really dig into the process, not the scoreboard or the outcome. How did they make a decision? Who did they pull in? What other options did they consider? What did they get wrong and what would they do differently next time? Jason Baumgarten 16:07 Process is much harder to fake correlation than outcomes, and it's far more predictive of how people will perform when your set of circumstances start rolling ahead again. The scoreboard tells you what happened in the world. The process tells you how they're likely to adapt to a new set of processes. And this is especially important when somebody's walking into an ambiguous setting like an environment of higher geopolitical risk or higher technology risk. And then the fourth tip I'll give you is to discount the narrative when you start reading a dazzling resume or a damning one. Jason Baumgarten 16:43 Treat the headline as a hypothesis, not a verdict or a fact. Now, a good example of this is the news media. Often we see these popularized stories that say crime went down, crime went up, this happened, that happened. Well, often when you dig deeper into the research or the data behind that outline, sometimes that story is actually a little bit misleading. And crime might have gone up, but it might have gone up less than in every other place. Jason Baumgarten 17:14 That's a very important contextual fact. And so, again, you need to rebuild the facts, strip out the outcomes, and really break it down. What did the person do? What were the conditions? How much of the result can I trace to them versus all of these other factors. Jason Baumgarten 17:31 The market, competitors, the team, the moment. And you're trying to build your understanding of that person. Underneath this halo effect, it's a lot slower, it's a lot harder. But it's also the entire job when it comes to evaluating people. So we desperately want talent to be legible. Jason Baumgarten 17:50 We want it to be understandable. We want a simple set of data to tell us who's good and who's not. Because that would make hiring easy. Just keep picking the winners. But it turns out that over a century of research keeps delivering the same really uncomfortable message. Jason Baumgarten 18:07 That scorecard, that leaderboard, is deeply contaminated. Results are a tangle of skill and luck and circumstance, and our minds are almost incapable of picking them all apart. When we see that outcome, we let it write the whole story. They had the right strategy, the right culture, the right character, and they were just amazing human beings. And the hardest discipline in judging talent. Jason Baumgarten 18:32 And I mean hard, because this bias runs really deep, way deeper than you're even aware of. It is to refusing to let the results alone tell you who someone is. Now, it doesn't mean that somebody who has failed and failed and failed and failed is necessarily going to be successful. But let's be honest. Entrepreneurs, CEOs, when you dig into their careers, many of them at least have a lot of failures, too. Jason Baumgarten 18:56 And the flip side, a lot of people who have big failures often have a lot of successes leading up to them. So stop talking about how someone has won or not, but how did they play the game? And the best evaluators of people I work with have this in common. They aren't impressed just by the outcomes, but they're deeply curious about the decisions and the actions that lead up to them. So here's your question this week. Jason Baumgarten 19:24 Think of a leader that you've judged recently. Could be somebody in your town, could be somebody at. Even in your family. Could be somebody at work that you've written off or someone you've put on a pedestal. Maybe they just had a big win in the press. Jason Baumgarten 19:39 And ask yourself, honestly, are you evaluating how this person actually leads, how they make decisions? Or are you just admiring or resenting the halo of the big result? Or the outcome of something that happened because those results already happened? And it's the person's future actions that you're actually betting on. If this one made you rethink someone you already made up your mind about, send it to somebody that you sit on a board with or that you often interview with and ask them to explore it with you. Jason Baumgarten 20:13 It's a powerful way to rethink how we judge other people. I'm Jason Baumgarten, and this is an episode of Fit Happens. I'll see you next time.