What happens when simple over-confidence leads to a nightmare of tension and lies?

There’s a reasonable belief that a healthy dose of self-esteem is necessary in a leader; that a person placed in charge of important activities needs to be courageous in facing problems and confident in his or her ability to overcome problems and obstacles.

But what happens when external pressure to deliver near-impossible goals pushes confident people into promising what cannot be done? When that all-important attitude of “can do” becomes a liability, tempting otherwise admirable people into situations where deceit seems the only way out?

That’s the important question posed by this article in “Knowledge @ Wharton,” referencing a study by Professor Catherine M. Schrand and doctoral student Sarah L. C. Zechman titled Are Overconfident Executives More Inclined to Commit Fraud?

When macho management meets personal ambition

In a culture of macho management, being confident and capable isn’t enough; you must be willing to say “yes” to every demand from above, however unreasonable. You must act as if you believe you can deliver whatever results are laid upon you. It isn’t sufficient to be courageous; you must be a superhero.

In such an atmosphere, “can do” confidence quickly morphs into over-confidence about personal and corporate ability to perform. Ambitious leaders can slide insensibly from showing self-esteem into finding themselves promising to meet expectations so high that they exceeded anything that might be reasonably possible — at least without some degree of manipulation or outright deceit.

“Eventually, the manager’s only option is to ‘cook the books’ by falsifying documents and making the kinds of accounting misstatements that are prosecuted by the SEC,” the authors write. An overconfident manager with unrealistic beliefs about future performance is more likely to engage in fraud “because he is less likely to correctly anticipate the need for more egregious earnings management in subsequent periods.”

Having once promised the moon, and maybe got away with it by a combination of luck, outrageous overwork, and sheer guts, the leader finds that that reputation for super-performance becomes a millstone that forces him or her into ever more unrealistic promises.

Getting in over your head

The authors of the paper point to the widespread prevalence of over-confidence in executives, which leads them into taking risks and making promises that they have no means to deliver; then trying to cover-up shortfalls to avoid having to admit that their belief in their own — and the corporation’s — ability to deliver such results far into the future was misstated.

They give a number of examples of this behavior, such as the scandal surrounding Waste Management in the 1990s:

The SEC charged the company with systematic fraud in which top executives set earnings targets for each quarter and manipulated accounting, quarter by quarter, until a new chief executive officer ordered an audit of accounting practices and discovered the scheme. “The company’s revenues and profits were not growing fast enough to meet these targets, so defendants instead resorted to improperly eliminating and deferring current period expenses to inflate earnings,” according to the SEC. The amounts were small at first and went undetected, but they necessarily had to escalate to keep up the charade.

How to stop a slide into systemic over-promising

Such frauds are rarely deliberate from the start. The managers genuinely believe that they can deliver what they promise, perhaps because they have pulled off some surprising feat of performance in the past. But their over-confidence misses the point that one heroic action is very different than delivering the same — or greater — performance on a month-by-month, quarter-by-quarter basis.

Once they are committed, pulling back doesn’t seem an option. Instead, they slip into dubious actions designed to get them past the tough times, believing that any ethical difficulties will never come to light; and that they will only be “over the line” on a temporary basis while they get themselves back on the promised track.

To over-promise is almost a sure path into a nightmare of later problems. To fall into the trap of always saying “yes,” however ridiculous the requirement, merely to demonstrate ambition and “the right stuff,” is to lay yourself wide open to having deliver what cannot be done without at least some deceit and sleight-of-hand.

Is the problem personal or organizational?

My concern is that our obsession with macho management is leading us into a systemic pattern of pushing people into egregious promises that only increase pressure and anxiety — to the point where cultivating ethical blindness seems not just a reasonable response, but likely the only way out. When this happens, the hapless manager may find him or herself trapped in a nightmare of pressure to live up to promises that never should have been made.

It’s no true leadership to demand subordinates do what is not possible. Setting unrealistic targets is easy. So is believing the silly myth that accepting “big, hairy, audacious goals” is both motivating and somehow magically going to bring them about.

Being caught in fraud and deceit is going to deliver a nasty dose of reality, but only when it’s already too late and careers are destroyed. It would be better to accept a cold shower of realism earlier — even if that means walking away from firms whose idea of leadership is based on asking everyone to wear their underpants outside their trousers and act as if they can fly.

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