What every leader and organization should be learning from Wall Street’s misery

“Shipwreck” J.M.W. Turner

People tend to over-value their assets and ignore embarrassing problems. Part of the problem with Wall Street is that corporations still can’t bring themselves to admit that most of the fancy derivatives and other so-called assets they are holding are worth virtually nothing. They hang on, claiming their businesses are strong and denying the truth, until it’s too late and the crisis threatens to overwhelm them, one by one.

It’s the same with personal strengths and capabilities: people tend to over-value their abilities and underplay their weaknesses. As a result, they become complacent about what skills and experience they have and what they can achieve with them.

Too many bosses convince themselves that their people like them more than they do; that they’re better, cleverer leaders than they are; that they are excellent communicators, when the reality is much less hopeful; and that they can run their part of the business better than is actually the case.

People’s mania for wishful thinking

As a result of this ingrained attitude of denial, problems are overlooked, minimized or ignored until it’s too late. Like the Wall Street giants forced into bankruptcy or fire-sales, all too many bosses act on the basis that “everything will turn out alright . . . somehow” and so fail to take the necessary action to deal with looming problems in time. They refuse to face up to reality, preferring their personal fantasies and comfortable evasions to the harsh truth about themselves and their business models.

Sadly for them, reality takes no notice whatsoever of evasions, denials or rationalizations. It keeps on its own path towards some inevitable outcome. You can recognize that and take action to minimize problems and maximize opportunities; or you can try to ignore reality and stand in its path. All that will happen is that it will run you down.

Wise leaders accept the plain truth and act on it

Problems don’t usually jump from being barely visible to being a full-blown crisis. There’s nearly always a period of build-up before the brown stuff hits the fan in earnest.

The earlier you accept the reality of the situation, the more likely you’ll be able to do something to head off the worst. Those who accepted, right at the start of the fall in home values, that their house was worth only what people were willing to pay for it, were still able to sell fairly easily for prices only a little lower than they had been. The longer people waited and held out for ‘the right price’, the further prices fell. When these people were finally forced to admit reality, all too often the only remaining option was foreclosure.

They weren’t to blame for their problems—or not entirely. What they had done was make them worse by staying too long in a state of denial.

You can’t wish your problems away

Denying an issue won’t remove or lessen it. Typically it makes it worse. The only sensible course of action is to admit to the difficulty right away and start working on how to deal with it.

For leaders, that usually means getting better information and feedback, so you can be clear about the true extent of the issue. It won’t be comfortable to allow people to tell you the plain, unvarnished truth about how they see you and what you have been doing, but it will be enormously useful.

How the people you lead perceive you is the reality: that’s what they act on and that’s as far as your true influence extends. If they’re underestimating you, it’s up to you to put them straight. If you’ve been steadily overestimating yourself—which is probably more likely—you’re going to have to suck that up and step out of your state of denial before it ruins you.

You can’t get out through constant hyper-activity either

Our silly culture of hyper-activity has been assuming that constant action, however conventional and ill-informed, is all it takes to solve problems. It’s been in its own state of denial: ignoring the need for careful thought and reflection (too ‘pointy-headed’) and substituting a Hollywood, John Wayne image of leadership instead.

For years, top guys on Wall Street took risks they didn’t understand because it looked tough to do so—and, as ‘practical people’, they couldn’t be expected to waste their time on getting to grips with a lot of nerdy, intellectual and mathematical mumbo-jumbo. See where it’s got them.

The only way out of our problems

The first and most essential step towards wisdom is acknowledging reality, however painful or embarrassing that may be.

The second is reflecting on that understanding and seeing what you have been denying about yourself, about others around you or about the situations you find yourself in.

Then—and only then—comes thinking about the action needed to deal with what you have found.

The quicker you face reality, the less damage it’s likely to do to you. The longer you stay in a state of denial, the more you are hurting yourself and the worse the final stages will be. As always, it’s your choice.

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