Harvard Business School’s recent Working Knowledge newsletter has a terrific Q&A with HBS history of business professor Richard Tedlow. It is about the big D word…Denial. The focus of the interview is how CEOs deal with reality and what happens when they do not see the writing on the wall. HOw did they miss shifts in their industry? Did someone forewarn them? How could they have missed the tell-tale signs of impending disaster if the company had been so successful? Rightfully so, Tedlow says that the problem with denial today is that the costs are so much higher. And that they are. Reputation stumbles and performance blow outs set your best people running for the exits, customers to jump ship and investors to flee.
There were two quotes that I particularly enjoyed reading in the interview. When asked how companies like A&P and Webvan could have fallen on such hard times, Tedlow paraphrased Tolstoy saying “every company in denial denies in its own way.” That is certainly true and rings loud when you think about Lehman Bros. and its CEO Richard Fuld. Then second quote came when Tedlow was asked how leaders can not see the early warning signs that provide hints that something is not right. Tedlow responds: “It is often middle managers who are best acquainted with new realities. As Andy Grove has noted, these are the people who are out on the front lines while top management is ensconced at the home office, cushioned from the daily reality of the rough-and-tumble of the marketplace. ‘Snow,” he [Grove] wrote in Only the Paranoid Survive, ‘melts first at the periphery.’ Problems, in other words, appear initially at the borders.” I have got to remember that the next time I get asked why it is important to monitor reputation online.
Tedlow has a new book coming out which proves to be very good. It is titled Denial: Why Business Leaders Fail to Look Facts in the Face–And What to Do About It. The book cover has a pair of rose-colored glasses. What else!