I sat on the couch staring blankly ahead, keenly aware of my impending doom. The bags from the department stores lay strewn about the room overlapping one another and forming mosaic patterns before my glazed eyes.
Starting to sweat a little, I took a couple of deep breaths to relieve the tension and stress. As my wife emerged from the other room, I mentally scrambled for an answer, for a response, one that would satisfy the question that has plagued man for millennia.
Finally the moment arrived. As my wife turned back and forth in front of the mirror she delicately unfurled the infamous question:
“How do I look in this dress?”,
As my mouth went dry, the garage door burst open and in came my son from outside. Like a defending angel he swooped through the kitchen and into the living room, giving his mother a hug as he flew by.
“Nice dress Mom, you look so pretty”, he said nonchalantly as he passed.
“Oh thank you son,” my wife responded, clearly proud of her boy.
Seeing my window of opportunity I took flight behind my son as he rocketed into the next room and back out the garage door.
For some reason wives insist on torturing their husbands with the clothing opinion ritual. No matter the answer, positive or negative, the reaction is the same; an extended discussion about color, fit and style. For the woman already knows how she looks in the dress, she merely is looking for someone to challenge her conclusions.
It’s ironic that corporations behave in similar ways. In many respects, an enterprise risk assessment is a corporate version of “How do I look in this dress?” Most of the corporate executives and managers believe they have a good handle on the risks facing the company.
This is not strange, and in fact, is not a bad thing at all. We would expect those in charge of managing risk to have some pretty strong ideas about the challenges they are dealing with. The problem arises when they do not seek to confirm or challenge their views of risks.
In our risk work we typically run into three types of management teams. In describing them I found it helpful to point out the ancient Greek philosophical terms that management typically uses to justify their position; the ethos, pathos or logos.
We know it all.
The most myopic management teams do not accept any challenge to their views. They rely heavily on the ethos or the appeal to authority to convince themselves and their employees of the right answer. “I am an executive therefore I know”, is the mantra.
This type of management team typically only wants us to interview a very small number of executives. They do not have an economic worldview and dismiss it as big picture “speculation.” The results are predictable, the “groupthink” is confirmed and the dogmatic view of the business eventually reaches its predictable conclusion.
Let’s explore possibilities…but there is no way we could be wrong!
The second type of management team is willing to entertain other views; but only deems as valid those that support the current belief system. In this scenario the pathos or appeal to emotion is used. Management has developed a core set of beliefs about the business typically expressed in lofty emotional terms. Any information that challenges the underlying assumptions is seen as questioning “motherhood and apple pie.”
In the investment world we call this confirmation bias. Information and analyses are sought that support a predetermined conclusion. Any dis-confirmatory information is derided as not credible, irrelevant or just the uninformed opinion of the rank and file and is quickly suppressed.
We are a strong confident team…but we can always improve or adjust.
Like a good investor, the third type of management team has a view of the economy, their industry and competitors. All views are welcome, openly examined and either adopted or discarded. The logos or appeal to logic is the guiding light here.
This management team actively looks for dis-confirmatory information and seeks to challenge their own assumptions. This process accomplishes two important functions 1) It opens new discussions that may yield an adjustment in their approach to managing risks 2) It increases their confidence in the current approach by forcing a critical discussion.
The moral of the story or ..in Greek the NOIMA or MATHIMA
Ultimately in business, and in life for that matter, those that are able to critically examine their worldview, assumptions and approach tend to have a greater number of positive outcomes.
But back to our little fashion show…..
Later that evening, I was waiting downstairs to go to the social function my wife was preparing for earlier. I began to wonder what she would be wearing. My thoughts were interrupted by the click of high heels on the hardwood floor of the stairs.
Turning my head, I saw my wife glide down the stairs in an absolutely stunning outfit.
As she carelessly walked by me on her way into the kitchen, I stammered “Wow, you look fabulous.”
“I know”, she coolly replied as she gathered her purse.
Not able to restrain my thoughts, I asked the obvious question, “Then why did you ask me what I thought earlier?”
“Just looking for some dis-confirmatory information”, she smiled back while shaking her head.
Have a great week,
Michael Bechara, CPA, CRMA
Granite Consulting Group Inc.