The past year has provided sharp lessons about the consequences of taking an overly optimistic view of financial risks. Reputation is a key element in understanding risks of several types, so it is worth considering how too much optimism affects the reputations of corporations and their leaders.
A new book, Bright Sided: How the Relentless Promotion of Optimism Has Undermined America, by Barbara Ehrenreich, chronicles some of the perils of optimism and the power of positive thinking. She links those now stereotypical American traits with the housing bubble, among other ills. But she isn’t describing a one way street with too much optimism at a dead end. In her essay last month in Time magazine (October 10 cover date), Ehrenreich is quick to point out that the opposite of optimism need not be pessimism, but a realistic view of how things are and how they could be.
Realism is often in short supply in corporate board rooms. Anyone who has ever been involved in a corporate crisis, or worked on a turnaround, knows it isn’t uncommon for an organization’s perception of itself, at the highest levels, to be out of sync with the perceptions of the company among employees, investors, customers, and policy makers. Leaders very often take a too-positive view of how they are understood by outside audiences and over estimate the “benefit of the doubt” their reputations will provide during difficult times. In many situations, this “reality gap” is a major barrier to resolution and progress, or at least the cause of unnecessary friction.
Over many decades, business leaders have used optimism to literally move mountains in the pursuit of objectives. But today it is fair to ask, has too much optimism also contributed to the failures of business and economic leadership? Extraordinary optimism has been a defining feature of American public life for several hundred years.
The can-do spirit has also become a defining characteristic of the American style of business leadership, exported around the world. But even the most positive-thinking executives have experienced the limits of optimism in the past 12 months, and that has consequences for progress, as well as reputations.
What’s the connection between optimism and reputation? Whenever expectations are being created or changed, reputation is a major factor–the reputation of individual leaders, companies, and brands. It might be called motivation, or optimism, or can-do spirit, but very often people in charge communicate in a way that makes it seem like they heartily believe no one should let the facts get in the way of their certainty that progress is possible.
Sometimes, extreme optimism works. In those cases, it appears that a leader’s confidence and commitment, or the motivation of the team have overcome barriers. As a result of this “optimism risk,” a leader’s reputation is improved. More often, in the age of instant information, the barriers are very apparent to employees at all levels, as are the business’s bumps along the way. Over-optimistic change management often fails, and a leader’s credibility suffers.
That’s when we hear people say “management just doesn’t get it.” So, what don’t they get? Senior executives of the organization generally do understand the business facts they face. But it is likely that those same executives believe other people’s expectations can be “managed” to overcome the obvious negatives or hurdles that the business faces.
Unfortunately, managing expectations often takes the form of over-optimism–saying “we can do it” without directly addressing the challenges, or how the individual can address the challenges and help the broader cause.
Too Much Optimism Slows Companies’ Progress
Even in good economic times, over-optimism stifles real progress in many organizations. This is a striking unintended consequence of the way management teams often communicate in corporate turnarounds, post merger integrations, or leadership transitions.
If over-optimism characterizes communications from the top in a company, then it is unlikely that employees–and even investors and partner businesses–can have a frank, productive dialogue about the company and its issues. So, over-optimism leads to other problems that go well beyond the tone of discussion from the top. But the top is where it starts.
By making balanced, realistic communications the template for the company’s relationships, management not only builds credibility, but generates better interaction among groups and individuals at all levels, and stimulates faster progress for the company as a whole.
The Recession Effect
The context of a severe recession and concerns about the global financial system highlight the risks for senior executives who are too focused on the upside. The traditional “go team!” can-do spirit can sound very much out of tune against the backdrop of extreme negative news. That has led many business leaders in the past year to say very little, since they had only one tool in their employee, investor and marketplace motivation tool box.
Other leaders who do not typically try to stimulate confidence and action by conveying a sense of unrealistic optimism have had an advantage in the current environment. Not only have they continued to be more credible, but the absence of peers who would usually be taking up a lot of attention by “accentuating the positive” leaves space and time to hear the realists’ story.
In what is usually a highly optimistic business culture, especially in entrepreneurial companies, this shift to either silence or more-realistic leadership messages did, and still does, create concerns among employees in many companies and among others who are more used to the usual rah-rah, no-negatives approach. The shift to realism, against a negative backdrop, is unsettling. Along with other sources of corporate anxiety, like rumors about layoffs and compensation cuts, this has created a very anti-optimistic environment in many companies during the past year.
But Not Enough Optimism is a Problem, Too
Beyond optimism, and equally problematic, is too much pessimism from management, or too much acknowledgement of the world’s pessimistic view of the company. The tendency, especially in struggling companies, to under emphasize optimism is just as likely to hold progress back.
There are times when leaders simply must ignore the critics and present a cogent strategy designed to stimulate action. Too much heavy handed reality, threatening the company’s existence or its markets, just contributes to apathy or resistance. Even in the darkest times, any organization that has not completely ceased to function produces stories of small successes or individual efforts.
A nod to the facts is often enough to maintain credibility for senior executives who have to communicate in difficult times. Leaders who go too far and are overly pessimistic lose their credibility as agents of change and creators of a better future. That sets the tone for a generally pessimistic corporate environment, which — just as in the case of over optimism–prevents meaningful, productive dialogue with employees and outsiders.
In a dark time, the people closest to business relationships or important processes will miss the chance to identify new opportunities, which always exist, despite difficult circumstances. Without interactions framed by a plan and some hope, the organization as a whole stays under a cloud of doubt longer than necessary.
Leadership Imperative: Timing Matters as Much as Tone
Picking the right balance between optimism and acknowledgement of realistic challenges isn’t the only choice. Usually, companies and their leaders are about six months too late to turn down the optimism. They miss the optimal moment to turn up the discussion of realistic challenges and commitment to address them, doing so when the outside evidence of shortfalls threatens their credibility. The opposite is also true. Leaders of companies generally are about six months too late inserting a fresh injection of optimism into the internal and public dialogue.
Part of the role of leadership, from a reputation and communications point of view, is to declare when the organization or its operating environment is crossing the line between one stage and another. That is one of the most powerful levers of persuasion and motivation, because people need permission from an authority to switch gears mentally from offense to defense and back again.
Hitting the balance between optimism and harsh realism is especially important now. As the recession turns into a slight economic upswing, many organizations are starting that process of declaring the shift and constructing the new expectations that they will meet or exceed.
Is Obscurity the Real Reality?
But more than optimism and pessimism, executives display an unrealistic sense of their organization’s visibility and relevance. Many leaders suffer from misplaced confidence that the world is watching what happens in, or to, most companies.
It is hardly surprising that senior executives who spend their whole adult lives trying to achieve difficult business targets imagine that the world cares. But often, no one outside is thinking about the company at all. This is especially true as the credibility of companies in general declines, the performance of the economy disappoints, and individual companies stumble. The next stop is irrelevance.
Across the spectrum of misplaced optimism and unnecessary pessimism, the mismatch is most apparent in crises, when 50 percent of time is lost debating reality rather than deciding what actions and statements will be most effective in the objectively real circumstances the company faces.
The best cure for that is objective analysis of how a company is understood by its employees, customers, investors, business partners and policy makers. The best approach is a quantitative-research based comparison to peer companies or to organizations that a management team admires. This evaluation has to go beyond opinions about trust in the company and its leaders, to examine both visibility and credibility of the company and its top executives on the dozen or more attributes that act together, across time and audiences, to create reputation.
How much positive thinking is too much? How much reality is too much?
There is no absolute measure of too much optimism. It is a powerful, often misused tool that has to be applied with judgment, experience and good information. For leaders at the economic crossroads who are looking for the balance between motivation and credibility, a ride on the New York City subway system offers a bit of philosophy. As part of an ongoing series, the Transit Authority has posted thought-provoking quotations and poems among the subway advertising. Some trains have this excerpt from Schopenhauer:
“Every man takes the limits of his own field of vision for the limits of the world.”
Reality is what the world says it is, not just the little piece that can be seen from the boardroom window. Leaders need to get beyond what they and their close associates think in order to understand their own reputations, and to have an accurate view of the expectations others hold about their organization. Only then can leaders pick the right mix of optimism and reality.
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