How Business Managers Can Recognise and Deal with Hubris

Hubris has been identified as one of the early signs of a weak corporate leadership or a business waiting to fail. Hubris almost invariably morph into greed, accelerating the downward slope of the business growth curve. Many businesses that have moved from top quintile of economic profit to struggling underdogs and from bankruptcy to extinction have been found to exhibit these two characteristics.

Hubris is the feeling of overconfidence or excessive pride usually resulting from the savour of previous achievements. At the highest level of hubris is a winning obsession or a wanton desire for more. Hubris inspires heuristic, experience bias and self-serving bias which often lead one to take excessive, uncalculated risks.

For example, when a manager or an executive thinks their domain-knowledge and professional experience always gives them an edge to make better strategic risks and financial decisions than their peers or subordinates, such executive may be said to be suffering from hubris.

Placing emphasis on short-term gains over long-term benefits is a notorious reinforcer of the tendency for hubris and greed among top executives. Studies have shown that some organizations would rather promote opportunistic pursuit of strategies that were based on self-interest if that translates to short-term monetary gains or quick profit that can easily impress shareholders or stockholders.

Even though, in some cases, appeal to self-interest may be useful to motivate managers to improve performance, excessive self-interest culminating into greed has never been the best option for organizational growth.

“Our system has fallen into self-reinforcing command loop constructs as follows; increase shareholder value at all costs without regard for the human factor. Sadly if you do not cure the cancer in the root of the tree, not only will the branches and the leaves die; but so will the tree” — Richard Branson.

Analysts have suggested that greed would invariably result from self-interest when an increase in executive benefits exceeds the marginal returns provided to shareholders and to society at large. In fact, studies have shown that many acquisition decisions made by managers with hubris have not only failed to produce higher performance or better integration of the companies but have also led to losses in shareholder value due to excessive premiums.

In his book, How the Mighty Fall, Jim Collins presents five stages of organizational decline; hubris and greed constitute the foundation of his organizational decline unsurprisingly. The book which explores many great companies, specifically in the US and Europe, that have suffered a great setback or completely gone into extinction describes declining companies to exhibit the following pattern:

Hubris born of success — Undisciplined pursuit of more — Denial of risk and peril — Grasping for salvation — Capitulation to irrelevance or Death

On avoiding the hubris, some set of behaviours must be exhibited. According Jim Collins, the opposite of those behaviours are what reinforces hubris in corporate management. These behaviours include the following:

1. Avoiding success entitlement or arrogance
2. Always having the why (purpose) of your business in mind
3. Constantly reinvigorating your flywheel or building incremental momentum
4. Keeping a curious mind and always open to learning opportunities
5. Willingness to appreciate the role of luck in business success