The four sources of over-confidence in dealmaking
Negotiators are persistently, and irrationally overconfident. Research shows dealmakers consistently overrate their talents, knowledge and skills. When overconfidence combines with arrogance or excessive pride the result is hubris.
The best and most persuasive evidence of overconfidence and hubris comes from the world of corporate mergers and acquisitions. Empire-building CEO’s have created what is now a multi-trillion-a-year making orgy.
Yet study after study- carried out over the last 30 years - shows up two out of three mergers and takeovers fail. Instead of creating wealth for the buyer, they destroy it.
A prime reason: An overconfident ego-driven buyer paid too much for the acquisition in the first place.
In Ego Check: Why Executive Hubris is Wrecking Companies and Careers and How to Avoid the Trap, author Matthew Hayward says while overconfidence is essential for business success it can also be highly destructive.
Ego Check identifies four sources of overconfidence. The first source is “excessive or exaggerated pride.” The symptoms are needing to impress others and inflating data to exaggerate their achievements.
The second source of destructive overconfidence is “isolation.” The isolated person shuts herself off from negative feedback. Hayward uses former Hewlett Packard CEO Carly Forina as his prime example. In the days before her fall she surrounded herself with protective assistants - who were unwilling to tell her that she was wrong.
The third source of destructive overconfidence is in “selective judgments.” Whenever you get feedback that doesn’t fit in with your view of the world you discount or ignore it.
The fourth source of destructive overconfidence is “underestimating the consequences” of their decisions. Failing to think about tomorrow fuels hubris in decision making today.
If any of Matthew Hayward’s four sources of overconfidence are present in your organisation, Beware.
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