The Ostrich Effect: What Avoiding Bad News Has Cost Me
The bad news you're not looking at is already costing you. Everyone else can see it.
This article is still hard to write. Why? Because at the time it hurt. However, painful memories are often good lessons in life.
This one takes place in the first business I started, U-Flow Inc. I had a business partner that decided to steal from the company and oust me as the leader.
I was in England at a trade show and signed up a new distributor for our product line. At the same time I met some Swiss entrepreneurs who had a neat roofing accessory product that I felt would complement our line of roofing accessories. We shook hands and I said "I'll have our people talk to your people." Just like in the movies!
I returned home to Canada and gave my business partner the job of papering and closing the deal. That was their job. I did the deals, they crossed the t's and dotted the i's.
The problem was, instead of papering the deal for U-Flow, my business partner set up a separate company and did the deal themselves. A clear breach of fiduciary responsibility.
At the same time I was getting questions about when I would retire (I was 40!), and being kept focused on product development and production. Steps to get me removed from the business.
Among the people who reported to me, turnover was zero. No one lasted more than a year under my partner. I noticed. I didn't ask why.
One day our CFO, let's call him Bill, came to me and said, "Phil, I'll only tell you this once. Go look at the Swisco file."
"What?" I said.
"Just go look at the file."
I did, and saw what my partner was doing. This was a shock. It cut deep because I really trusted this person.
I went to a lawyer, not our corporate lawyer but an outsider, to see how to fire my partner. I knew the lawyer wouldn't like it. In short I was told, "You can't fire your partner." I left that meeting, went home and thought about this for two days. On Sunday night I decided the best thing I could do was fire my business partner on Monday. The next day I did just that. It was the right thing to do.
The reaction of the business partner was an immediate lawsuit, which I won. The judge saw the fiduciary irresponsibility and ruled in my favour.
But that's not the important part of the story.
The important part was when I told the company about the firing. I had to. The entire office witnessed an argument, and a senior leader running out the door. Word spread fast and I knew I had to tell people what was going on.
I was afraid. I didn't know what the response would be. I thought they all might quit and go with the business partner. I called everyone into the front office and told them I had just fired the business partner. For about 10 seconds there was dead silence. Then simultaneously the room exploded with clapping and cheering. I was shocked and honoured.
After that, ideas flowed, things got done and EBITDA improved by over 27%.
Turnover dropped dramatically.
That cheer was the real bad news. The whole office had known for years what I found out from a file. The partner hadn't hidden it from them. I just hadn't looked.
So the question is, why did I not see this? I was a well-liked leader who engaged their team, constantly using their ideas and recognising them for it. How could I have missed the obvious?
You're probably thinking: your partner was hiding it, so of course you missed it. But the turnover under them wasn't hidden. The retirement questions weren't hidden. I had the signals and chose the comfortable reading of them.
There is actually a name for this. The ostrich effect. Psychologists use it for the habit of avoiding information that might hurt, especially when it reflects on something you're responsible for. It's not something you can fix with willpower. You need a system that forces exposure, like metrics you review monthly that can't be delayed or changed. They must be looked at. In short, you need a process.
Later we added "turnover by manager" and "deals signed vs. deals papered" into our quarterly review. Even turnover by manager would have caught this bad leader. These were different from the standard financial metrics we already looked at. They forced us to look.
You also need an honest broker, like Jason, who I have mentioned before, who had no problem saying things like "That's as clear as cat piss in the moonlight." Jason was calling BS on what we were talking about. Bill, the CFO, was one too. "I'll only tell you this once" is what an honest broker sounds like.
You need to build a culture where people are direct but not mean. A place where people are not afraid to speak up.
The magic question to you is, "What are you avoiding?" Look there first.
One next step: This week, ask your controller or your most blunt foreman one question: "If there's a file I should go look at, which one is it?" Then go look at it.
Further reading:
- Good to Great — Jim Collins (HarperBusiness, 2001). The Stockdale Paradox: keep the faith, and confront the brutal facts anyway.
- Radical Candor — Kim Scott (St. Martin's Press, 2017). Direct but not mean, in framework form. Her "Why didn't you tell me?" story is this article from the other side.
- The Fearless Organization — Amy C. Edmondson (Wiley, 2018). Why the whole office knew and nobody said: silence pays now and for certain, speaking up pays later and maybe.year under my partner