The leadership cult of the black swan

I’ve recently read two books by Nassim Nicholas Taleb who is an ex-trader. The first: Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, looks at how and why we tend to assume the existence of patterns where there is only randomness, and assume skill where there is nothing but luck. The second is The Black Swan: The Impact of the Highly Improbable. The Black Swan: which is a study of how we are regularly taken as fools by the unexpected. The chief characteristics of a Black Swan event (so-called because until Australia was discovered no-one dreamt there was any other variety than white) is that they lie outside the realm of regular expectations and have a huge impact when they hit. If a Black Swan was predictable it wouldn’t be a Black Swan, but the fact that we can see only white swans suggests that the shock – if it comes – could be profound. A recent Black Swan event was the resignation of Lord Browne from BP, who demonstrated the pitfalls of the cult of leadership. By raising expectations far beyond the capacity of one human to fulfil, hero leaders often end up destroying themselves and wounding their companies. When leaders become celebrities, their firms’ performance starts to decline. Because of a tendency to believe their own press, they attribute success to their own brilliance, blame failure on others, and vastly overestimate their decision-making prowess. Hierarchy doesn’t work, and no one put the reason for this better than General Electric’s Jack Welch, himself an iconic manager who pioneered the use of six sigma. Hierarchy, he said, defines an organisation in which people:

“have their face towards the CEO and their ass towards the customer”

So the more charismatic the executive, the worse the effect. Investors should take note – when a business leader makes the front cover of Fortune: sell like crazy.

Download this free pdf for more information on the Black Swan.

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