When Business Change You Need, Change the Guard

You need change. The deal’s gone south, the model’s cracked, or the business plan is in a tail spin. Management wants change. The board wants change. How far do you have to go to get it? How far should you go? Sometimes the CEO leaves; sometimes the CEO is pushed. Even a founder can get an unceremonious push. Do you substitute in with the planned successor? Do draw the replacement from your top team? Do you bring back previously departed talent? Often a board wants one of its own to take the helm. Others talk of bringing “fresh blood” in. How fresh should it be? When you’re in crisis, should you look close at hand for the familiar hand who knows the facts, understands the story, gets the “vision thing,” and can quickly take the helm? Recent research suggests not. Go for a fresh perspective.

It’s hard to change. There is a lot to be said for maintaining continuity and building on prior experience. The existing top team and the board know, or should know, the company, the business and the people. They should know how things are done and not. Presumably they understand the facts and have weighed the factors in making the decisions which have gone wrong. They should be able to see where they went wrong and why. They should be able to see the fix.

But can they really see? In crisis, it is hard to get one’s collective bearings. Events can move quickly in a flow of new facts and consequences. Worse, in a state of crisis, people react differently, accelerating into panic at different rates or not at all. People begin to diverge in protection of self-interest. Personal agendas begin to emerge. Temper and pressure cause new sequences of events, alliances, and schisms to occur. If it is hard to get one’s collective bearings, it is hard to trust. Little changes and incidents which ordinarily are insignificant suddenly have greater effect on the mix.

Meanwhile the people involved in the original decisions tend to retrace ground. Whether you select from the top team or the board or bring back previously departed talent, they see things largely as they always have and perpetuate the old relationships, blind spots and biases. Under pressure, it is difficult to see beyond the original facts, factors, people, and deliberations. It is even more challenging to see out of the box to a new idea. It’s even harder when the remaining leaders know that their own past deliberations and decisions are to be replayed and second guessed. There is a lot of comfort in self-confirmation.

This is why advisors suggest bringing in fresh blood, the outsider. Truly new talent brings a new perspective born of different experience, learning differently. While the fresh leader may not have intimate understanding of company, business and people, the newcomer also is not blinded by habit, indebted to a history of long internal relationships, or imprisoned by the need to validate pertinent prior judgments. The outsider has a steeper learning curve, but it’s a new curve, not old.

Now recent research at the Kellogg School of Management and the London Business School confirms the “fresh” approach. Adam Galinsky, Brian Gunia and Niro Sivanathan studied the phenomenon of decison makers becoming fully invested in confirming the deliberations and decisions of others. Through a process they dub ‘vicarious entrapment,’ they show that decision makers will “justify and escalate” commitment to the decisions of others in the presence of even subtle and seemingly superficial psychological bonds. This occurs despite negative and personal financial impact on the new decision makers. Thus psychologically bonded decision makers reinforce the negative decisions, continue the decline in results and throw more money after bad. No wonder that we record the deepening of insolvency by successive inside leaders.

Top teams, boards, and departed talent maintain strong psychological bonds. We want those bonds to deepen as they work. Even when they have gone on to pursue the proverbial “other opportunities,” those psychological bonds remain, some good, some no doubt bad, but always re-energized by recreating the relationships. “Vicarious entrapment” indicates that to move beyond those bonds, to think the crisis and the plan through differently, and to stop throwing good money after bad, you need to hire and not just think outside the box.

© Copyright 2009. Sigrid Caroline Schroder. All Rights Reserved.

For more information:

B.C. Gunia, N. Sivanathan and A.D. Galinsky, “Vicarious entrapment: Your sunk costs, my escalation of commitment,” 10.1016. J. Experimental Social Psychology 2009.07.004.