After enough seemingly random events, it’s natural for the human brain to start looking for patterns (just ask Daniel Kahneman). So when I recently heard news that one of my executive team was leaving the company to pursue the inevitable “other opportunities,” I started to wonder:
how did I manage to accept an offer with another company with an unstable leadership team?
where did my post-offer diligence break down?
what other blind spots do I have that are hiding major risks about this company?
Then a surge of awareness kicked in, and I realized that my self-orientation was causing a perilous bias in my view of the situation. ELC-Mercer data from 2013 put C-Suite turnover among Fortune 500 companies at 7.4%, in 2015 Crist|Kolder put CFO turnover at 10.9%, and in 2015 PwC measured the turnover rate for CEOs as 16.6% in the largest 2,500 companies globally. So after a couple years at the same company, seeing one or two executives walk does not seem like a rare and exceptional event, or necessarily precede a corporate apocalypse.
And why does executive churn even matter? For a few reasons, at least:
the remaining execs will have to pick up the extra work left by the open seat
the instability of the team may spark a power struggle and additional executive vacancies
uncertainty among analysts and investors could spark a period of volatility and decline in the stock price, further devaluing the long term options for the remaining execs and increasing the risk that they walk away
Of course understanding why the executive team is leaving, and how extensive of a search the Board and CEO are doing in order to restore a balanced, effective and aligned executive team, are important questions to answer in order to understand whether the executive churn at your shop is in-line with the industry average, or a precursor to an epic corporate meltdown. So here are a few questions to consider when estimating the executive churn risk at your business, whether you are evaluating an offer of employment or already an employee:
how long has each executive been in place, and how does this compare to the median tenure?
how aligned is each executive’s experience with the go-forward strategy for the company?
which executive’s “work-life balance” is increasing the risk of burnout? Warning signs include execs who live in a city other than the corporate HQ and commute more than 2 days per week, or those who are temporarily filling open division or functional leadership roles in addition to their core responsibilities.
is there a defined executive succession plan in place?
have there been significant corporate turbulence that increases the succession risk for your company’s executives? For example: merger & acquisition activity, entering or exiting markets, or significant upward or downward movement of the stock price.
There is a certain balance to be struck between staying focused to be successful in your own role, and staying aware about existential risks for the company that could threaten your career stability, regardless of your own performance. Everyone has their own risk tolerance, and hopefully the questions above will help you make decisions to find a place in an organization where you can thrive.
I noticed myself making a snap decision about who should win the case–the defendant–as the judge read the case summary to us less than 20 minutes after stepping into the courtroom. This was the same decision I stuck with after two days of testimony, consideration, and discussion with my fellow jurors (more about “why people talk” in the third post in this series). While I’m far from perfect, self-awareness is a focus of my personal development, and I would consider myself reasonably aware of my biases. I consciously gave extra emphasis to evidence that opposed my snap decision. I did my best to put myself in the shoes of the plaintiff, imagining how the story of a truly terrible accident could sound implausible in the harsh light of a courtroom.
And as we, the jury, entered deliberations it seemed that everyone else had already reached a decision. Conveniently, we all agreed, and submitted our verdict in time to beat the rush hour traffic home. Driving home, I recalled other situations at work and at home where I knew I would be presented with a slate of evidence and asked to make a decision. Which CRM software should we install? Should we extend the timeline on the capital project? Can my daughter have another story before bedtime?
So the next time you encounter a similar situation, practice building awareness of when you’ve formed a decision, and to what extent additional evidence alters that decision. When did you decide who to vote for in the next Presidential Election??
Consider two choices you have likely faced in your life:
“I’m going for coffee. Do you want one?”
“You got the job offer. Will you take it?”
Both of these questions can be described as options in the financial sense: they provide you with the right to trade an underlying asset of a certain value before an expiry date. The coffee option expires very quickly and has a relatively small underlying value (depending on how tired you are at the time), and the cost of letting the option expire is also low. The underlying value, time til expiry, and option cost are all higher for the new job. While they both fit the same options model, they are two very different questions–conveniently your brain makes decisions using two very different “systems.” Just don’t pick the wrong system!
Read on for a practical guide to applying this options model do decisions you and your team face.
What is my option? Understand the value of the decision and the cost of letting it expire
When you or your team face a significant decision, start by clarifying the terms of the option:
The underlying net value. If you accept this choice, what will you gain? what will it cost to get it? Are the costs and benefits one time or recurring items?
The expiry date. Some choices feel urgent at first, but actually aren’t. Take a moment to clarify–either by thinking about it or explicitly asking the other party–when is the latest I can make this decision?
The cost of letting the option expire. At first, this cost may appear to be the opposite of the underlying net value (#1 above). By examining your sunk costs to date and the incremental risks you’d incur by moving forward, the cost of letting the decision expire might be very small in comparison (for example, letting an offer expire without countering after completing a home inspection).
By understanding these parameters, you can see whether a quick, instinctive decision is required, or whether a slower, more deductive decision fits. Daniel Kahneman’s insightful and accessible book Thinking, Fast and Slow describes our two decision making systems and they best ways to employ them (The Financial Times ran a very clear review a few months ago). Kahneman also weaves an understanding of cognitive bias into his description of the two decision making systems.
Now that you have defined the option, considered which decision making system is engaged, and become aware of any cognitive bias at play, you’re able to make the best decision. Use the practical summary below to prompt your team to apply these concepts:
Will more information help make the decision? More information can feed our pattern recognition and intuitive System 1. If so, enable your team to have the facts in hand.
Will more consideration help provide more confidence about the decision? If the option allows, switch to a more deductive System 2 decision making process. David Allen suggests never making a decision in the same meeting that data is presented for the first time.
How are biases clouding this decision? There is nothing inherently “bad” about biases, they just influence us in selecting an answer that isn’t appropriate for the situation in front of us. Build awareness of biases–laughing at them before changing can take the risk of guilt or judgment away.