Monday, October 19, 2020

'Consensus' is not a good guide to decision-making.

I never forget that I am lodged in  a B-school, so I like to put on my management hat every now and then. (Which is why I wrote a book on the corporate world in 2015, Rethinc: What's broke at today's corporations and how to fix it).

In that spirit, I find myself agreeing with the departing head of Swiss bank UBS, Sergio Ermotti. Ermotti has revived UBS after the setback it faced in rogue trader scandal in 2011. In an interview, he details how he brought about the turnaround. One of the things he mentions is how there was a terrific clamour among analysts, shareholders and journalists that he shut down the investment banking arm and the US wealth management arm. His instinct told him otherwise and he was proved right:

My best decision was not to follow consensus . . . I’m sure I wouldn’t be the CEO today if I had done it,” he says. “With hindsight it’s always easy [to second-guess], but as a leader, your first instinct is usually the right one . . . So if I have to learn anything, it’s to rely on those instincts even more.

This reminds me of  an anecdote that Peter Drucker narrates about Alfred Sloan, the legendary Chairman of General Motors. At one meeting, Sloan asked his colleages whether they should go ahead with a particular decision. Everybody around the table nodded assent. Sloan rose to his feet,"Gentlemen, if there is this kind of agreement with the decision, there must be something wrong with it. I suggest we adjourn and meet again". 

In other words, consensus can be lethal to decision-making. It shows there hasn't been application of mind or expression of opinion. There has to be a modicum of dissent, a weighing of pros and cons for a decision to be sound. Wherever you find a high degree of consensus, be a little wary of it.

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