Why Boards Screen Out the Wrong Kind of Risk
Jason Baumgarten 00:00
Imagine you're choosing the next leader of your company. There are two candidates remaining, and they're both impressive. Both have done work that looks very relevant for the job. The first has a record that makes the decision easy to explain. Great companies, great results.
Jason Baumgarten 00:19
Every move looks like a step up. The second candidate has a problem. Somewhere in that career is a very public failure. A business that collapsed, a strategy that didn't work, a board that decided it was time for someone else. And you know quickly what the next question in the room will be.
Jason Baumgarten 00:42
Can we really take that risk? Now imagine you have time to ask that second candidate what happened, and they give you an unusually clear account. They deeply understand the decisions they got wrong. They can explain the circumstances they couldn't control. And the people who worked with them afterward can point to the things that they now do differently.
Jason Baumgarten 01:04
Would that change your mind? Or would you still prefer the person whose mistakes never made the news? Now, this is hypothetical, but it's a useful way into a question that matters to anyone who hires, leads, or has a career they wish had gone a little differently. We tell people to learn from failure. We tell people that a lot.
Jason Baumgarten 01:26
Then we look for leaders whose records appear to contain as little of it as possible. And there may be good reasons for that. There may also be something we're missing now. I'm Jason Baumgarten, and this is Fit Happens, where we explore how people and the situations around them come together to make leadership work.
Jason Baumgarten 01:51
Today I want to talk about the wisdom of failure. More specifically, whether the thing we're so quick to screen out might sometimes be evidence of the experience we're actually looking for or not. The research review pulls together a lot of work from a lot of sectors. It also challenges a comforting idea that going through something difficult automatically makes you better. It doesn't.
Jason Baumgarten 02:17
It turns out some people learn. Some people just become defensive. Some recover beautifully and make the same mistake again. So the question I want to explore today is how do you tell whether an experience has changed someone? Their judgment, their behavior?
Jason Baumgarten 02:35
And if you're the person who went through it, how do you honestly find out whether it changed you? Let's start with a word that does a little too much in today's society. Failure. A company misses its targets during a recession. A leader buys a business without investigating a risk that was kind of there.
Jason Baumgarten 02:57
Someone loses their job because the board changes direction. Somebody hides results from investors. All of those events can be put under the same heading of failure, but they tell us enormously different things. Recession may tell us relatively little about the leader. The acquisition tells us something about judgment.
Jason Baumgarten 03:18
The dismissal may tell us about a disagreement. The concealment may tell us about integrity. If we don't carefully separate all these things, we aren't evaluating a record clearly. And often what we actually see is just an announcement, a departure, a write down, a headline. We just assume somebody else's verdict without really probing on the evidence behind it.
Jason Baumgarten 03:43
Now I'll also share this works in reverse. We often take the win and assume the correlation. Now, this doesn't mean boards should ignore some bad results or bad outcome. Leadership does matter, and so does accountability. A record of poor decisions deserves real scrutiny.
Jason Baumgarten 04:02
And in my line of work, choosing a CEO who can't do the job well can hurt a lot of people. And replacing that person takes a lot of time. But being careful is part of the responsibility. It should mean understanding deeply what happened. Now, poor industry performance increases the likelihood of a CEO departure.
Jason Baumgarten 04:23
Moving from very strong industry performance to very weak industry performance roughly doubles that probability. In other words, the career verdict follows what's happening around the company. But there's a reasonable alternative explanation. When an industry changes, a company often needs a different kind of leader. Replacing that CEO can make sense even if that person is highly capable.
Jason Baumgarten 04:49
Now, that explanation still matters to the next hiring committee or the next investor. If the company needed a different set of skills, the departure doesn't automatically establish that former CEO is lacking any skills. It's a fit question. It establishes, or could establish, that the assignment changed. Now add the person making that hiring decision, or the board or the committee.
Jason Baumgarten 05:15
If I recommend a conventional candidate and the appointment goes badly, I can explain why the choice looked sensible. You know, they were a proven CEO. What on earth could we have done differently? But if I or anyone else recommend somebody with a public failure or a blemish, the first question to that board is, why did you ignore the warning or the risk? And that's a real incentive. It's an incentive to choose the person who may not have had that tremendous learning experience.
Jason Baumgarten 05:46
It may also be a choice of picking somebody who hasn't really correlated to the win, but simply was there. Those of us in Executive Search have to include ourselves in this conversation. We help decide whose record gets a deeper look, whose get summarized in a quick sentence, and the cost of an unsuccessful appointment is visible. It's painful. A CEO who leaves quickly is not great for the stock or for the confidence.
Jason Baumgarten 06:15
But the cost of overlooking a strong candidate can be much harder to see. So let's return to our two candidates. We may still not know which one we should hire. But we know that the second person's record needs a little more scrutiny. It needs a little more than a red slash or a negative check mark.
Jason Baumgarten 06:35
And we should be, as I said earlier, just as curious about the first person's success. What did they actually contribute? What did they inherit? How much depended on the team, the market, the momentum? Those questions become especially important when you ask what each of them learned.
Jason Baumgarten 06:54
Now, the familiar story goes something like this. Someone takes a big swing, it goes badly, they're humbled, they come back wiser. Now sometimes that happens, but we tend to hear the story after the comeback from the people who got one. Now, many venture backed entrepreneurs have had this experience. In fact, many of them fail and fail and fail and occasionally get a success.
Jason Baumgarten 07:20
Founders who had succeeded before are more likely to succeed again than either first time founders or founders whose earlier ventures had failed. Now that's looking at something very concrete, like taking a company public. Previously, failed founders performed much more like first timers than like the founders with a prior. And these were people investors had chosen to back again. We can't assume their results represent everybody who has ever failed in a job.
Jason Baumgarten 07:51
But it's an interesting sample. It should make us cautious about treating failure as an advantage all by itself. Now those investors were likely thinking, well, they've been at this, they've done it before, they've learned something. But there's stronger evidence that learning happens when there's a process around the experience. One of the most interesting sets of research on this is individual and team debriefs.
Jason Baumgarten 08:14
Properly conducted debriefs improved effectiveness by about 20 to 25%. That isn't a promise that reviewing a failed acquisition will improve your next one by 20 to 25%, but it supports the value of a structured review, of a look back rather than some general write off or claim about failure or success. And so this is something many organizations have internalized, that they do an after action report and study. Some leaders internalize this as just what they should be doing, and others brush it off, blame others. Now think about the difference.
Jason Baumgarten 08:51
In practical terms. You lose a major customer, you feel pretty terrible about it, and you start telling yourself that the competitor bought the business by lowering the price or the customer was unreasonable and that your team did everything it could. Months later, you still remember that painful loss. But your process for managing customers hasn't changed. That's the problem.
Jason Baumgarten 09:15
Now imagine you actually look back through the calls and the emails you asked the account team when they became concerned. You discovered that the warning reached people before it reached you. You learned that your reaction to bad news made people reluctant to bring you more of it. Now, this is unfortunate, but it gives you something you can work on. So you change the escalation process going forward.
Jason Baumgarten 09:40
You moderate how you respond. You ask the team later whether things feel different. So the loss still happened, but what follows is profoundly different. And let me be clear, this is really hard work. It's hard emotionally, and it's hard because in that moment, the most honest examination of failure is when you want to protect yourself or deflect.
Jason Baumgarten 10:04
When a role is part of your identity, criticism of your performance can feel like a judgment on your worth. You start preparing your defense before you've even understood the evidence. Now you can also go in the other direction and blame yourself for everything. Now that may sound really good and accountable in some great leadership book gone awry, but it can also be highly inaccurate. If your explanation was simply that you're not good enough, what is there to change?
Jason Baumgarten 10:34
The useful question is the specific one. What did we get wrong? What warning did we miss? What information should we have sought after? What should we have done differently?
Jason Baumgarten 10:44
And sometimes understanding what was beyond your control is helpful too. It may change what you start to circle as being in your control going forward. You have to make yourself a villain to learn, but you need something that you can test. Remembering how badly something hurt is different from understanding why it happened and what you can do differently. Now.
Jason Baumgarten 11:06
This is where failure connects directly to fit. Take Ron Johnson. He helped build Apple's retail business, an extraordinary achievement. Now in 2011, he became CEO of JC Penney. The transformation included a major change to the company's approach to pricing and promotions.
Jason Baumgarten 11:23
And in fiscal 2012, sales fell by double digits and he was replaced the following year. Now the sales decline is a fact, but explaining it requires more than a fact. Now it raises question about how a successful leaders experience transfers. Apple's customers, products, economics and market were fundamentally different from J.C. Penney's. And a retail approach that worked in one setting shouldn't be presumed to work in another.
Jason Baumgarten 11:53
Now the difference in settings may not explain the whole outcome and I don't like to pick apart particular leaders, but I'm saying that this earlier success requires some examination too. Now it may have been simply that people were just clamoring to buy their iPhones. Now some famous research on talent studied star security analysts who changed employers. And interestingly, performance often declined after the move, particularly when analysts moved alone or to firms with weaker platforms. It stayed the same or improved slightly when they moved as a large group, a team.
Jason Baumgarten 12:32
Now, these were analysts, not CEOs. And I'm very cautious of overemphasizing the quality of this research to apply it to everything. But the finding helps us see something that is very important. Some of a person's performance depends on the organization around them. And a reputation can travel more easily than recreating the conditions that produce that reputation.
Jason Baumgarten 12:56
So some hypothetical leader who excels at building a new business, they might be comfortable with ambiguity, good at bringing talented people together that are taking risk and being quick to test and refine an idea. Now, you take that same person and put them in a mature company with a limited balance sheet, complicated operations, and a board that wants quick predictability. They still have those same strengths. They're still real. But the job may demand things that they haven't actually learned to do well.
Jason Baumgarten 13:28
And so if the assignment goes badly, we should ask which explanation the evidence supports. Did they lack some necessary capability? Or did somebody misread the mandate? Did the board describe one job and expect another? Those all have implications for the next role and how we measure people.
Jason Baumgarten 13:46
A mismatch can teach someone to assess an opportunity more carefully. It can also expose a gap any of us need to address. Before your next move, ask what the organization needs you to accomplish. Ask about resources, how progress will be measured, what changes will be supported. And then ask yourself about the evidence of your success.
Jason Baumgarten 14:10
Does it come from a situation that resembles the one you're contemplating now? All of these stories of transition gives us possibilities to examine. And it's easy to dismiss a leader that fails or celebrate a leader that successes. And we never have a perfect AB test. But the most useful question is, what did that person do?
Jason Baumgarten 14:34
And what was the context? And how replicable is that in the setting you're about to put them in? I like to think of this as examined failure, and in fairness, examined success. We describe multiple things. First, an actual accurate account of what happened.
Jason Baumgarten 14:52
How many times does a company you're with miss its revenue target or profitability target, and there isn't a clear narrative about what actually happened. We tell stories about it or we blame others, but we don't really understand what happened. Deliberate work to understand it is critical. Now, a change in behavior that other people can confirm is next. So you have to have an accurate account of what happened.
Jason Baumgarten 15:19
You need the deliberate work to understand your part in that. And then you need to have demonstrated a change in behavior that can be confirmed. Now, this is very important because it allows us to ask us different questions of others, but more importantly about ourselves. So let's give our hypothetical candidate a little more history. They led an acquisition that went badly.
Jason Baumgarten 15:43
The promised benefits didn't materialize. Key employees left and the board replaced them. If you ask what happened, they say they learned to listen and become more humble. Now, that might be sincere, but it doesn't leave us a whole lot to assess. Let's go back and start with accuracy.
Jason Baumgarten 16:00
What did the deal assume? What was known? Who raised concerns along the way? And what happened with those concerns? What did the leader actually do when the numbers began to disappoint?
Jason Baumgarten 16:12
Suppose the candidate says the market changed. We'll check that. How did similar businesses perform during the same period? Suppose they say the board pushed for the deal. What authority did they have and what did they recommend in the moment?
Jason Baumgarten 16:25
Were they the champions of a different course now? Other people's accounts will have interests and bias and blind spots too. A board member may want to defend the board's decision. A former colleague may be loyal or angry. You have to compare the accounts and look through all of the records for the through line.
Jason Baumgarten 16:45
The goal is a credible explanation. Then comes the work of understanding it. What did the candidate actually do? What did you actually do in this case? Did you review the acquisition with people who disagreed or start surrounding yourself with the people who were supportive?
Jason Baumgarten 17:02
Did you revisit your original assumptions after the fact? Did you seek feedback from the employees who experienced the integration? You don't need an elegant written account to qualify as reflective. But you should be interested in the work however it was done, and if it's you who went through it, you should do it. And the distinction between reflection and replaying matters.
Jason Baumgarten 17:24
Going over the board meeting every night, thinking about what you wish you'd said, may keep it painfully present without helping you actually understand what happened. The reflection should eventually help you decide how you're going to act going forward. And that brings us to the third part. Did you change and has anyone seen it? Perhaps in a later role?
Jason Baumgarten 17:46
You brought operating people into the acquisition review earlier. Perhaps you tested assumptions with different commitments. But ask someone who worked with you in a later role, or in this case, with this hypothetical candidate, for examples of change behavior. Give the person room to describe what they observed before and after. And in the case of managers or leaders who are listening, if you deny somebody a role, or deny somebody progress or fail to appoint them, give them the real reason why, or they have no chance of changing, they only will think of their disappointment.
Jason Baumgarten 18:25
And importantly, in all of this look for what happened under pressure. All these things are easier when there's less pressure, when people agree, when markets are better. Revealing moments are when people are challenged. Did the leader make room for the challenge? Did they make room for the decision improving?
Jason Baumgarten 18:44
Did people feel punished? You can ask the same questions of the candidate with a beautiful track record. Everyone has a hire that didn't work, an initiative that went sideways, or feedback that they initially resisted. A public dismissal shouldn't be the price of admission to a conversation. And a polished story shouldn't get somebody to sail through.
Jason Baumgarten 19:06
Someone who's been coached to describe growth may sound more convincing than someone who quietly changed along the way and made themselves a little better. Research on self reported growth after trauma gives us a reason for caution. In one proposed study, what people said about their growth corresponded poorly with measured change. Now that was research on life trauma. So applying it to leadership is a little bit of a stretch.
Jason Baumgarten 19:31
But it reminds us to look for evidence, not self description. And there's also a question of equal treatment. CEO dismissals or leadership dismissals of any kind do differ by gender, including differences in how much strong performance protects a leader from being dismissed. So ask yourself whether you'd interpret the same event differently if a different person were telling you about it. Would you call one person's confidence resilience and another person's confidence denial?
Jason Baumgarten 20:01
Now let's go back to our imaginary boardroom. The second candidate now deserves a substantive assessment. The assessment might reveal meaningful change. It might reveal an explanation that just doesn't really matter or hold up. But either result actually tells us more than the departure announcement.
Jason Baumgarten 20:20
Now, before we finish, let's talk about a boundary. People can lose jobs, life savings and opportunities because of a leader's decisions. Calling a leader's failure a valuable education can sound very different to the people who might have paid dearly for it. Things like misconduct belong in a very different category from a good faith error. And even when someone wasn't at fault, their response to the harm matters.
Jason Baumgarten 20:45
A leader can accurately explain that a market collapsed and still acknowledge what employees went through. Causal responsibility and responsibility toward people aren't identical. A second chance also has to make sense for the organization. Sympathy doesn't establish that someone is the best person for the job, the best specific person for the job. But if the evidence supports another opportunity, there's something practical we can learn from the professions that examine mistakes routinely.
Jason Baumgarten 21:15
I talked about that after action report. The Army's review asked people to work through what was supposed to happen. What happened? Why and what they should sustain or improve. It applies to success as well as failure.
Jason Baumgarten 21:31
Now, the military is a very different setting than an executive career. The habit is useful. Review the experience while the people who saw it are still available. Then carry a very specific change into the next assignment. And the army has an amazing rigor of standard operating procedure that, frankly, most companies don't.
Jason Baumgarten 21:51
Now, if you lead a team, give people a chance to do that before that story becomes a headline somewhere, make it possible to admit that something went wrong. Be clear about the standards. Follow up on whether the change everyone agreed made sense actually happened. And if you're thinking about your own career, choose an experience you've been explaining the same way for a long time. It doesn't have to be the worst thing that's ever happened to you or the worst failure you've ever experienced, but just something that didn't go according to plan.
Jason Baumgarten 22:24
Write down what you expected and what happened. Separate what you could control from what you couldn't. Find someone who had a ringside seat and is willing to challenge your account. Then identify one thing that you actually do differently now. And if you can't, that's a pretty good place to start.
Jason Baumgarten 22:43
You don't have to manufacture some happy ending, some losses. In fact, most losses stay losses. And you don't have to explain every painful experience as something that was good for you. But what you can do is make your understanding more accurate and your next decision better informed. Now, our two candidates are still sitting outside that boardroom.
Jason Baumgarten 23:07
We haven't made the choice for you. That will depend on the work to be done and the evidence about each person. But I'd want the discussion to have moved beyond who has the easier record to defend or the better press release. I'd want to understand whose judgment really fits, what their setbacks and successes actually reveal about them. And for each of us, looking internally, the question is just as concrete.
Jason Baumgarten 23:31
When the next difficult decision arrives, what will you do differently because of what you've already lived through? I'm Jason Baumgarten. Thanks for listening to Fit Happens. You'll find more episodes at FitHappens.fm. If someone came to mind during this conversation, send it to them.
Jason Baumgarten 23:49
It might be a useful place to start talking.
