Has positive thinking gone too far in corporate Amer-ica? That may sound like a bizarre question: Opti-mism is widely seen as a virtue of American culture

and key to success in business. Cultural norms and beliefsabout good business practice increasingly stress looking at thesunny side and de-emphasizing the problematic.

But such overly positive thinking is difficult to reconcilewith the need to make realistic, objective assessments. Find-ing the right balance between healthy optimism and delusionis harder than one might imagine, for both individuals andinstitutions.

And despite years—decades—of sobering examples, wedon’t seem to be any closer to that balance. The recent reck-lessness of residential and commercial real-estate lending wasin plain view, and a vocal minority wrote about it. But thefinancial and business communities dismissed all the warn-ings, insisting that any damage—should it ever arrive—wouldbe contained to the subprime sector. The folly was obvi-

ous: Even if decision-makers had deemed the grim forecaststo be of low probability, the potential outcomes were so direthat they demanded contingency plans. On other fronts, ex-perts are issuing warnings about the dollar’s continuing slide,which could worsen international financial stability, and aboutoil prices, and the hiring slowdown, and any number of poten-tial crises looming in the near future.

We acknowledge these problems and their seriousness—and then put them out of mind. Instead of treating worri-some developments as new information and looking dis-passionately at the risks, we tend to avoid working throughdownside scenarios because they are upsetting. It’s simplyeasier to put on blinkers and believe everything will work outthan to confront the complexities of modern life.

“Negativity,” an awkward coinage, has widely come to beused pejoratively. Magical thinking, too, has become increas-ingly popular as a way to gain the illusion of control in anuncertain world. Rhonda Byrne’s motivational best-seller The

SUSAN WEBBER is founder of Aurora Advisors, a New York-based management-consulting firm. Her last article was “Fit vs. Fitness,” theJuly/August cover story.

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Why looking on the bright side keeps us from thinking critically.

OptimismThe Dark Side of

By Susan Webber

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Secret, for example, basically says that you get what you wishfor. If you don’t have the things you want, it means you don’thave enough faith. In this construct, neither insufficient ef-fort nor bad luck plays a role.

In the business world, we’ve moved from hardheaded tofeel-good management. As Financial Times columnist LucyKellaway observed recently: “For people in any position ofauthority the ability to say no is the most important skillthere is. . . . No, you can’t have a pay rise. No, you can’t bepromoted. No, you can’t travel club class. . . . An illogical loveof Yes is the basis for all modern management thought. Theideal modern manager is meant to be enabling, empowering,encouraging and nurturing, which means that his default po-sition must be Yes. By contrast, No is considered demotivat-ing, uncreative and a thoroughly bad thing.”

To illustrate, Tom Peters’ Leadership offersan impossible, irreconcilable list of exhorta-tions: Be a great salesman, great storytel-ler, great performer, networking fiend,talent fanatic, relationship maven,visionary, profit-obsessive, and (ofcourse) an optimist. Push your or-ganization; know when to wait;love mess, politics, and new tech-nology; lead by winning peopleover; foster open communication;show respect; embrace the wholeindividual. Granted, Peters does givea couple of breaks—leaders get tobe angry and make mistakes. But his listis all sizzle, no steak. Not only are hisexecutives reluctant to say no—they don’tdevelop any of the guts of what managing isreally about: making decisions under uncertainty, creat-ing routines, developing (not merely exhorting) direct re-ports, responding to crises, building in enough slack to dealwith low-probability but high-consequence opportunitiesand risks.

The religion of management has instead shifted from hardskills to soft, interpersonal ones. While the human touch isimportant, making it the gold standard of good managementpractice is dangerous. It reinforces, rather than counters,the role of emotion in our decision processes.

The end result is a bias against critical thinking. It’s hardenough, in the delicate social web of most organizations, toquestion the merits of any given proposal offered in goodfaith. But now decision-makers stagger under the weight oflarger social trends and management fads that favor beliefand force of personality over dispassionate analysis. De-tached, rigorous thinking simply doesn’t fit any of our cul-tural models. In his 1949 classic The Hero With a ThousandFaces, Joseph Campbell showed that the hero’s journey is astory found in every culture—just as management literatureabout leadership, whether knowingly or not, casts corpo-

rate chieftains as prototypical heroes. But what archetypesdo we have for the anodyne analyst? In mythology, Hermesand Loki were clever but also troublemakers and tricksters.Science fiction, too, has long depicted alien beings as de-tached, logic-driven Cassandras whose warnings are invari-ably brushed off by upbeat, forward-thinking Earthlings(whose impetuosity, more often than not, saves the day). Butthat’s just it—it’s science fiction.

The “Bright Side” of BiasIn the real world, it’s troubling enough that most of us

overrate ourselves and, by extension, our enterprises (see “AreYou—Yes, You—Deluding Yourself?” on page 34). But oursocial orientation makes us more suggestible than we realize

in other ways. Out of his own frustration with howeasily a smooth salesman could manipulate

him, social psychologist Robert Cialdinistudied how “influence professionals” ex-

ploit our reflexes. His findings, alongwith those of other psychologists, ex-plain the ways in which optimism cantrump logic:

LLiikkiinngg.. Cialdini pointed out thatwe are more apt to comply withthose we like—that is, people whoare similar to us and people whom

we find attractive. We are thereforemore likely to shun someone who

pours cold water on our pet ideas. Thus,people who want social influence will re-

inforce—or, at least, not dispute—optimisticassessments. To smooth their dealings with oth-

ers, people resort to white lies—large and small—withstartling frequency: A study by social psychologist RobertFeldman found that 60 percent of his subjects told lies, atan average frequency of two to three lies per ten-minuteperiod. No surprise that our co-workers and colleagues re-inforce and amplify our rose-colored views more often thanthey dispute our assessments.

CCoonnssiisstteennccyy aanndd ccoommmmiittmmeenntt.. Most of us feel the needto be consistent, not only because society highly valuessuch reliability but because doing so makes it much easierto function in life. As Cialdini suggested, it’s simpler toadhere to successive actions and decisions and hope thateverything will somehow work out well than to return toinitial principles each time you must make a decision. Butin an organization, this attachment to commitment canlead to inflexibility, particularly when an initiative or in-vestment that looked good in the planning stages faltersin the field. In game theory and economics, the practiceof taking unsound actions to justify measures taken earlieris called “irrational escalation.”

CCoonnffiirrmmaattiioonn bbiiaass.. People tend to look for information

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Detached,rigorousthinking

doesn’t fitany of our

cultural models.

that proves, rather than disproves, their theories. In 1960,British researcher Peter Watson gave subjects the numbersequence 2-4-6 and asked them to identify a rule. The par-ticipants could then ask the experimenter if other three-number series fit the rule: For instance, those who believedthe numbers had to be even asked about numerous even se-quences, whereas people who thought numerals had to in-crease by two offered several such orders. Some 80 percentof participants overthought the simple problem and got thewrong answer: The numbers simply had to be in ascendingorder. Watson’s study is called a “cold” form of confirma-tion bias; it merely demonstrates the propensity of humansto look for supporting rather than falsifying data points.“Hot” confirmation bias refers to cases in which the beliefis emotionally charged. Not surprisingly, researchers havefound individuals with a hot confirmation bias to be even lessamenable to information.

CCoonnjjuunnccttiioonn ffaallllaaccyy.. This is one of many cognitive biasesthat result from our propensity to rely on stories to organ-ize reality. Studies of juries have found that they typicallybase their decisions on whichever story seems most plausi-ble to them, rather than weighing the evidence. Likewise,people will form their own stories when presented with facts.Consider this example: Linda is 31 years old, single, out-spoken, and very bright. She majored in philosophy. As astudent, she was deeply concerned with issues of discrimi-nation and social justice, and also participated in anti-nucleardemonstrations.

Rank the following statements from most probable to leastprobable:

1. Linda is a teacher in an elementary school. 2. Linda works in a bookstore and takes yoga classes. 3. Linda is active in the feminist movement. 4. Linda is a psychiatric social worker. 5. Linda is a member of the League of Women Voters. 6. Linda is a bank teller. 7. Linda is an insurance salesperson. 8. Linda is a bank teller and is active in the feminist

movement. A majority of participants in many repetitions of this ex-

ercise rate No. 8 as more probable than No. 6, even though,obviously, it is more likely that Linda is a bank teller thanboth a bank teller and an active feminist. Adding more detailmakes something seem more vivid and plausible, and we makethe leap to seeing it as more likely.

How does this bias reinforce optimism? It means that weoverestimate the likelihood of conjunctive probabilities—that is, the likelihood that A and B will occur together. Forinstance, estimating the success of a project or investmentis a conjunctive probability. Certain elements must all gowell for the project to succeed: Customers must place or-ders, production must meet demand, production then mustreach certain efficiencies for the profit margins to be ade-quate, and so on. The fact that we overestimate conjunc-

tive probabilities means that we tend to overestimate thelikelihood of project success.

Getting RealWe’re always told to look on the bright side of things, to

stay positive. After all, individuals and companies need a pos-itive outlook to succeed, right? Isn’t positive thinking essen-

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Optimism Through the Years

There’s nothing new about overdoing optimism.In his 1835 Democracy in America, Alexis de

Tocqueville saw it as one of the young nation’sdefining characteristics. Early in the following century, Dale Carnegie showed millions how towin friends and influence people using positivethinking and presentation. And from BenjaminFranklin to Steve Jobs, successful entrepreneurshave always preached the gospel of believing inyour dreams. It’s a message that extends into politics, too. Every four years, presidential candi-dates compete to be the sunniest; this electioncycle, Massachusetts ex-governor and Bain & Co.co-founder Mitt Romney is far out in front in thatelement of the race, proclaiming that “the future’sgoing to be even brighter than our past” and that“America has to be optimistic and recognize thatthere’s nothing we can’t overcome.”

And for centuries—at least since the Greekscoined the word hubris—critics have warned ofthe dangers of overweening optimism. Take Croe-sus, who thrust into Persia on the Delphic oracle’svague prediction that if he crossed the Halys River, “a great empire would be destroyed.” That empireturned out to be his own.

Executives, of course, often look to warfare for models, and military history is rife with otherexamples of leaders who overestimated their odds of success, with disastrous results: Hitlerattacked Russia, ignoring his generals and the cautionary examples of Napoleon’s and Charles XII of Sweden’s failed invasions. Robert E. Leecame to believe in his troops’ invincibility andchose to storm well-positioned Union forces atGettysburg against the advice of Gen. JamesLongstreet. The World War I battle of Gallipoli was the product of so much misguided Alliedthinking that one wonders how it could possiblyhave gone ahead. And in the Iraq misadventure,the United States ignored postwar planning out of a belief that Iraqis would welcome Americanforces—even though it is well-nigh impossible to come up with an example of an occupyingarmy ever being well-received. —S.W.

tial for progress? Not necessarily. No one is encouragingpessimism; rather, evidence from top-performing companiessuggests that success lies in a realistic outlook. Organizationswith a point of view based in realism have a keen eye forproblems, and when they find them, they attack them with adoggedness that verges on the compulsive. Yet we fail to rec-ognize this realism because it’s at odds with the romanticizedideas we have about leadership. It’s much more compellingfor a CEO to see himself—and the public to see him—as amodern protagonist in a hero’s journey than as an executiveperforming the mundane and often thankless task of makinga large enterprise more effective.

In addition, corporations often hide their worries. Duringits rise to industry leadership, Goldman Sachs had a culturethat could best be described as intolerant of error and obsessedwith containing risks. Yet the firm’s spokespeople and salesstaff always presented a confident, professional demeanor.Similarly, the press wrote about the firm’s aggressiveness,emphasis on recruiting top talent, and cohesiveness, not itssharp eye for trouble.

Jim Collins, in Good to Great, found that his top-perform-ing companies confronted the brutal facts. To illustrate, hequotes Pitney Bowes CEO Fred Purdue: “When you turn overrocks and look at all the squiggly things underneath, you caneither put the rock down, or you can say, ‘My job is to turnover rocks and look at the squiggly things,’ even if what yousee can scare the hell out of you.”

Collins cites retail food chain Kroger as another exemplarof tough-minded realism. As consumers became more afflu-ent, their grocery-store preferences shifted away from utili-tarian outposts toward more attractive stores with a rangeof offerings, in particular higher-quality perishables such asbread, meat, and vegetables. The industry was aware of thesechanges, yet Kroger was alone among the incumbents to up-end its business system: “By 1970,” Collins writes, “the Krogerexecutive team had come to an inescapable conclusion: Theold-model grocery store (which accounted for nearly 100 per-cent of Kroger’s business) was going to become extinct.” Col-lins goes on to quote then-CEO Lyle Everingham: “‘Sure,there was some skepticism at first. But once we looked at the

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Are You—Yes, You— Deluding Yourself?

In the Indian epic Mahabha-rata, Yudhisthira goes looking for hismissing brothers, who went searchingfor water. He finds them all deadnext to a pond. In despair, but stillparched, he is about to drink, but a crane tells him he must answersome questions first. The last andmost difficult: “What is the greatestwonder of the world?” Yudhisthiraanswers, “Day after day, hour afterhour, countless people die, yet theliving believe they will live forever.”The crane reveals himself to be the Lord of Death and, after somefurther discussion, revives the brothers.

Human existence, to paraphrasethe Samuel Johnson adage, is thevictory of hope over experience.Indeed, psychologists have foundthat most people systematicallyoverestimate their odds of success,and it may be rooted in our denial ofour mortality. Yet a major tenet ofpsychology is that healthy individuals

are well-grounded in reality. Perhaps not, say Shelley Taylor

and Jonathon Brown. In a seminal1988 journal article, “Illusion andWell-Being: A Social PsychologicalPerspective on Mental Health,” thetwo researchers explored the possi-bility that healthy self-regard maybe founded on delusion, asking:“How can positive misperceptions ofone’s self and the environment beadaptive when accurate informationprocessing seems to be essential forlearning and successful functioning in the world?”

You’ve doubtless seen numeroussurvey results regarding this phenom-enon. Eighty percent of drivers ratethemselves as above average. OneEnglish engineering firm ascertainedthat 43 percent of its engineersrated themselves in the top 5 per-cent. Further, according to Taylorand Brown, “[P]eople give others lesscredit for success and more blamefor failure than they ascribe to them-selves.” No wonder performancereviews are so fraught.

From a managerial perspective,

Taylor and Brown write, it is troublingthat people also overrate theirdegree of control and likelihood ofsuccess: “Over a wide variety oftasks, subjects’ predictions of whatwill occur correspond closely to whatthey would like to see happen or towhat is socially desirable rather thanto what is objectively likely.” Con-versely, people who are slightlydepressed or have poor self-esteemactually see themselves and theirprospects far more accurately, leading the researchers to wonderwhether the price of self-honesty is too high.

In the end, Taylor and Brownmake their case for optimism: “Theindividual who responds to negative,ambiguous, or unsupportive feed-back with a positive sense of self, abelief in personal efficacy, and anoptimistic sense of the future will . . .be happier, more caring, and moreproductive than the individual whoperceives this same informationaccurately and integrates it into his or her view of the self, the world,and the future.” —S.W.

facts, there was really no question about what we had to do.So we just did it.’”

Toyota, another reality-driven top performer, has patientlygone from making cars that American consumers ignoredto being the world’s second-largest automaker. One of thekeys to Toyota’s success is its drive to seek rather than avoidimpediments. As a New York Times Magazine article noted, “Itis human nature to cover up a problem rather than call atten-tion to it. At a Toyota plant, the identification of a problembecame imperative and exciting. Because then it could beaddressed.” Put simply, shortcomings are seen as potentialopportunities. If Toyota can come up with a solution, it putsthe company ahead of competitors.

Likewise, Andy Grove created a culture at Intel thatwas deeply insecure, and rightly so. Leadership in the com-puter-chip business is tenuous, since manufacturers are onlyas good as their newest design and product life cycles areshort. Recall that the United States appeared doomed tolose its technology leadership to Japan in the 1980s, andTaiwan has been steadily improving the sophistication ofits chips over the last decade. Grove’s famed paranoia in-cluded an obsessive focus on competitors and evolving cus-tomer needs. As he described it: “Think of the change inyour environment, technological or otherwise, as a blip onyour radar screen. You can’t tell what that blip representsat first but you keep watching radar scan after radar scan,looking to see if the object is approaching, what its speed isand what shape it takes as it comes closer. Even if it lingerson your periphery, you still keep an eye on it because itscourse and speed may change.”

Grove uses a military analogy completely different thanthose of most business leaders, who see themselves as generalsout to subjugate enemy territory. He puts himself in the shoesof a lowly radar operator, underscoring the importance of re-lentless attention and accurate reporting by the rank and file.

Building RealismFor companies that believe that all news must be good,

senior management must take deliberate, concerted meas-ures to signal that it is less interested in boosting morale thanin the cold, hard truth. New messages must be consistent,firm, and frequent. Cultural change does not happen over-night and requires considerable attention and constant rein-forcement. The leadership group needs to be certain it isprepared to go this route, since pretending to be interestedin candor but persisting with old habits of denial will simplyincrease cynicism. Some measures to consider:

NNeevveerr sshhoooott tthhee mmeesssseennggeerr.. Some managers may seemto be hopeless worrywarts, but remember Grove’s warning:Better to be aware of a potential problem than not. Overtime, you can calibrate whether some managers or unitsare indeed canaries in the mineshaft and, conversely, whethermanagers who dismiss possible dangers do so for valid rea-

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It Pays to Be NegativeBy Derek Gatehouse

Most owners and executives focus on all the positive motivators: a strong com-

mission plan, bonuses, perks, and incentives.This is certainly not wrong, but it is incom-plete. It turns out that a full half of the world’s best salespeople are actually moremotivated by negative motivators—by the ramifications of what will happen if they do not accomplish something—than they are by all the rewards of the positive motivators. In spite of the nasty connotation of the word“negative,” negative motivators do just that—they motivate.

I realize many of you forward-thinking executives will recoil at the phrase negativemotivator. We have all become so condi-tioned to the importance of treating ouremployees well that we walk on eggshells inthe face of anything that might seem nega-tive. While this is understandable, and while I am probably the world’s number-one advo-cate for treating your people like kings andqueens, I must tell you that a negative moti-vator is not negative at all. As a matter of fact, you are doing your valued employees a disservice if your program lacks negativemotivators.

The explanation is certainly a primal one.You must realize that there is positive motiva-tion and negative motivation in every task we undertake in our lives. We don’t eat just for pleasure or to become full—we eat to avoid the very negative feeling of being hun-gry. We seek companionship not only for thepositive feelings of love, trust, fun, and so on,but also to avoid the negative feelings thatcome from being alone. We so often hear ofrich people whose primary reason behind theirtremendous drive to make a lot of money does not come from the loss of obvious posi-tives—it is fear of poverty, a negative motiva-tor if I ever heard one.

Negative motivators are not a negativething. They are a positive thing with a nega-tive-sounding name.

DEREK GATEHOUSE is CEO of Vendis Inc., a New York-based consulting firm. From The Perfect Salesforce:

The 6 Best Practices of the World’s Best Sales Teams (Portfolio). ©2007

sons—or do so out of inertia.SShhooww iinntteerreesstt iinn tthhee ddoowwnnssiiddee aanndd tthhee uuppssiiddee.. Grill exec-

utives on the risks inherent in their forecasts. Display inter-est in bad or problematic news, and express interest in havingmore early-warning systems for adverse developments.

If your company has deeply ingrained prohibitions againstbringing up bad news—particularly if it is considered to be asign of professional weakness—have brief one-on-one reviewsindividually with key business managers to discuss their oper-ations and build a spirit of greater openness. Later, in a largergroup setting, use the information gathered, starting withchallenges common to several units so as not to put any oneexecutive on the spot.

SShhaakkee uupp hhaabbiittss aanndd pprroocceedduurreess.. It’s hard to get peopleto think and act in a new way if they continue to go throughthe same old rituals. It may be worthwhile to look at yourmanagement-information systems and decision processesto see if they provide adequate mechanisms to obtain and airunbiased information.

Another way to rattle hidebound thinking is to engagein scenario planning. Most companies have a well-understoodofficial version of the future, which is codified in their bus-iness plans, and the organization may also have one or twoother major scenarios in mind. However, businesses tend to

ignore low-probability but potentially devastating events, justas they ignore fundamental challenges even when they lookincreasingly likely. (Consider how Detroit resisted the pro-duction of smaller, lighter cars and, now, how many corpora-tions aren’t taking the implications of global warming seri-ously.) Don’t let your company be caught off-guard.

EEssttaabblliisshh aa hhoouussee sskkeeppttiicc.. It can help to have a designatedcritic. Sometimes that role falls naturally to a staff depart-ment, such as corporate development. The trick, then, is toensure that its questions and concerns are treated seriously(i.e., to make sure representatives have some power) andthat it focuses on substantive issues, rather than process orminor details. If you lack a logical internal party to play thisrole, use an outside adviser, such as a retired executive, aconsultant, or a business-savvy lawyer. Generally, it is bestto involve the person in major strategic decisions and acqui-sitions first, and at as early a stage as possible.

Regardless of what steps you take, your goal is not tosquash optimism but, rather, to build a sense of realism intoyour company’s culture. And keep in mind that what worksfor an individual isn’t always successful on the level of alarger enterprise. While the elixir of optimism may help usget through the day, it is toxic to corporations when takenin excess.

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