A wealth of research studies indicate that between 70% and 90% of acquisitions fail to add value to acquiring firms. Research has also shown that the high failure rate is attributable largely to the cognitive bugbear Daniel Kahneman, the author of Thinking Fast and Slow, cites as the most pernicious of all: overconfidence.
Overconfidence is another cause of performance dips during the Complacency Trap years. Success tends to breed confidence, and the longer success is sustained, the greater the risk of overconfidence rearing its head. And that’s true not only for acquisitions. Researchers conducted an extensive empirical analysis of strategy successes and failures made by several thousand of the world’s largest companies. Their findings show that “the more your confidence grows, the higher your risk of arriving at the wrong conclusions.” Or, in the words of Bill Gates: “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”
The trickiest thing about overconfidence is that it’s fiendishly hard to know when you’ve crossed the line from healthy confidence to hubris; it’s not exactly a line in the sand. What’s more, showing great confidence is a powerful advantage in business because it leads people to evaluate you as more competent, which can make you more influential.
The allure of confidence even appears to be embedded in our brain. Studies have found that when we encounter someone exuding confidence, an area of our brain involved in feeling positive emotion, the ventromedial prefrontal cortex, is stimulated. Scientists conjecture that we’ve evolved to fear uncertainty, and confident people come across as having good reason to be certain.
After a number of successful years, keeping confidence in check may be made harder by the media. Hero worship may begin.
George Paz recalled that one of the most important pieces of advice he ever got in his career from one of his bosses was, “The worst thing you can ever do is start believing your own press.” The boss had just orchestrated a deal that Wall Street was going crazy about, and Paz had said to him, “You must feel great!” He was, by contrast, circumspect.
“You better understand,” he told Paz, “that only you know how well that deal is actually performing and where the shortcomings came up so that when you do your next deal you see where those went wrong and focus on getting those things right. Because if you sit there and swim in your own accolades, you’re going to drown at some point.”
Invitations to give speeches, to join prestigious committees, and to hobnob at global leadership gatherings all may pour in. The job is fraught from the start with ego-inducing dangers. A CEO once commented to our colleague Ellen Kumata, “The corporate jet is the crack cocaine of CEO leadership.” Within the company, people tend to fawn over you.
In a discussion about how important it is to stay cognizant that all this special treatment is about the role rather than about you, Carl Bass, former CEO of Autodesk, recalled, “When I first became CEO, I joked that I became a lot funnier and smarter.” He then cautioned, “The attention that’s paid to you is not about who you are, it’s about the position.” He loved riding on San Francisco’s public commuter railway, BART, because he’d be elbowed by other riders, whereas in the office “everyone holds the door for you and bows down.”
The more accolades that come your way, the more challenging tamping down your ego can become. It’s simple human nature.
One remedy: Actively cultivate confident humility. Wharton School professor Adam Grant writes in his book Think Again, “The most productive and innovative teams aren’t run by leaders who are confident or humble. The most effective leaders score high in both confidence and humility.” How to get the balance right?
Probably the best means is to remain highly cognizant about mistakes you’ve made but also mindful about what you learned from them.
Piyush Gupta exemplifies confident humility. He was quick to share with us a number of mistakes he and his team made at Singapore’s DBS Bank. In accounts of his career at DBS, those missteps are almost utterly obscured by the company’s strong growth. Recall that DBS was in the doldrums when he took charge. One key problem was that the bank’s technology systems were antiquated. “In my first phase, one of the main things that I had to focus on was fixing the plumbing of the company,” he shared. When it came to data analytics, he recalled, “We had nothing. We were flying blind.”
He hardly lacked confidence, however, in setting a strategic vision for DBS: to become the best bank in Asia. By 2013, four years in, that goal had been achieved. He did not rest on his laurels. “When we started getting all of these accolades as the best bank in Asia,” he said, “I started getting very worried about complacency for the company. It’s at times like this when you’ve got to reinvent, you’ve got to set new goalposts, because if you don’t, then the system starts getting complacent.”
Again demonstrating bold confidence, at a company convocation in 2014, he set the bank’s sights on becoming the best bank in the world. “I created a presentation depicting DBS as on our way up Mount Everest. We had reached base camp one, and we were going to keep ascending to base camp two, three, and four.” He also had a slide created of a masthead of The New York Times dated May 2020 with a headline proclaiming that DBS had just been voted the best bank in the world. The bank was actually voted the world’s best bank by Global Finance magazine in 2018, two years ahead of schedule.
He’s clearly remained highly cognizant, nonetheless, of the value of owning one’s failures, rapidly recounting three to us that he’s kept top of mind. In 2012, he and his senior team “missed the fact that we had big capital exposures in India. Eventually, we wound up writing off several hundreds of millions of dollars, which was more money than we’d made in a decade. All the way to 2015, we kept writing off money.”
About losses incurred on investments in oil and gas ventures in Singapore, he highlighted that they “weren’t due to lack of knowledge” but because he and his team had miscalculated their prospects. Regarding the launch “with a lot of fanfare” in 2016 of a digital-only bank in India, he recounted, “It became quite clear to us the strategy wasn’t working.” Although the bank rapidly signed close to two million customers, they weren’t creating sufficient cash flow, “so we had to course correct.”
Gupta wasn’t pummeled by the market for these misjudgments. “I never got criticized by shareholders or analysts.” For them, he shared, “I’ve got a clean sheet from an outside view, whether of shareholders or the media. We’ve been a lot more critical of ourselves,” he said of himself and his senior team. “I kick myself a lot.” That self-recrimination wasn’t disempowering because he was also so vigorous in learning from missteps. For example, within a year of the failure of the India-based digital-only bank, DBS launched the successful digibank in Indonesia, a mobile banking app that allowed for signatureless transactions and incorporated cutting-edge biometric and AI technology.
Gupta also demonstrated another tendency that helps keep success from leading to overconfidence: being tough-minded about the causes of your success. That involves being cognizant about situational factors that contributed, such as a bull market lifting virtually all boats.
When reflecting on the great results of his first few years, Gupta shared, “We had fixed a lot of the fundamentals, but I got lucky, because China opened up in 2010. For the first time, the Chinese Central Bank allowed Chinese companies to go to the financial markets of Hong Kong and Singapore” for funds and trading activity. “That gave us a strong tailwind, and our results in those years were driven by China.” Of course, had the fundamentals not been put in good order, much of that business might not have come to DBS. The success resulted from both leadership and luck.
Keeping overconfidence in check is helped when you coach yourself to give credit due to rivals and to emerging competitors that might otherwise be dismissed as insignificant threats. As Piyush Gupta headed into his Complacency Trap stage, he reached outside the banking domain to explore the emerging world of fin-tech, and what he learned, he told us, “scared the daylights out of me.”
He and his team had attempted to acquire a bank in Indonesia, but regulators nixed the deal. He concluded that he’d be forced to pursue a primarily organic growth strategy. The trouble, though, was that the traditional avenues for that growth “would require very deep pockets and long periods of time.” He wanted to move faster. This was in 2014, and Alibaba founder Jack Ma had just launched Ant Financial. Gupta requested a meeting with him. By going entirely digital, “they were completely redefining how banking could be done,” Gupta recalled.
Acknowledging their entrepreneurial prowess, he saw fintech as a potentially existential threat to traditional banking. His response was to lead a radical transformation of DBS, turning it into a technology leader. This is why three years later he was able to launch digibank. Many more leading-edge innovations have followed.
In driving the transformation, he drew on earlier career experience with technology, both in operations and e-commerce for Citibank. As noted, he left Citi to start his own dot-com. In that venture, he had the opposite of luck: He launched it in 2001, just as the dot-com bubble was bursting. Now he made good on the pain of that debacle. “The perceived wisdom then,” he recalled, was that DBS should create a separate division for digital banking or buy a fintech startup. “We took a contrary view. We were going to bring everyone along. Our battle cry was that we were going to become a twenty-thousand-person startup.”
He invested heavily in retraining existing employees and hired a phalanx of data scientists. To engage employees in the mission, he launched regular hackathons and he set a goal of conducting one thousand experiments a year.
With a strong focus on optimizing the potential of artificial intelligence, he had to pour himself into learning about the technology. One way he did so was to take part in a global competition called DeepRacer hosted by Amazon Web Services. Participants must program a self-driving model car that they race on a track, and competitors with the fastest times then compete in a showdown.
From this endeavor, not only did Gupta learn more of the ins and outs of AI development but his participation also inspired employees throughout the organization to embrace the reinvention; 3,000 DBS employees participated, and out of them, Gupta came in 19th in the race. DBS won the competition for the Asian region, and three of its employees participated in the grand finale held in Las Vegas.
The result of Gupta’s constant push for innovation is that DBS was named best bank in the world by Global Finance magazine, not just that once in 2018 but every year thereafter, for five years in a row as of this writing.
Excerpted with permission from The Life Cycle of a CEO: The Myths and Truths of How Leaders Succeed by Claudius Hildebrand and Robert Stark. Copyright © 2024 by Spencer Stuart International. Available from PublicAffairs, an imprint of Hachette Book Group.