Author: Prudy Gourguechon

  • Why Professional Investors Need to Understand the Concept of Disavowal

    Why Professional Investors Need to Understand the Concept of Disavowal

    Disavowal:  Looking at the Psychology of Finance through a Psychoanalytic Lens

    Second in a Series

    What is Disavowal and Why Does It Matter?

    Disavowal is a psychoanalytic term that describes a sneaky and pernicious defense mechanism that leads to very risky and foolish behavior.  It is the fundamental mental flaw behind most white-collar crimes. Disavowal is one of the reasons people break their own well-thought out investing rules.    Disavowal is the prime mover in the dumbest stuff you’re likely to do.

    Everybody knows about disavowal’s cousin, denial, which is so familiar it’s a part of everyday vocabulary.  Disavowal is not necessarily less common— and certainly not less dangerous— but it’s harder to understand, and that may be why you never heard of it before.

    Disavowal is not Denial, But They’re Related

    The easiest way to get at an understanding of disavowal is to understand the idea of denial, and then go through the looking glass to the crazy world of disavowal.

    Denial is straightforward.  Your mind rejects a fact, to avoid the pain that accepting it would cause.  A problem drinker does not believe she has a drinking problem.  A person with an illness does not accept that it has affected his performance.

    With disavowal, facts are accepted as true, but bizarrely, they have no impact your behavior.  It’s as if your mind has been split in two with a glass wall in between.  On one side is logic, a bunch of reality based facts, and awareness of consequences. You see it all.  You know it all.  On the other side is “you”, who really wants to do something, often something risky.  The reality and known dangers hanging on the far side of the wall are disconnected from emotion and your motivational system, and therefore fail to have an impact on the decisions you’re making.  You go ahead and do the Really Dumb Thing. 

    You know when a famous person, let’s say a Congressman or Governor, gets caught doing something illegal, immoral or incredibly embarrassing?  And they lose everything?

    We think, incredulously, “You’re a smart person! How could you be so stupid to think you wouldn’t get caught?”

    Intelligence, obviously, has nothing to do with it.  Most likely, the individual in question knew the law, the risks, even the potential consequences. He probably wasn’t even thinking “the rules don’t apply to me.”  He wasn’t thinking!   Knowledge was split off from emotion and a subjective sense of reality.  It just didn’t feel real, relevant, important, or worth paying attention even though a rational assessment would conclude that the consequences of ignoring reality could be dire.

    AKA Willing Suspension of Disbelief

    Famed investor Howard Marks, who understands the central role emotion plays in investing (especially as a source of mistakes!) borrowed the term “willing suspension of disbelief” from the world of theater to describe one of the key emotional gremlins that can lead the most experienced investor to do stupid things.  Marks writes, “Many times over the course of my career, I’ve been amazed by how easy it is for people to engage in willing suspension of disbelief…people’s tendency to dismiss logic, history and time-honored norms.” (The Most Important Thing Illuminated)

    I think what Marks is amazed at is the frequency with which people employ disavowal, which is the mental mechanism behind the “dismissal” of logic, etc.  It’s not that we bury known facts (such as laws and rules and the consequences of breaking them) —disavowal sets up a situation where these facts and the logical conclusions that link them can’t gain any traction and therefore, weirdly, don’t impact our decisions.

    Marks again: “Time and time again, the postmortems of financial debacles include two classic phrases: ‘It was too good to be true’ and “What were they thinking?’.”

    Adaptive in Small Doses, Catastrophic in Large Ones

    In small doses, disavowal is necessary for survival and essential for risk taking.  Who would get in a car or airplane if the known reality of potential accidents had a strong emotional impact?  We split off what we know about risks in life on an everyday basis in order to be able to do anything.  What surgeon would start an operation if she really felt the reality of what she was about to do?  No investor could tolerate any risk if he deeply felt the full impact of what could go wrong.

    But in larger doses, or when it becomes an organized way of living life, disavowal is tremendously dangerous and a very hard habit to break.

    What to do?

    If it’s you?

    • Be vigilant.
    • Don’t assume you’re too smart to be so dumb.
    • Don’t assume it can’t happen again, because the inherent structure of disavowal, that “split”, is that it can and will.
    • Have a trusted partner who knows your vulnerability to disavowal—what realities are you tempted to disconnect from—and give them the power to stop you when you need to be stopped.

    When it happens on your team

    • Teach the concept.
    • Be vigilant.
    • Take rapid action.
    • Don’t accept “It won’t happen again.”
    • Set alarms and fail-safes in place.
    • Assign a manager or coach specifically alert to this behavior to work with the investor.

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    Copyright: Invantage Advising

    August 2017

     

     

     

     

  • Can you Learn to be Empathic?  (4th in a series)

    Can you Learn to be Empathic? (4th in a series)

    (This post is part of a series on the five fundamental traits and capacities a leader with great strategic responsibility must have, derived in part from a remarkable document, the Army Field Manual on Leadership. Read an introduction to the series here.  The first three posts in the series address empathy.  This post answers the question can you learn to be empathic, and what to do if you can’t)

    Can you improve your capacity for empathy?

    To a significant degree, empathy is hardwired.  Here’s a sketch of what we know from neuroscience:  The capacity for empathy is part of our neurobiology, mediated by hormones and connected neurocircuitry.  Research shows that individuals who are low on the empathy scale do not react robustly to experiences of distress–either other peoples’ or their own. Perceived distress  does not motivate or lead to action as much as it would in a more empathic person.  Numerous researchers believe that special nerves called mirror neurons are at least in part responsible for the capacity for empathy.  Mirror neurons are an exciting discover in modern neuroscience—these cells are active when a person experiences an emotion evoked by watching another person experiencing a parallel emotion.  My  mirror neurons fire a message of “pain” when you are in pain.

    Certain regions of the brain  have evolved to provide us with the capacity to experience the emotions of others. This is evolutionarily adaptive, as it promotes affiliative or pro-social behavior, which is especially important and active in times of stress.  These brain regions include the limbic system (where emotional processing resides), the insula, which integrates emotional information derived from the self or others, and the Anterior Cingulate Cortex (ACC), which functions as a kind of alarm or alerting system.  The ACC, for instance,  signals distress associated with an error and is active when tasks are full of conflict or effort.  The amygdala is a crucial part of the limbic system.  Amygdala’s tend to be less easily activated in individuals who are low in empathy. They also have less insular grey matter and their ACC’s don’t light up in situations involving conflict or unfairness. The Autonomic Nervous System, which mediates a vast array of physiological functions,  is more responsive  in empathic individuals and not so much in callous ones.

    An interesting article in HBR by Margarita Mayo poses the question, why are we attracted to charismatic narcissistic leaders, who tend to be low in empathy, when research shows that humble ones deliver more effective, collaborative teams?  The key is the attraction of charisma, which tends to be even more of a magnetic pull in stressful times.  “High levels of anxiety make us hungry for charisma” writes Mayo and I agree.  I’ve written about how historic times of stress and high anxiety make us hungry for a powerful father figure substitute that reassures us he can protect us in an omnipotent way.

    Humble leaders may have a natural gift for empathy.  But charismatic, narcissistic leaders who may excel in generating vision, excitement, energy and motivation may need to work actively to develop the capacity for empathy or continue to be deficient despite their best efforts.

    So if empathy is hardwired, and you happen to fall on the less gifted end of the empathy scale, can anything be done about it?  Increasing evidence from neuroscientists tells us that our brains remain plastic —that is, able to change, to lay down new pathways and connections—throughout our lifetimes.  So yes, there’s reason to believe you can still develop some measure of this capacity with attention and practice.

    Based on my 35 years of clinical experience, I believe that to some degree empathy– or at least a facsimile– of it can be taught to motivated people to whom it doesn’t come naturally.  Being empathic doesn’t mean you are always going to make people happy, relieve their anxiety, cater to their anxieties or shower them with praise.  But it will strengthen your hand because you can understand the impact of your decisions and plan for the fall out. To the extent it can’t be learned, certain fail-safes and crutches can be employed by someone whose capacity for empathy is far from their strong suit.  But ignore the need at your peril.

    Empathy as a process

    Develop an Empathic Mindset

    There are certain basic principles that are part of an empathic mindset.  You have to believe that other people have feelings and experiences that are different from yours.  Don’t waste your time trying to persuade them that they should see it your way.  Instead, try to figure out how they see things. Try hard to really care about the other person’s experience.

    Learn to Look at Sequences

    This is a technique psychoanalysts use to understand behavior.  You see negative, surprising or difficult reaction.  Step back and ask “what happened before?”.  What about that triggering event might have been difficult? The stimulus for a negative emotional reaction may be a bit hard to suss out.  It may not be the fact of the matter, but rather some nuance of implication.   Sometimes you can identify a cascade of negativity; it is worthwhile to trace it back step by step to the point of stability before it began.

    Know Universal Emotional Reactions

    Certain sensitivities are present in just about everyone.  With insignificant exceptions:

    • Everyone hates being exposed and humiliated
    • No one likes being overlooked or taken for granted
    • Everyone wants recognition
    • Everyone responds to recognition with greater loyalty and effort
    • Everyone wants to be “seen” as a separate, valued and unique human being.
    • Change causes anxiety (for most people)
    • Anxiety is ubiquitous;  moderate anxiety can be motivating and energizing, but very high levels of anxiety lead to overload and decreased level of functioning

    Practice Standing in Someone Else’s Shoes

    Once you accept the premise that other people are not like you, you have to practice the art of putting yourself in the other person’s shoes and try to see things from their perspective.  People deficient in empathy, when trying to do this, tend to first arrive at how they would feel in the other person’s shoes.  “If it were me in that situation, this is how I would feel and react”.  No.  It’s someone else in that situation, with a different temperament, background, set of needs and goals.  Work harder to imagine yourself in their shoes in their situation as they experience it.

    Crutches and Fail-Safes

    What if it’s just not in your DNA?  Like all inborn human traits, each of us falls somewhere on the spectrum between strongly and weakly endowed.  If you are a very high level leader, your charisma and narcissism might have propelled you to where you are, but may make it difficult if not impossible,  to develop a finely tuned empathic capacity.  The most important thing is to recognize that you have a relative deficit. Believe that this deficit will lead to errors and misfortune if you don’t compensate for it. Here are two strategies to compensate:

    Develop a list of empathy based  questions to ask especially in times of crisis or change

    • Who is going to have an emotional reaction to that story or event?
    • Who got hurt?  Not just the obvious players.  Who else?
    • What peripheral groups are going to be effected?
    • What is each distinct group  going to feel?
    • What communications and actions are going to address those feelings?

    If you’re not good at answering these questions, make sure you have someone at your side who is and whose input you are willing to listen to.

    Find someone you trust who scores high on the capacity and give them the power to stop you when necessary

    Bobby Axelrod, on the TV show Billions, uses Wendy Rhoades to keep him human.  And sometimes Wendy depends on Bobby for the same function.

    ***

    The good thing about failures of empathy, including corporate ones, is that human beings have a built in capacity for repair.  Direct contact with injured parties, specific acknowledgment of the damage done and a non-defensive apology can have a remarkable healing effect.  And when done right, save money.

     

    Related posts:

    Introduction to Leadership Series–What Kind of Human Being do You Need at the Top

    Empathy—Definition and Why it is Important In a Leader

    The Business Costs of Lack of Empathy

     

     

     

  • The Business Cost of Lack of Empathy (3rd in a series)

    The Business Cost of Lack of Empathy (3rd in a series)

    (This post is part of a series on the five fundamental traits and capacities a leader with great strategic responsibility must have, derived in part from a remarkable document, the Army Field Manual on Leadership. Read an introduction to the series here.  The first three posts in the series address empathy.  This post looks at the business costs of lack of empathy)

    The Army Manual on leadership wisely cautions against “moral disengagement”, that is “convincing oneself that ethical standards do not apply in a certain situation”. Civilian leaders are equally vulnerable to this moral numbing. Why does this matter?  Because big mistakes get made when a company’s leaders are not tuned in to the human consequences of their actions. Plus, you might just want your business to do the right thing.

    I’ll  give three examples.

    The headline of a piece in the LA Times by Paresh Dave reads “Sexual harassment claims prompt venture capitalists to apologize, change policies and head to counseling”.  Besides revealing that people and business have been hurt, that’s publicity no one wants.  Chris Sacca, one of the investors called out for inappropriate behavior, had considered himself one of the ‘good guys’ until the complaints were voiced.  He is quoted in the LA times piece:

    “The crucial lesson I am learning right now in real-time:  It’s the unrelenting, day-to-day culture of dismissiveness that creates a continually bleak environment for women and other underrepresented groups”.

    Sacca seems to be acknowledging that he lacked empathy before, and he’s newly alert to the need to pay attention to it. He also identifies the groups whose experience is effected by the behavior in question–women and other underrepresented groups.  And the phrase “a continually bleak environment” demonstrates empathic specificity, showing he’s really gotten a grasp on the emotional consequences for the people his behavior has negatively impacted. That’s impressive, and may mitigate the damage done.

    The cost of leadership failures in empathy can be translated beyond bad press to dollars lost.

    Experts estimate that scandal-wracked Uber’s value may have dropped as much as $ 10 or 20 billion since February (see here and here).  At least some of the scandals can be attributed to leadership blindness to the effects of decisions on important constituents–for example, inaction on complaints of sexist and abusive communications.  A #deleteUber campaign was launched overnight when  customers perceived the company as trying to profit from President Trump’s immigration ban in late January.  While there are multiple reasons for Uber’s troubles, lack of empathy in leadership seems to lurk behind many of them.  It’s interesting to take a fresh look at some of Uber’s troubles.  Though headlines claimed Travis Kalanick yelled at an Uber driver, I looked at the video and in fact Kalanick didn’t even raise his voice to the pitch of the driver’s. But the company’s historical lack of empathy has led to a general assumption of “guilty until proven innocent” and maybe not even then.   Once a company has been tagged unempathic, it’s a hard reputation to shed. As of this writing, Uber’s very public search for a new CEO smacks of desperation. Top candidate Meg Whitman seems to have notified the Uber Board of her disinterest via Twitter, another embarrassing PR moment.

     

     

    Dragging a physician bloodied and screaming off an airplane because he wouldn’t give up the seat he’d paid for earned United Airlines the dishonor of being described

    parody logo by @skolanach

    as having committed “one of the worst corporate gaffes” according to Bloomberg’s Christopher Palmeri and Jeff Green.  A failure of empathy was evident at every level, from the flight crew to the CEO’s first –and second–inadequate apologies.  CEO Oscar Munoz now infamously inadequate first public statement included the sentence “I apologize for having to re-accommodate these customers”.  The minimization and failure to take responsibility for an awful event outraged the public.

    Munoz’s second statement hours later made things worse–it included at least one glaring error of fact ( implying that the customer was denied boarding, rather than already comfortably seated) and described the customer as defiant, belligerent and disruptive.  That’s known as “blaming the victim”.  It wasn’t until his third statement, nearly a day later, that Munoz finally got it right:  “I want you to know that we take full responsibility and we will work to make it right.  It’s never too late to do the right thing”.  He closed with “I promise you we will do better”.

    United reached a settlement with Dr. David Dao for an undisclosed amount —undoubtedly less than the estimated $1 billion drop  (5 % of its market capitalization) following the incident, which had exploded on social media.  Who was negatively impacted psychologically by United’s empathy failures?–no less that most air travelers  and Asian-Americans, for starters.  The settlement and the immediate drop in share price doesn’t even account for long-term economic consequences of a displeased customer base.

    Business costs of empathy failures can be significant, and include damaged reputation, decreased brand loyalty, expensive settlements, difficulty attracting talent  and meaningful declines in a company’s value.  The good news, evidenced by both the Sacca and Munoz anecdotes, is that Oscar Munoz is correct:  “It’s never to late to make it right”.  Take a look at the next post in this series, “Can you learn to be empathic?” for more thoughts on that.

    Related posts:

    Introduction to Leadership Series–What Kind of Human Being do You Need at the Top

    Empathy—Definition and Why it is Important in a Leader

    Can You Learn to be Empathic?

     

     

     

  • Empathy Defined and Why it is Important in a Leader (2nd in a Series)

    Empathy Defined and Why it is Important in a Leader (2nd in a Series)

    (This post is part of a series on the five fundamental traits and capacities a leader with great strategic responsibility must have, derived in part from a remarkable document, the Army Field Manual on Leader Development. Read an introduction to the series here.  The first three posts in the series address empathy.  This post defines empathy and tries to answer the question, why does a leader need this capacity?)

    Empathy might not be the first trait that comes to most peoples’ minds when they think about a military leader, but the Army Manual is very serious about it being an essential requirement for leadership. And it’s an equally crucial capacity in business or organizational leaders who are responsible for the fates of enterprises and the people whose lives are effected by them.

    Empathy defined

    Empathy is the ability to notice,  understand and connect emotionally with another person’s (or group’s) perspective and experience.  Empathy is essentially neutral—it can be used for all sorts of purposes, not all of them necessarily virtuous.  So I’ll add the capacity to care about the other person’s experience as a crucial dimension for leaders.  It’s not enough to understand another person’s perspective or experience, it has to matter to you and effect your actions.  This latter dimension involves compassion.

    Why does a leader need the capacity for empathy?

    Human beings are not rational actors. Our thinking, decision making and actions  are strongly motivated and driven by emotions, not just facts and rational thought.  Often these emotions are unconscious, and only become clear with introspection or via indirect means. You need empathy if you have any hope of understanding what is motivating the behavior and decisions of your employees, your counterparts in a negotiation, even your opponents.  Empathy enables you to anticipate how others will act and to predict what decisions they might make.

    The decisions of leaders at the highest level are impactful—that’s the whole point.  But impact means that there will be broad and deep consequences to your decisions, including emotional impact for the people effected by them.  Without empathy, you cannot  predict or understand the impact of your actions on others and you are vulnerable to being blindsided by unexpected consequences.  Leaders necessarily have a strong sense of self, but  that very strength may limit their ability to sense the needs and perceptions of others.

    Empathy is an essential capacity for all the following leadership functions:

    • Diagnosing and overcoming stalemates
    • Building team strength and functionality
    • Fostering the development of internal leaders
    • Negotiations
    • Crisis and conflict management
    • Communications

    Diagnosing and Overcoming Stalemates

    Empathy is necessary to diagnose the underpinnings of chronic company obstacles, conflicts and stalemates.  These inevitable situations are nearly always a sign that there are emotional or irrational forces at work beneath the surface such as unrecognized conflicts, divisions, fear of change, rage, competitiveness, or demoralization.  Only the effective deployment of empathy will allow a leader to dig down to uncover the forces at work in an impasse or chronically “unsolvable” problem.

     Building Team Strength and Functionality

    Not surprisingly, this is a core focus of the Army Manual.  Military success is entirely dependent on highly functioning teams.   Empathy is a fundamental underpinning to the development of trust, without which teams cannot function.

    Specifically, empathy is a key component of team development because it is foundational to these abilities:

    • Creating a shared understanding—a prerequisite for a high functioning team with a unified purpose
    • Noticing and acting quickly when schisms develop or morale drops
    • Understanding when your team is overloaded or confused and adjusting your approach accordingly
    • Understanding and acting on team members’ need for recognition and reward
    • Knowing how are they  going to respond to a challenge, not how you would respond

     Developing Internal Leaders

    Without empathy, a leader cannot function effectively as a mentor and develop leadership capacity in others. You need empathy  to accurately assess subordinates’ strengths and vulnerabilities. Without it, you can’t  know what it takes for each person to function at their best.

     Crisis and Conflict Management

    In conflictual situations, notably claims of unfairness, discrimination, or harassment, you can’t navigate the dirty waters if you can’t empathize with the complainants.  Only the empathic leader is sensitive to individual and cultural variations in peoples’ response to problems, stress and challenges.

    A Forbes Agency Council post offered 13 Golden Rules of PR Crisis Management, based on expert opinion from media strategy leaders.  Kim Miller, of Ink Link Marketing, didn’t name empathy explicitly, but she perfectly captured it in action:   “Step back, put yourself in the consumers’ shoes and ask, ‘How would I feel if this happened to me?’ Looking in the mirror is the best PR advice there is when dealing with crisis situations. It ensures we do the right thing. And right beats spin every time.”  I liked another tip in the Forbes piece:  Nicole Rodrigues, of NRPR Group, advised, “Remember to be human.”

    Kim Miller’s succinct comment captures several important points—you can practice empathy employing self-reflection.  And it points you towards doing the right thing.  Empathy facilitates your capacity to do what is right despite adversity or prolonged stress.

    Negotiations

    Empathy is what allows you to accurately read your counterpart in negotiations.  Their priorities, motivation and sensibilities are not the same as yours.  You need to know what’s most important to them.  What’s going to offend or alienate them?  Everyone knows dollars matter.  But where exactly do honor, pride, values, ambition and history enter into their negotiating position?

    Communicating Clearly and Effectively

    Effective communication is dependent on empathy. A person who is deficient in empathy cannot accurately understand verbal and non-verbal cues. This is the capacity that allows you to connect with your audience, and to notice when your message is not getting across and change courses.  It gives you the ability to recognize and address misunderstandings and track listener interest.

     

    Related posts:

    Introduction to Leadership Series–What Kind of Human Being do You Need at the Top

    The Business Costs of Lack of Empathy

    Can You Learn to be Empathic?

     

     

  • Introduction to Leadership Series (1st in a series)

    Introduction to Leadership Series (1st in a series)

    What Kind of Human Being Do you Want at the Top?

    Looking for a new CEO or University president?  You want vision, toughness, flexibility and technical skills. You’re in search of a high-powered individual with a great track record, a strategic thinker who will turn your business around, or attract investors or donors, a cracker jack operations manager who can expand markets, relate to the company culture—or change it if necessary. You know what problems you’re facing, what your goals are and what kind of individual you need at the helm.  And there are hundreds if not thousands of great scholarly and more practical articles on leadership to guide you (here and here  for example).

    But what kind of human being do you want at the top?

    There’s an unending stream of articles and research that looks at great leaders and describes their characteristics.  Here’s a small selection from the popular business literature:

    Top ten qualities that make a great leader (Forbes): honesty, delegate, communication confidence, commitment, positive attitude, creativity, intuition, inspiration, approach

    22 Qualities that make a great leader (Entrepreneur): focus, confidence, transparency, integrity, inspiration, passion, innovation, patience, stoicism, wonkiness, authenticity, open-mindedness, decisiveness, personableness, empowerment, positivity, generosity, persistence, insightfulness, communication, accountability, restlessness

    The 5 qualities of great leaders (Fast Company): flexibility, ability to communicate, courage tenacity and patience, humility and presence and being responsible)

    8 characteristics of great leaders  (Huffington Post): collaborative, visionary, influential, empathetic, innovative, grounded, ethical, passionate.

    I love these lists and couldn’t resist including the details.  I find them instructive and inspiring.    The academic literature is comparable.  Leadership studies look at myriad aspects of leader behavior, leader traits, leadership initiating structures.  There are path-goal theories and the contingency model of leadership.  What makes the best, most successful leaders in a range of environments and situations?

    But with my background in psychoanalysis and psychiatry, I was interested in something else– the fundamental human traits and capacities that any leader who shoulders great responsibility must have to carry out leadership responsibilities. Essentially, the question I wanted to answer was how can we define what it takes to be a mature adult human who can be trusted with lives and fortunes. What do you need to know about a potential leader before you look at your specific needs and your candidates’ specific strengths?

    To my surprise, I didn’t find much in the literature on the fundamentals a leader must possess to carry out his or her responsibilities. I felt such a model needed to be grounded in both theory and practice. But during my research, I discovered a remarkable document, the Army Field Manual on Leader Development, that does a stunning job of spelling out the essential traits and capacities every leader must possess—or determinedly develop where there are weaknesses. And, I found, The Army Field manual is founded in the sound psychological research and psychoanalytic theory I was familiar with on ego functions and executive functions, concepts that spell out the highest level mental capacities.

    I distilled five crucial traits and capacities from the Field Manual—Trust (the ability to trust others and inspire trust), Critical Thinking/Judgment, Self-Awareness, Discipline/Self-Control and Empathy. Before you consider other specific talents and potential, make sure your potential leaders are strong in these five core capacities of character and ability.  I’m not offering a list of qualities that predict success.  Instead, these are the absolute necessities — without them, other strengths are irrelevant.

    I’m going to explore each of these five traits in greater depth in a series of blog posts.    In my elaboration of each of the core capacities, I draw deeply on the Army Field Manual, as well as my own background as a psychiatrist and psychoanalyst with three and a half decades of clinical practice immersing myself in the motivations, emotions and often irrational behavior of human beings.