Egonomics

What Makes Ego Our Greatest Asset (Or Most Expensive Liability)

Dave Marcum, Steven Smith

• Publisher: Simon & Schuster UK
• Year: 2008
• Print ISBN: 9781847391537
• eBook ISBN: 9781847375049
• Topic: Business
• Subtopic: Business General
• Index: Business

Backed by five years of research, David Marcum and Steven Smith's egonomicsinforms readers that the key to great leadership is understanding exactly what ego is - and what it should not be. With the aid of real-life examples and persuasive writing, egonomics argues that while most people believe ego is negative, it is actually a healthy, necessary element to management effectiveness and business leadership. Marcum and Smith illustrate that the distinction between a good and a great leader is how humility affects their ambition, and egonomics is full of ideas that help both upper and middle management keep their egos in balance. With a compelling combination of business and psychology expertise, these two specialists explain how (a) being too competitive can make you less competitive, (b) seeking respect and recognition dilutes effectiveness and (c) humility, curiosity and veracity are the essential components to outstanding leadership. Full of the best advice from the experts in the field, egonomics is poised to be the blockbuster business bestseller of the season.

1

ego and the bottom line

Every good thought that we have, and every good action that we perform, lays us open to pride, and thus exposes us to the various assaults of vanity and self-satisfaction.

WILLIAM LAW

Ego is the invisible line item on every company’s profit and loss statement.

And because ego’s subtly out of sight on the P&L, that’s precisely why for decades, if not centuries, we’ve become no better—and maybe no worse—at managing the most pervasive, powerful force inside every person in every company.

Chances are when you read the opening line of this chapter, the idea that ego is profitable wasn’t exactly the first idea to catch your attention. But despite the negative reputation of ego, it isn’t purely a loss. On the profit side, ego sparks the drive to invent and achieve, the nerve to try something new, and the tenacity to conquer setbacks that inevitably come. Surprising as it may sound, many people don’t have enough ego, and that leads to insecurity, hollow participation, and apathy that paralyze cultures and leaders.

Invested into every team meeting, boardroom debate, performance review, client conversation, contract negotiation, or employment interview is the potential for ego to work for us or against us. If we manage ego wisely, we get the upside it delivers followed by strong returns. But when that intense, persistent force inside manages us, companies suffer real economic losses.

Over half of all businesspeople estimate ego costs their company 6 to 15 percent of annual revenue; many believe that estimate is far too conservative. But even if ego were only costing 6 percent of revenue, the annual cost of ego—as estimated by the people working to produce that revenue—would be nearly $1.1 billion to the average Fortune 500 company. That $1.1 billion nearly equals the average annual profit of those same companies. But whether ego costs us 6 percent of revenue or 60, when people estimate those costs, what are they thinking of? Usually the last time they crashed into someone’s ego or the latest headlines.

Under the leadership of David Maxwell and then James Johnson, Fannie Mae delivered unmatched performance from 1981 to 1999, beating the general stock market 3.8 to 1. Fannie Mae was listed as one of only eleven companies in Jim Collins’s study of 1,435 companies in Good to Great that created and sustained unparalleled performance, with leaders to match. On January 1, 1999, however, Franklin Raines replaced Johnson as CEO. Five years later, under pressure from Fannie Mae’s board of directors after questionable accounting practices, Raines resigned. “By my early retirement,” Raines claimed, “I have held myself accountable.”

Ironically, four years earlier, in 2002, Raines was asked to testify before Congress about the collapse of Enron. “It is wholly irresponsible and unacceptable for corporate leaders to say they did not know—or suggest it is not their duty to know—about the operations and activities of their company,” Raines told lawmakers, “particularly when it comes to risks that threaten the fundamental viability of their company.” Raines walked away from Fannie Mae with a retirement package potentially worth $25 million and total compensation of nearly $90 million during his tenure. He was replaced on December 22, 2004, by Daniel Mudd.

As we were writing this chapter, a colleague emailed us a news release. The headline announced, “Fannie reaches $400 million settlement.” The first line of the release read, “Fannie Mae’s ‘arrogant and unethical’ corporate culture led to an $11 billion accounting scandal at the mortgage giant, federal regulators said Tuesday in announcing a $400 million settlement with the company.” [emphasis added] Daniel Mudd’s leadership was also questioned. “Fannie Mae thought itself so different, so special, and so powerful,” wrote Bethany McLean of Fortune, “that it should never have to answer to anybody. And in this, it turned out to be very wrong.” It took Fannie Mae almost twenty years to move from good to great, and less than five years to go from great to good to…only time will tell.

The risk in the headlines of ego out of control, or the brutal impact of a long buildup of an egotistical culture, is that we can say to ourselves, “We would never do that. We’re just not that bad.” That’s true. Ninety-nine percent of us will never be Dennis Kozlowski (Tyco), Ken Lay and Jeffrey Skilling (Enron), Bernie Ebbers (WorldCom), or Martha Stewart or earn a nickname like “Chainsaw Al” (attached to fired Sunbeam CEO Al Dunlap). We won’t go to prison or single-handedly cause the collapse of our companies—and that’s the trap.

Because those stories are so extreme, rarely do they cause us to ask, “Is any part of that true of our company?” “What about my team?” or “What about me?” That’s when we tune out, and we miss the behaviors that never get that severe but subtly and surely undercut our ability. As authors, we can tell you from experience and our research that ego-driven behaviors rarely feel extreme at any one moment in time. “We started great,” as one Fortune 50 manager said to us. “Over time that greatness led to ego, which then led us back to good, and now we find ourselves needing to start over. We were blind to how our egos were escalating along the way.”

Organizations are rarely short of people with enough talent, drive, IQ, imagination, vision, education, experience, or desire. As consultants, in our conversations with leaders and managers following failed projects or average results, we’ve often heard, “He’s very innovative, but…” or “She has incredible vision, if she could only…” or “We were on the right track, and then all of a sudden…” The exceptions to the praise are consistently tied to the escalation of one thing—ego. So if the costs are so deep and persistent, why do people hold on to ego so tightly and, in some cases, even fight for it? That’s a question that, early on, we couldn’t answer ourselves.

liability or asset?

We started our research with the premise that ego was negative and needed cold-blooded elimination—at least from a business perspective—because it was a hidden cost with zero return. In fact, the working title for this book for a very long time was egoless. For nearly two years into this project, that view seemed justified by both micro and macro egonomics. At the micro level, Roy Baumeister of Florida State University and Liqing Zhang of Carnegie Mellon University conducted a series of experiments designed to reveal what kind of financial decisions people would make when their ego was threatened.

In one experiment designed to examine how ego would affect participants’ decisions, the researchers assigned people to one of two groups: the “ego-threat” group or the “non-ego-threat” control group. In each of the experiments, participants stood to win money, lose money, or break even to varying degrees. Both groups were given the same instructions: you’re about to take part in a “bidding war” similar to an auction, but with only one other person, whom you’re obviously trying to beat. The auction is for one dollar. Your goal is to get that dollar for less than a dollar, but you can spend up to five dollars to get it. But each person in the ego-threat group was told privately before starting, “If you’re the kind of person who usually chokes under pressure, or you don’t think that you have what it takes to win the money, then you might want to play it safe. But it’s up to you.”

As the bidding soared in the experiment, the people who received the ego “threat” let their bids escalate higher in almost every instance than those who weren’t trying to protect their ego. After a drawn-out bidding war, those whose egos had something to prove spent up to $3.71 trying to buy one dollar. In fact, the higher their “self-esteem,” the more money they lost. The experiment illustrated how ego entraps people in costly, losing ventures. When participants were interviewed afterward, those who spent more money to “win” in the experiments not only didn’t feel good about the money they had spent to win, they felt worse about their own self-esteem. In other words, they lost money and self-confidence.

Because of ego, “people tend to become entrapped…and throw away good money after bad decisions,” said Baumeister and Zhang. “They get locked into uncompromising career choices, supervisors become overcommitted to those employees who they had expressed a favorable opinion in hiring decisions, senior executives in banks escalate their institution’s commitment to problem loans [because they approved the loan to begin with] and entrepreneurs and venture capitalists become entrapped in unprofitable projects.” The conclusion of their extensive research was that when people feel their ego is threatened, people make “less optimal decisions as judged from the standpoint of financial outcomes.”

At a macro level, business performance suffers when ego negatively impacts the way we produce. Dr. Paul Nutt of Ohio State University conducted more than two decades of research with hundreds of organizations on why business decisions fail. In examining why 50 percent of decisions fail, he discovered three key reasons:

• Over one-third of all failed business decisions are driven by ego.
• Nearly two-thirds of executives never explore alternatives once they make up their mind.
• Eighty-one percent of managers push their decisions through by persuasion or edict, and not by the value of their idea.

Over the last two and a half years we searched 2,190 news articles (mainly business-related) that used the word ego in any way. Eighty-eight percent of the time ego was used negatively, usually followed by suggestions on how and why people should get rid of it, and what would happen if they didn’t. News articles berate ego-trippers with headlines like “Don’t Let Ego Kill the Startup” from BusinessWeek or “Ego Slams T.O.” (Terrell Owens, NFL wide receiver) from USA Today.

Over the last five years, we surveyed thousands of people who attended our leadership sessions and asked ...

Table of contents

• Cover
• Copyright
• contents
• 1 ego and the bottom linewhy managing the power of ego is the first priority of business
• 2 the ego balance sheetthe four early warning signs that ego is costing your company, and the three principles of egonomics that turn it around
• 3 early warning sign 1—being comparativehow being too competitive can make us less competitive
• 4 early warning sign 2—being defensivethe difference between defending ideas and being defensive
• 5 early warning sign 3—showcasing brilliancehow intelligence and talent can keep the best ideas from winning
• 6 early warning sign 4—seeking acceptancehow our desire for respect and recognition gets in our way
• 7 humilityopening minds and creating opportunity for change
• 8 humility, part II: intensity and intentusing humility as a bridge to turn silence or argument into vigorous debate
• 9 curiosityhow different types of curiosity unlock our minds and conversations
• 10 veracityhow to make the undiscussables discussable, and closing the gap between what we think is going on and what’s really going on
• appendix
• notes
• acknowledgments
• index
• about marcumsmith, lc