Great Leaders are Good at Hearing Bad News

By Brett Beasley

Why do we ignore information that could help us make better decisions?



Prior to the COVID-19 crisis, did businesses recognize the risk of a global pandemic? To find out, Notre Dame finance professors Bill McDonald and Timothy Loughran combed through thousands of companies' 2018 annual reports filed with the U.S. Securities and Exchange Commission (SEC). They used computer-aided text analysis to seek out pandemic-related terms.

They looked for “Pandemic,” “Epidemic,” "Corona Virus," "Contagious Disease," “Contagious Illness,” “Infectious Disease,” “Infectious Outbreak”, “Fear of Contagion”, “Influenza Virus”, “Avian Flu”, “H1N1”, “Swine Flu”, “MERS”, “Ebola”, “Localized Illnesses”, “Health Concerns”, and “Outbreak of Disease.”

After analyzing the reports filed by 2,379 companies, McDonald and Loughran found that just 497 (21%) used even one of the terms listed above at least once in their risk assessment.

Of course, hindsight is 20/20; what seems obvious now didn't seem so obvious then. But McDonald and Loughran also point out that it wouldn't have taken a crystal ball to anticipate that a pandemic could potentially bring radical disruption to businesses. "Pandemic risk was well known before today’s crisis," they say, "for at least the past decade, pandemics have been identified as a significant global risk." They point to many examples of leaders who called attention to the risk of a pandemic, including Bill Gates in his April 3, 2015 TED Talk, “The next outbreak? We’re not ready.”

The question, then, is not just "What went wrong?" but also, "How can we do better now and in future?"

The Costs and Benefits of Information

Additional research can help us understand why we often fail to pay attention to unwelcome and uncomfortable information. In their work on behavioral ethics, Notre Dame professor Ann Tenbrunsel and Harvard professor Max Bazerman have identified a phenomenon called "motivated blindness." Bazerman and Tenbrunsel define motivated blindness this way: "People see what they want to see and easily miss contradictory information when it’s in their interest to remain ignorant.”

But what happens when it is in our best interest to learn unwelcome information? Why would we choose to ignore or avoid bad news that could help us make good decisions? Recent research by Emily Ho, David Hagmann, and George Loewenstein suggests that although "Making good decisions is often contingent on obtaining information, even when that information is uncertain and may be psychologically painful to learn...people are often willing to incur a cost (making worse decisions) to avoid this pain.”

In other words, people sometimes allow the psychological costs of learning new, challenging information to shift their focus away from the long-term benefits of better decisions. It’s not that we don’t want to not know the truth. We simply don't want it enough to pay the psychological and emotional costs of hearing it. So we seek out sources that will confirm our perspective rather than challenge us. As a result we create—often unintentionally—environments where people are do not feel encouraged to speak up.


Put it in Practice

Zoom out and focus on the long term.  "No pain, no gain," we say, often in the context of exercise. Something similar is true with information. We need to deal with the short term pain—the sting of learning bad news—by focusing on the long term boost to our welfare. Once we recognize how valuable the truth really is to help us prevent harm and promote fairness, we're willing to pay the relatively small price up front.

As former 3M Chief Sustainability Officer Jean Bennington Sweeney says, "I want people to come to me with tough things...employees can see things that I won't see, and if I shut them off, I could be creating greater risk for the company."

The truth can hurt—but candor strengthens while ignorance weakens. We should recognize that the main costs of hearing the truth are psychological. They might make us feel uncomfortable or angry, but in general, they present less of a threat to our wellbeing than ignorance. What you need is candor: "Telling the truth at the moment you can do something about it."

Support the messenger, and signal clearly how you will follow up.  Many leaders reject bad news because they take it personally. They see it as a threat to their abilities, their decisions, and their leadership in general. But great leaders hear concerns and focus on the messenger and the situation instead of worrying first about their own ego. They are eager to understand and to investigate the situation further. As business ethics expert Mary Gentile points out, an important part of responding well to tough news is making sure how hear the feedback, thank the messenger, and set expectations about how you will follow up.

There will always be curveballs in leadership—changes that seem to come out of nowhere that no one could reasonably have foreseen. And yet, some curveballs are more predictable than others. By always getting the best, most honest information, you do yourself the service of seeing the curveball coming so you can adjust accordingly.

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