Going Long on Hubris

Posted 12.10.2008

A few months ago, when the financial crisis began in earnest, I thought about writing a post that I was going to call, “The End of Hubris.”  The point was going to be that the sudden collapse of major institutions such as AIG and Lehman Brothers was the wake up call that was going to bring leaders around the world back to the idea that no amount of self-perceived brilliance can overcome the “laws of gravity.”  You know, I’m glad I didn’t write that because, boy, was I wrong.

Let’s just take yesterday as one example.  The Wall Street Journal reported that Merrill Lynch CEO John Thain suggested to his board that he receive a $10 million bonus this year after he received push back on his earlier lobbying for a bigger number.  Recalling that this was the year in which Merrill basically had to sell itself at fire sale rates to Bank of America, the board has declined to pay Thain and his top team any bonuses for 2008.  (The beginning of an emerging trend for this year, apparently.)

In Chicago yesterday, real estate magnate Sam Zell acknowledged that his takeover of newspaper publisher Tribune Company (home of the Chicago Tribune and the Los Angeles Times) had failed when the company declared bankruptcy.  Left holding the bag on that are the employees of the company who got equity stakes from Zell when he used their pension fund to finance the sale.  In his article this morning, Washington Post business columnist Steve Pearlstein laments the propensity of business leaders like Zell to blame their failures on a “perfect storm” of events.  As Pearlstein writes, “The only perfect storm to hit the Tribune was the one that resulted from the collision of Zell’s ego, his arrogance and his utter ineptitude in running a media empire…”

Pearlstein provides a nice synopsis of other poor uses of the perfect storm explanation including the auto companies and the government sponsored mortgage companies Fannie Mae and Freddie Mac.   What seems to be missing on the front end and the back end of so much of what’s going on these days is humility and accountability.  As Pearlstein pointed out this morning, GM took a belated step in that direction this week when they took out a full page ad in several publications to apologize for the mistakes they’ve made along the way.  Legg Mason fund manager Bill Miller showed both humility and accountability in this morning’s Wall Street Journal when, in acknowledging the 58% drop in his Value trust fund said, “The thing I didn’t do, from Day One, was properly assess the severity of this liquidity crisis.”

Bravo, Mr.  Miller.  One of my favorite definitions of leadership is that it’s a two part job.  The first is to define reality.  The second is to offer hope.  In his comments to the Journal, Bill Miller acknowledged reality and perhaps offered some hope to his investors by demonstrating that he gets it.  You can only do that when the ego and hubris factor is under control.  Let’s hope we see more of that going forward.