The future of risk management is behavioral

13-12-13

Door Henk-Jelle Reitsma

This paper is a loose transcript of a presentation given at the November 21st 2013 breakfast session at Solid Professionals.

Journalist and television producer Coen Verbraak filmed a series of programs in which he, in interviews with various professionals, discusses and explores with them their area of expertise. There are series with for example politicians, physicians, lawyers, and this summer saw the series involving entrepreneurs and captains of industry.

The final episode struck me when (from ca. minute 1.10 to ca. 2.40) some of the participants answer the question whether they would be able to run any company. The reason this fragment strikes me is because their answers are generally pretty modest. “I’m good in this, not in that”; “maybe I would be able to run a mono-line company pretty well”; “I need to have a feeling for the product otherwise I’m out of my depth”. Et cetera.

Striking, because in the media there seems to be more attention for the opposite: the leader who believes he or she is the ‘master of the universe’. Plenty of examples come to mind, I just want to mention Dirk Scheringa, the self-made banker who, just months before his bank DSB defaulted (when its house of cards business model couldn’t hold out anymore), offered himself available to the Dutch government as plenipotentiary minister for financial affairs. He estimated he would need one year to get The Netherlands out of the financial crisis. A year later he was bankrupt and his bank history for everyone except curators and creditors.

Something interesting is going on here, as we are on a psychological continuum. A healthy dose of self-confidence is necessary for anyone, anytime; we wouldn’t undertake anything without it, whether it be starting a company, stepping up as partner, starting an education. If these undertakings actually become a success it will give our self-confidence a boost, which enables us to maybe dare and take the next step. In some people, sometimes this becomes a self-reinforcing circle ending in overconfidence and ‘master of the universe’ behaviour.

Because these people dare ever greater endeavours, they are bound to overstretch their ability and luck eventually. Everybody carries around an Icarus inside him or her.

Overconfidence, introduced here as a kind of leadership risk, is a typical…

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