One of the Tests of Leadership is the Ability to Sniff out a Fire Quickly

I’ve previously stressed the importance of problem-finding as an intellectual skill. I’ve also highlighted why risk analysis and risk reduction should be one of the primary goals of any intellectual process. In this article, I’ll write about being proactive in identifying problems before they evolve into crises.

How Wells Fargo Failed to Recognize a Problem and Address it before it Became a Bigger Problem

As the Wells Fargo accounts scandal unfolded, it was clear that Wells Fargo’s leadership was well aware of the burgeoning problems early on, but failed to act decisively and nip the problem in the bud.

Given impossible sales quotas to reach, Wells Fargo’s “high pressure sales culture” opened as many as two million bank and credit card accounts on behalf of its customers without their consent. Employees were rebuked or even fired for not meeting aggressive cross-selling targets.

Human nature is such that high-pressure demands can deplete the willpower people need to act morally and resist temptations. And such demanding circumstances encourage people to go into defensive mode, engage in self-interested behaviors, and consider only short term benefits and dangers.

Leadership Lessons from the Wells Fargo Accounts Scandal: “A Stitch in Time Indeed Saves Nine”

Wells Fargo’s leadership reportedly had data about ethical breaches, but they ignored or misjudged the impact of the problem. Wells Fargo even held a two-day ethics workshop in 2014 unequivocally telling their employees not to do that. As per an internal review, managers knew that 1% of employees had been fired for “sales integrity” violations.

Wells Fargo’s leadership didn’t act quickly and decisively to mitigate the effects of the crisis. Warren Buffett, one of the Wells Fargo’s biggest investors, summarized this leadership inaction at the 2017 Berkshire Hathaway annual meeting:

There were three very significant mistakes, but there was one that was worse than all the others … The main problem was that they didn’t act when they learned about it … at some point if there’s a major problem, the CEO will get wind of it. And at that moment, that’s the key to everything, because the CEO has to act. It was a huge, huge, huge error if they were getting, and I’m sure they were getting, some communications and they ignored them or they just sent them back down to somebody down below.

Leadership: “Only the Paranoid Survive”

Andy Grove (1936–2016,) the illustrious cofounder and CEO of Intel, was a famous worrier. At Intel, the focal point of Grove’s leadership style was worry and skepticism. He believed that business success contains the seeds of its own destruction, and that in order for an organization to have longevity, it needs to continue to worry about the future.

Grove’s principle was immortalized in his famous proclamation, “Success breeds complacency. Complacency breeds failure. Only the paranoid survive.” He eloquently explained his worrisome mantra in his bestselling corporate memoir, Only the Paranoid Survive (1996.) He wrote in the preface:

The things I tend to be paranoid about vary. I worry about products getting screwed up, and I worry about products getting introduced prematurely. I worry about factories not performing well, and I worry about having too many factories. I worry about hiring the right people, and I worry about morale slacking off. And, of course, I worry about competitors. I worry about other people figuring out how to do what we do better or cheaper, and displacing us with our customers.

At Intel, worrying about the future created a culture of triumph that propelled change and innovation. Grove never let Intel rest on its laurels and led the company to break boundaries in microprocessor innovation. During his tenure as CEO from 1987—98, Intel’s stock price rose 32% a year. Grove also said, “A corporation is a living organism; it has to continue to shed its skin. Methods have to change. Focus has to change. Values have to change. The sum total of those changes is transformation.”

Idea for Impact: Learn to Sniff out a Fire Better than Anyone Does

The principal tasks of leadership are (1) identifying the biggest risks and opportunities, and (2) allocating organizational resources. Therefore, one of the tests of leadership is the ability to recognize a problem before it becomes a disaster. If identified and addressed early, nearly any problem can be resolved in a way that is beneficial for everyone involved.

Many leaders tend to be reactionary—they claim, “why fix something that isn’t broken.” Even when they see an impending problem, they may assume that the problem “isn’t that big of a deal” and wish the problem will just go away. Alas, many problems never go away; they only get worse.

To become a good leader, be paranoid—always assume that “there’s no smoke without fire.” If, according to Murphy’s Law, everything that can go wrong will go wrong, the paranoid leader has an advantage.

Whenever you are doing anything, have your eyes on the possibility of potential problems and actively mitigate those risks. Never allow a problem to reach gigantic proportions because you can and must recognize and fix it in its early stages.

As the medieval French philosopher and logician Peter Abelard (1079–1142) wrote, “The beginning of wisdom is found in doubting; by doubting we come to the question, and by seeking we may come upon the truth.”