Assessing Leaders Who Might Make Bad Decisions by Dr. Karen Steadman

I have a friend in the mortgage industry who shared the following sentiment with me about refinancing:

“Do not try to use common sense to understand this process, there is none of that in our industry at the moment.  The mantra in our industry is “rules over risk” which means that they are not concerned whether your loan represents a risk or not, it is all about whether we are able to meet the guidelines.”

Rules over risk?  This approach concerns me. 

Those that make bad financial decisions and take the wrong risks might be the exact ones who figure out how to work around and manipulate stated guidelines.  Overconfidence, for example, could easily encourage someone to buy more of a house than they can afford yet mortgage companies don’t directly assess someone’s bias towards being overconfident.   Extend this example to the world of work where people are even more risky spending someone else’s money … “blind compliance with rules vs. assessing situations and making good decisions” has lead to some significant leadership failures by those that found loopholes with the rules.

I have recently been introduced to and am very impressed with the work of Tyler Nunnally and Dr. Rob Stilson at Upside Risk in Atlanta.  Their mission is to leverage the science of behavioral economics to help companies mitigate the risks of poor leadership decisions before they happen.   Using a combination of assessment and analytics, Upside Risk is able to identify someone’s judgment biases that may lead to poor decisions.  They also measure the different risk appetites of leaders.  Powerful information for companies (and the leaders themselves) about who might make poor decisions for their shareholders. 

Why aren’t companies (or mortgage companies for that matter) doing more of this?   For both selection and development of leaders with P&L responsibilities, it would be powerful to include an assessment of potential derailing behaviors under stress (i.e., the Hogan Development Survey) and an assessment of judgment and risk appetite using Upside Risk’s Judgment Risk Indicator.   The combination would provide a rich snapshot of decision-making tendencies and keen awareness to help with coaching, training and development and inform leadership promotions.  

Mitigating risk BEFORE bad decisions and leadership failures happen sure makes common sense to me.