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Groupthink is dangerous

In 2014, the Coca-Cola Company came up with a stock option plan that was so favorable to the board of directors that the most famous one of them all, Warren Buffett, spoke out against it, warning of corporate greed at the expense of shareholders. Though he would personally benefit from the plan, he aired on CNBC his views of stock options as little better than “lottery tickets.”

But when the plan was put to a formal vote, Buffett did not vote “no,” he abstained instead. Afterward, he reasoned that rejecting stock options “is a little bit like belching at the dinner table. You can’t do it too often … [or else you’ll be] eating in the kitchen pretty soon … I’ve never yet heard at any of the 19 boards I was on, anybody say they were against [such a plan].”

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Since Buffett backed down and did not burn his bridges with Coke, he was afterward able to convince the board to make the plan more equitable to all.

But it was clear that even with his clout, Buffett succumbed to groupthink—the human tendency to not rock the boat and instead preserve group harmony, especially when the decision is in their favor.

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But groupthink may often be tragic, warns HEC Paris and former McKinsey partner Olivier Sibony in his book “You’re About to Make a Terrible Mistake!”

In 1961, some advisers of US President John Kennedy, even if they had private doubts, kept quiet and went with the majority decision to invade Cuba, resulting in the Bay of Pigs fiasco.

The year after, the Cuban missile crisis, precipitated by the Soviet Union, erupted, and this time, Kennedy learned from their mistakes. He had the same advisers—they were the best and brightest of their generation—but the process was different.

In the Bay of Pigs, the choice was binary: to invade or not. This time, the team brainstormed on several possibilities, such as a blockade.

Discussions were heated but transparent. When State Undersecretary George Ball compared the option of America attacking Cuba to Japan’s surprise attack on Pearl Harbor, administration hawks agreed it was important to harness global goodwill. An attack on Cuba was ruled out.

“This team behaved in a radically different way than the team that decided on the Bay of Pigs invasion—even if it was made up of many of the same people,” says Sibony.

Groupthink often leads to silos, where decision-makers insulate themselves from what is happening on the ground, the perils of which are described by Financial Times writer Gillian Tett in her book “The Silo Effect.”

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Moreover, because our society often relies more on emotion rather than reason, we are quick to point to people’s personalities or inclinations when things go awry.

Therefore, according to Sibony, focus on changing the environment. Break down silos, and work on processes to ensure optimal decisions.

In family businesses, for instance, rather than accusing the founder of clinging to power or the younger ones for being entitled, improve the environment. Give the founder a significant role, not merely a titular one, and measure accountability for the next generation.  Start by eliminating groupthink, like the CEO who rewards people with “the guts to disagree. Not only do people … speak up, but others can see that political operators have no future,” says Sibony

Queena N. Lee-Chua is with the board of directors of Ateneo’s Family Business Center.

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TAGS: Coca-Cola Company, Warren Buffett
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