Successful CEOs must manage the tendency to compensate

Published in the San Diego Union-Tribune, March 27, 2017

I have a friend who recently was given a used Tesla by a wealthy woman (she had just bought a new one) whom he had befriended over many years. I asked him how he liked the car, and his answer, “Nice car, but I am uncomfortable in it, can’t drive it, I don’t feel I deserve it.” Oy! My friend is definitely a candidate for my favorite shrink.

The issue of “self-discrepancy” is a significant one, says Jonathan Levav, marketing professor at Stanford Business School. There is an incongruity between how one currently sees oneself (in my friend’s case, unworthy of something good and cool and beautiful) and how one WANTS to see oneself (as having earned the car by his efforts and success and thus when people see him in the car, he does not feel like a fraud).

The bad news is that we all do this. What we often do is compensate, and Levav has written about “how self-discrepancies drive consumer behavior.” At a basic level, we see this in many obvious ways — you buy an expensive watch, you buy an expensive suit or a fancy blouse. It is the Paul Simon “Diamonds on the Soles of Her Shoes” problem.

A confession — I once considered buying a Brioni suit. The salesman explained that given my body type (short, Jewish), there was nothing off the shelf that would work, but that he could make me something fabulous and bespoke that would fit for just under $8,000, (and no, it did not come with an extra pair of pants). I hesitated for a micro-second and then he offered to buy me lunch to discuss it further. (You all know the rule about not accepting a free lunch — enough said.) I thanked him profusely and escaped.

So the question here is how do we compensate in our entrepreneurial endeavors, in our companies? These discrepancies are “psychologically aversive,” which is a fancy way of saying it makes us very uncomfortable when we are facing situations (often of our own making) that appear to be heading us and the company off the cliff. We want to see ourselves as Mark Zuckerberg when the reality is we are candidates for “Dumb and Dumber.”

A common strategy for compensation behavior lies in what talisman we use to brandish off the demons of disrespect and looming failure. Perhaps the degree from Stanford on your wall, your first-place prize in Six Sigma or winning a sailboat race and putting the two-dollar piece of glass on your desk, but in most cases the compensation is misplaced. The better answer of course is to look at the problem directly and look at your role in the problem — and deal with it.

Levav is more generous than I am. He says that if a rich man buys a fancy car and it makes him feel good, maybe that is a healthy compensatory behavior (especially if it keeps him from coming home and kicking the cat). Me, I come from the Midwest, Puritan, hair shirt ethic and I still drive an 11-year-old Lexus SUV.

The key concept here is to manage these tendencies carefully when you are faced with hard choices in your company. Let’s say you have very limited funds (this story is one I know well) and you go after a small win in terms of revenue, (so that the team can feel good about getting a win), but in so doing, it de-focuses your efforts and your money from chasing the deal that will truly launch your company, then you have fallen into a strategic trap. You are eating ice cream instead of doing push-ups.

It is the obligation of the CEO to understand his own compensatory psychology. He needs to manage his own personal feelings of self-worth and not transfer fear or unhappiness onto the other employees. He needs to be in the building, walking the halls, flying the flag.

I have coached several seasoned CEOs and one technique they all use is the personal letter. They write to the team each month and to the investors every three months, and it is not a rah-rah fluff piece. It touches risks, weaknesses and issues in a direct way, not apologizing, not blaming, speaking with personal humanity, humility and clarity — and always, in the end, with optimism.

Rule No. 510: The Lamborghini is nice but I can’t reach the pedals.

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