How Successful Leaders View Risk

Recently in the New York Times, the adventurer David Roberts wrote a wonderful piece describing how mountaineering has changed. In the old days, he said, you were truly 'out there': your life depended on your ingenuity and your stamina. If you made bad calls, you were gone. Help was not at hand. By contrast, today explorers and climbers, thanks to GBS, satellite phones and helicopters, expect to be rescued - even though some rescues end up costing more lives than they save. The implication of his story was that mountaineering had become soft and selfish with the expectation that help at any cost would always be available.

Mountains and Managers
You could say the same of business. Big banks, like Citi and Bear Stearns, could take stupid risks because they expected to be, and were, bailed out - even though their rescue cost - and is still costing - everyone else dearly. Similarly executives leading major corporations like Merrill Lynch may not know how much risk they're incurring, they may have little or no idea how to get themselves and their teams out of the mess they've made, but they walk away, enriched at the expense of others.

This is moral hazard but it isn't just moral hazard. The implication of Roberts's argument was that the expectation of rescue may attract people who are less able, less thoughtful about risk and maybe even less determined. And that's bad for everyone. It's especially bad in business.

Fire in the Belly
Some years ago, I launched a two-year study of women-owned businesses. Knowing that they receive less in the way of institutional funding, I was struck that their success rate was higher, they created more jobs and were more profitable than businesses on average.How, I wondered, could they do so much with so little? W could we all- men and women - learn from this success story?
One of the first things that jumped out at me was their attitude to risk. Now, many psychologists argue that women are more risk-averse than men but when you dig into the measures and rewards by which they measure this, it doesn't really stand up. Interviewing hundreds of female entrepreneurs, what I found was that the most successful had taken huge risks. They hadn't just taken their life savings, their houses and their 401(K)s and put them on the line for their businesses. They'd done so, typically, when they had no products, no customers and - critically - no safety net. They didn't have a Plan B if everything went wrong. They did not believe they could comfortably go back to corporate life. Instead, they felt that everything they stood for and believed in was on the line. Theirs was an existential mission: to prove that they could do business successfully but differently from the corporate cultures they'd known and rejected.

This fire in the belly, I believe, was fundamental to their success. They identified wholly and passionately with their companies and, for them, everything was at stake. They shared much in common with the Italian climber, Walter Bonatti who, trapped by storms in the Alps, pulled off one of the most daring acts of mountaineering. These women entrepreneurs did business as if their lives depended on - because their lives did depend on it.

Business Is Personal
In the best entrepreneurs - male and female - this is always true. And it is true not just because they're people of courage and imagination but because they recognize that every company has the capacity to make the world better, or worse. And they take this personally.

Reflecting on the third anniversary of the failure of Lehman Brothers, you have to wonder just how many of our corporate leaders feel the same way. Conrad Black says he probably can live on $80 million. Bankers, for all that they've let down customers, mortgagees and investors, still draw hefty salaries and bonuses. CEOs, however short their tenure, aren't left - like many of their employees and customers - without jobs or houses or hope. Even discredited leaders, like Larry Summers, keep getting top jobs where they can repeat the errors of their past. They have all been rescued, albeit at immense cost.

What's most important about the highly successful entrepreneurs I studied is that, while they took huge risks, they had no intrinsic love of danger. They were not adrenalin junkies. They wanted to get to safety as fast as possible - and stay there. Their mantra could have been borrowed from the adventure traveler, Robert Young Pelton: "I am not afraid of danger; I am afraid of living miserably."

Photo courtesy of Flickr user Viajar24 C.C.2.0

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