From good to great – a Nicholas Taleb approach
Now here is something that has been in the back of my mind for some time. If you’re reading this blog, you’re likely the kind of person who tries to educate yourself and read fact books and management litterature, there is a fair chance then that you’ve at some point since 2001 read the book “From good to great” by Jim Collins. It’s been a screaming success for ten years now, and is still sold in hard cover (which says a lot if you’re familiar with the book publishing business’ cycles of hard cover – soft cover, which is a beatiful example of “price skimming 101” financial strategy btw).
I read it a few years ago and the engineer in me just got a bit annoyed by it. As much as the book’s core concept appeals to me – that the defining features of great leaders (so called level 5 leaders) are statistically proven to be humbleness, altruism, blaming everything on luck rather than your own skill and general average Joe good-guy trates – it just sounds too easy to me.
The book is based on a supposedly massive study with over 1435 public companies being investigated according to a success criteria (going from “good to great” during a period of 15 years), leaving just 11 companies who’s CEOs were then deeply analyzed and their trates correlated to the success of the company’s stock. Lo and behold, the study showed that there is no correlation between the successful companies and the expected “rock-star” type, ego-centric, larger than life CEOs. On the opposite, the trates that are “proven” to correlate with success are very ordinary trates, hopefully found in most humans (under the assumption that the egocentric rock star types are rather uncommon).
Did you catch what’s wrong with that picture? If you’ve read Nicholas Taleb’s Black Swan you probably did. Couldn’t it just be that all the features of a level 5 leader are really just non-features? That there are no specific/correlating trates at all and that is why these identified trates seem so average? And that the 11 successful companies in this book are just a statistical result of a very large number of companies making rather random decisions and bets, much like Nicolas Thaleb claims much of wall street’s success stories are statistical effects of large numbers of random decisions by many traders, rather than skill, a certain % of traders HAVE to succeed.
11 companies out of 1435 (less than 1%) sound pretty much within the likelihood of pure randomness to me. If all of these 1435 companies made more or less equally uninformed (i.e. random) bets during those 15 years, 0,7% of them could very likely have made a series of really beneficial (still random/uninformed) decisions, without their CEO’s specific trates and personality having anything to do with it.
So the book may very well be correct in that there is no correlation between rock star, egocentric, fire-on-the-spot CEOs, and successful public companies, but it doesn’t prove any other correlation either in my mind. To me it seems to prove that there really isn’t any specific correlation at all between leader trates and success. My personal opinion, not statistically backed up at all is that leaders can be very different in their approach and still successful. Also interesting to see how these 11 companies did later, as one of my all time favourite business litterature writers Steven D. Levitt notices, they’ve actually performed below S&P since the book came out.
