Stop Bashing the Halo Effect, It’s Actually Good For You

Sean IddingsIntelligent Fanatic, LeadershipLeave a Comment

A common question we’ve received is a variation of this: “The hardest part [of business] is separating the true skills of ‘Great Leaders’ from corporate performance, i.e. the numbers themselves. Great numbers tend to create ‘Great Leader’ cover stories, often based on time periods that are too short. What are your thoughts about this?”

I think at the heart of this question is the Halo effect. Let me describe our thoughts on the negative attributes of the Halo effect as well as the positive ones.

First what is the Halo effect:

The Halo Effect is the habitual tendency of people to rate attractive individuals more favorably for their personality characteristics or traits than those who are less attractive. Halo effect is also used in a more general sense to describe the global impact of likable personality, or some specific desirable trait, in creating biased judgments of the target person on any dimension. Thus, feelings generally overcome cognitions when we appraise others.

(Standing, L. G., in The SAGE Encyclopedia of Social Science Research Methods, Volume 1, 2004)

In business, unlike sports, music, and art, results take years to become observable. It truly is hard to glance at a company and see which inputs over a short period of time resulted in great corporate performance. The current market environment and luck play pivotal roles in shorter term outcomes. In fact, a wise friend once said business success is 65% luck, 28% courage and 7% skill in the short term. And all too common, as mentioned above, those “Great Leaders” who are merely lucky receive a positive Halo effect, yet are not worthy of such praise.

People rightfully have been turned off to these “Great Leader” cover stories because once they get published for best practices it’s often the kiss of death. Everyone piles into their stories and methods at the peak of their cycle. Those companies get the Malcolm Baldridge Award, and then the next year they are bankrupt. Or they show up in Good To Great, and now are nowhere to be found.

We find that many business researchers use the wrong measuring device. They use a ruler instead of a yardstick and study greatness over too short of a time frame. We believe the longer the time frame of greatness, the less that luck and a singular market cycle benefited them. In College Football terms, someone might get lucky and be able to stick with Alabama for a quarter of play, but history has proven it’s damn near impossible to beat them multiple games. Time is the great equalizer.

In business terms, Ken Iverson of Nucor dominated for 33 years. Les Schwab, founder of Les Schwab Tire Centers, dominated for 40+ years. Herb Kelleher of Southwest Airlines dominated for 30+ years. Performance over the long-term matters as it smooths over the benefits of short-term luck. Business skill grows in importance over the long term, as well. No longer is skill 7% of long-term business success. Business skill grows to +50%.

Many true masters of business like the ones mentioned above are what we call intelligent fanatics – and their stories are often times out of date or long past their “coolness” or “freshness”. Many other intelligent fanatics are just too unknown, so journalists are then forced to write about current hot companies.

Should we disregard every “Great Leader” cover story and intense study of their leadership methods? Of course not. During our research of hundreds of intelligent fanatics, we found that a majority of them spent considerable time mastering the ideas, philosophies and lessons of the intelligent fanatics that came before them. The same is true with the elite musicians, artists and other master craftsmen. Even children do it in mastering language and everything else they know. They emulate others.

The correct lens, we believe, is this:

Business wars may be fought with machines and technology, but they are won by people. It is the spirit of people and the person who leads them that gains victory.

The biggest part of this equation is strong, genuine leadership. Not only do they set the standard with how everyone in the organization should behave or act, but they also architect the programs that unlock extraordinary results out of their team of people. The leader acts as the chief problem solver as well as corporate referee.

Have you ever noticed humans seek leaders that are principled, trustworthy, strong, courageous, resilient, fair, sharing, and have a track record of winning? This is found in sports, families, businesses, you name it. You can even see it in the animal kingdom with social animals.

Matriarch Elephant and her Herd

Take for instance Asian and African Elephants who have been around for 5 million years. Elephant herds, a group of six to twelve, are led by the oldest, wisest female known as the “matriarch”. Elephants, too, seek out and attach to the female who is principled, trustworthy, knowledgeable, resilient, fair, and sharing. Professor Phyllis Lee, a behavioral psychologist at University of Stirling and chair of the scientific advisory committee for the Amboseli Trust for Elephants said:

“Leadership is not equal to power or assertion in elephants, but illustrates the respect accorded to individuals as a function of their problem-solving ability and their social permissiveness.”

These characteristics are also found in other animal species. Puppies, when brought into a home with a genuine, trustworthy alpha, will eventually risk their life for their leader.

Humans are no different. How would you feel if you were led by a person with those qualities? You’d go all-in.

I believe humans [and other social animals] are hard-wired to seek and attach to genuine, trustworthy alphas. These leaders can stand the test of time, and with the right system of building future genuine, trustworthy alphas, they can sustain their group’s outperformance for unusually long-durations. This is leadership skill.

On the other hand – we’re also hard-wired to despise the bad alphas. The Halo effect might fool people initially but eventually selfish, disloyal, unfair, untrustworthy, win-lose focused leaders will show their true face.

Take for instance a leader who makes an introductory speech to a group of new employees at their orientation. To the new recruits the leader looks attractive, is highly affable and tells a good story. But as the days wear on his or her true actions demonstrates whether they are genuine and trustworthy to all employees and other stakeholders. If the leader possesses numerous bad alpha characteristics, it’s only a matter of time until group morale and performance suffers. Those employees will spend more of their time trying to defeat their leader, or each other, rather than work together.

Does this mean that all intelligent fanatics are perfect? No. I think this is where the Halo Effect is actually beneficial. The Halo effect allows followers to overlook a few of their genuine, trustworthy leader’s flaws.

Take for instance, John Patterson of National Cash Register whom we highlight in our first book. Aside from everything Patterson got right in creating the market for the cash register – a tool that helped every business prevent theft – and treating manufacturing employees substantially better than others at the time, he had his faults. He enjoyed firing and then rehiring executives to break their self-esteem. Patterson even went to the length of firing executive Thomas Watson, later to become the founder of IBM, by leaving his desk outside the office building. Watson got the message, but it surely could have been done in a more reasonable fashion.

Or Steve Jobs. Walter Isaacson wrote in Jobs’s biography how Steve responded to partners performing inadequately, which was often how he reacted to his employees:

VLSI Technology, a chip company, was having trouble delivering enough chips on time. Jobs stormed into a meeting and started shouting that they were “fu%&ing dickless a$$holes.”

Yet despite acting in such ways to employees and suppliers, most overlooked Jobs’s obvious flaws. The VLSI Tech team “ended up getting the chips to Apple on time, and its executives made jackets that boasted on the back, “Team FDA”.

Or Andrew Carnegie. In 1892, while spending the summer on his Scottish estate 30 miles away from the nearest telegraph office, his subordinates crushed a strike at Carnegie Steel’s Homestead, Pennsylvania, plant. It was a violent confrontation where many strikers died. While Carnegie claimed he was out of touch, evidence in David Nasaw’s Andrew Carnegie showed that Carnegie knew that his staff was planning to do and did nothing. Carnegie would regret that decision, but still got great results out of his people.

Two additional examples from our upcoming book, Intelligent Fanatics: Standing On The Shoulders of Giants, include Rob Johnson, founder of BET, and Henry Wellcome, founder of Burrough’s Wellcome & Co [predecessor to GlaxoSmithKline], both had some undesirable traits.

The Halo Effect is your friend. Take the positive traits from each fanatic and acknowledge and dispose of their flaws. Few human beings can be emulated in full. If a “Great Leader” cover story doesn’t reflect a principled, trustworthy, strong, courageous, resilient, fair, and sharing leader, performance won’t be sustainable. Whether it’s publicly recognized founders like Travis Kalanick of Uber, or countless others that have fallen from grace, bad habits and promoting “I win – You lose” relationships will catch up with them. But history is full of leaders with a track record of winning. We even know how each story began and ended. Here at IntelligentFanatics.com we like to focus on intelligent fanatics that dominated for decades. These rare individuals are a perfect roadmap for us today.

We recently re-launched this website and our research community so that it could be better used as a resource to help us all stand on the shoulders of giants. Let’s learn and grow together.  If you share our passion for studying greatness, please Join Us.

Sum Up

  1. While the negative Halo effect is ever present in business literature and the media, focusing on leaders with long-duration success is a worthwhile endeavor for aspiring leaders.
  2. Seeking out and attaching to genuine, trustworthy alphas is hard-wired in social animals, especially humans.
  3. The Halo effect is beneficial in allowing team members to overlook some of the flaws of their genuine, trustworthy leader.

 

About the Author

Sean Iddings

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Sean is the founder of Unconventional Capital Wisdom, a registered investment advisor in New York State seeking to invest in high quality microcap companies led by intelligent fanatics. He is a member of MicroCapClub and writes about investments, entrepreneurship, and leadership on a number of blogs and publications. Sean is also a long distance runner having completed five marathons across the globe and a jazz/rock guitarist. He lives outside Ithaca, NY with his wife and daughter.

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