The Inverse Skill Problem

We overestimate top-management professionals.

Many consultants believe dealing with directors or C-level executives is something they are not capable of doing. They imagine those people as highly skilled and sharped professionals. With great business acumen and industry expertise.

This is false - we grossly overestimate their skills. This opinion is supported by hundreds of conversations with strategic consultants and advisors. And it's what some people call "the inverse skill problem".

The higher up the corporate ladder, the higher the compensation to the individual. This might be justified, as it makes plenty of sense to pay executives according to their contributions. However, in general (as long as we exclude entrepreneurs), the higher up the corporate ladder, the lower the evidence of such contribution.

As Taleb puts it,

"Consider the difference between judging on process and judging on results. Lower-ranking persons in the enterprise are judged on both process and results—in fact, owing to the repetitive aspect of their efforts, their process converges rapidly to results. But top management is only paid on result - no matter the process. There seems to be no such thing as a foolish decision if it results in profits."

"CEOs take a small number of large decisions, more like the person walking into the casino with a single million-dollar bet. External factors, such as the environment, play a considerably larger role (...) The link between the skill of the CEO and the results of the company are tenuous. By some argument, the boss of the company may be unskilled labor but one who presents the necessary attributes of charisma and the package that makes for good MBA talk."

This is an important idea to keep in mind. Just like we consultants are often accused of "talking pretty" but creating no concrete value for our clients, many (if not most) top-management executives may have followed such a path. It's more likely that what got them to where they are now is not their expertise or judgment, but leadership, clear communication, and the ability to build consensus and social capital.

Whenever you are about to engage with top executives, remember to be consultative. Forget about your capabilities and technical expertise, and focus on communicating effectively and helping them gain clarity.

What are the risks and opportunities their organizations should be looking at? How do these affect their goals and responsibilities, and what are they doing about it?

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