Hey GM, Denial is Not the Answer

When it comes to delivering bad news, the learning curve for most corporations is like the terrain of Kansas—which is to say no curve at all. Take General Motors. It was in 2001 that GM got its first inkling that problems with its ignition switches could cause a car to shut off while in operation—never a good thing. More evidence surfaced in 2005 and beyond, but it was only this year that the company came clean and recalled 2.6 million vehicles—getting deservedly blowtorched not just for their design failures but for their slipperiness. So not exactly nimble.

GM is not alone. Toyota was similarly in denial about its stuck accelerator problem, as was Ford in the 1970s with its festive line of exploding Pintos. Despite the fact that across all industries, this nothing-to-see-here strategy has a success rate of precisely 0%—at least if your goal is damage control—humans in many situations persist in using it. Now, a study reported by the Association for Psychological Science sheds a little light on the reasons.

In the research, investigators Angela Legg and Kate Sweeny, then at the University of California, ran a test that involved the familiar good news/bad news dichotomy. Volunteers were administered sham personality tests and then divided into two groups; members of one would be hearing both the good and bad parts of their test results, and members of the other would be delivering that news. When asked, slightly more than half of the people who would be reporting the results said they’d prefer to give the good news first because they were uncomfortable doing it the other way. But of the ones receiving the news, fully 75% said they’d want get the bad out of the way and end on a high.

The implications: both groups were thinking first about their own comfort level. In a second part of the study, the givers of the news were told in advance that the receivers might actually prefer to get the bad out of the way. Many obliged, which speaks well of students in a laboratory setting, but not so well of corporations, which have ample evidence of the cost of dissembling and yet do so all the same.

Certainly, there are legendary examples of corporations handling crises well. Johnson & Johnson’s quick and candid reaction to the Tylenol poisonings in the 1980s—when bottles laced with poison by a never-identified killer began turning up on store shelves—is still taught in business schools as the exemplar of its form. But such cases of candor-above-all are the exceptions. Bill Clinton was famous for his tendency to tell just enough truth to get him through part of a crisis, with the absolute certainty that in short order he’d be back in the soup to explain the parts he left out. It’s what inspired Lanny Davis, Clinton’s one-time counsel, to title his memoir: Tell it Early, Tell it All, Tell it Yourself.

Airlines are also inexplicably obtuse when it comes to delivering bad news. Passengers sit interminably on tarmacs, with no announcement from the pilot or flight attendants about what the cause of the delay is—the thinking evidently being that if you don’t tell a plane-load of angry, overheated people that they’re 45th in line for takeoff and a storm front is rolling in anyway, they’ll somehow not notice. But ducking and weaving this way carries a price, and it’s one that companies and shareholders can easily understand: poor market performance.

Ben Dattner, professor of organizational psychology at New York University and the author of the book The Blame Game, studies corporate annual reports and has found that those companies that shoulder blame for an off year rather than shifting responsibility to an outside cause tend to outperform the stock market year over year, while those that point fingers at excuses such as a spike in oil prices or a European monetary crisis tend to underperform. The reason: plenty of other companies faced those same problems and not all of them saw their earnings tank.

“If you claim that things were out of your hands,” Dattner warns, “shareholders start to ask, ‘Why don’t I just pull my money out and take it to Vegas?’” Better, he says, to tell shareholders that you know what you did wrong and then tell them how you’re going to fix it.

None of this means that that wisdom will be heeded. Corporations, in this sense at least, are people—and people are stubborn, thick-headed and tend to ignore problems. But there are smart, flexible people too. No surprise, they tend to be the ones with smart, flexible companies—and the profits to show for it as well.