The Problem with Positive Thinking

There’ s a quotation by Stan O’Neal that I’ve looked for occasionally and failed to find. John Cassidy found it for me (How Markets Fail, p. 274; original source is The New York Times). It was an internal memo from O’Neal describing the company’s second-quarter 2007 results (which were good, at least on paper). Here are some quotations from memo in the Times article:

“More than anything else, the quarter reflected the benefits of a simple but critical fact: we go about managing risk and market activity every day at this company. It’s what our clients pay us to do, and as you all know, we’re pretty good at it.”

“Over the last six months, we have worked successfully to position ourselves for a more difficult market for C.D.O.’s and been proactively executing market strategies to significantly reduce our risk exposure.”

Greg Zuckerman, in The Greatest Trade Ever, has this from O’Neal in 2005 (p. 173): “We’ve got the right people in place as well as good risk management and controls.” (No original source–the entire book has only forty-three end notes, at least in the pre-publication copy that Simon got.)

Since then, we’ve all had our fun at O’Neal’s expense (and he’s had his $161 million golden parachute, although presumably it ended up being worth considerably less) and moved on. Most likely he simply had no idea what was going on; the other possible explanations are worse.

But that first quotation has always bothered me, because it reflects a problem that goes far beyond Wall Street, and something I always found particularly distasteful about Corporate America: CEOs, and business people in general, saying things they want to be true, without bothering to find out if it actually is true.

Do all people behave this way? (“Heck of a job you’re doing, Brownie.”) Maybe, but not all people are CEOs that have investors and employees listening to their every word. Everyone who writes for a top newspaper or for a subset of the top magazines (The New Yorker, The Atlantic, etc.) has every word he or she writes fact-checked. The fact-checkers literally go word by word and cross them out when they are confident they are accurate. There’s no way a good fact-checker would have allowed O’Neal to say “successfully” without proving it. If he had had to prove it, he would have known it was a lie. As it was, he was able to get away with it, probably without even having to think about whether he was living in a fantasy or not. (And, of course, O’Neal almost certainly didn’t write the memo to begin with.)

The result is that smart people know to ignore everything a company executive says in public that is not backed up by facts in the public domain, and everyone else gets bamboozled. And if you don’t put up the confident, cheerful face on CNBC, you’ll get slammed because all the other people on CNBC do. So we end up with this charade of everyone spouting the talking points fed to them by their PR people (I was in marketing at Internet boom company; I’ve written those talking points) without even knowing if they are true, which means they can never be held responsible (since any misrepresentation they make isn’t “willful”).

Is there a solution? I wish business executives would show a little more interest in reality, but that isn’t going to happen by itself. Maybe there should be a different legal standard for certain types of speech by corporate officers, so they can be held responsible on some level for making inaccurate statements, even if they don’t know they are inaccurate. That would inspire greater respect for the truth. But mainly this is just a pet peeve of mine that isn’t going to change.

By James Kwak

30 thoughts on “The Problem with Positive Thinking

  1. This is not just a problem with business. And it’s not mere “positive” thinking. It’s delusion.

    You want some really striking examples of delusion? Consider the positions of the “two sides” in our major national policy debates (health care, abortion, economic development, monetary policy, foreign engagement, globalization, environmental policy, civil liability standards, business responsibility). There only tend to be two sides in each debate that are listened to, and so far as I can see the members of the two sides tend to be associated more by personal acquaintance than by intellectual coherence. Each side has its partly-accurate “talking points”, each side refutes the inaccuracies of the other side’s talking points, and (most significantly) neither side acknowledges the accurate parts of the other side’s talking points. The result is a delusional nation – the sort of nation willing to cheer on (or oppose) _any_ initiative without critical examination of potential consequences.

    The result is a nation pre-disposed to disaster.

  2. As passerby suggests the “truth” can always be spun in two main ways – it has to do with our conceptual framework being essentially based on the principle of the excluded middle.
    Semantics is based on polarities and the imperious mindset exploits our collective irrationality and gullibility through a process of divide and spin.

    On a lighter note dreadful weather we’re having at the moment isn’t it?

  3. “Is there a solution?”

    Not so long as these CEOs profit personally from peddling these lies. The only solution is to make them personally liable for the lies and/or what these lies cover up.

  4. Companies can mitigate the problems associated with positive thinking by hiring and promoting a good mix of pessimists (realists) along with the optimists. Pessimism is a personality characteristic that’s fairly easy to measure and identify but often absent at the top tiers of organizations. Having the “nay-sayers” mixed in leads to more conflict which can be unpleasant for some to manage. I suspect that the fear of such conflicts leads many CEOs to create overly optimistic management teams.

  5. “But that first quotation has always bothered me, because it reflects a problem that goes far beyond Wall Street, and something I always found particularly distasteful about Corporate America: CEOs, and business people in general, saying things they want to be true, without bothering to find out if it actually is true.”

    People create their own reality. And CEOs are better at it than the average person. It is not just wishful thinking. OTOH, as you point out, there is also spin and deception.

  6. Heck, we could even take this bit and apply it to politics no? The thing is, people are more likely to behave based on feelings/emotions rather than fact.

    Need votes? Appeal to the ethos my friend.

    Need good PR? Put on your brightest smile and talk about rainbows and butterflies!

    Why? Because it works 70% of the time… every time :)


  7. I’ve noticed this and wondered if the general public used to be able to engage in more nuanced, non adversarial debate, but I’m too young (25) to know if political discourse was ever much better. Although I’m tempted to think it has never been this bad and that our U.S. public school system is to blame, I know ignorance has a rich history. One of the most disheartening pieces of American ‘common wisdom’ is that voting for a 3rd party is wasting one’s vote.

  8. Mr. Kwak wrote:

    “So we end up with this charade of everyone spouting the talking points fed to them by their PR people (I was in marketing at Internet boom company; I’ve written those talking points) without even knowing if they are true, which means they can never be held responsible (since any misrepresentation they make isn’t “willful”).”

    Just how the hell can you contend it “isn’t willful?” Was some freaking “ghost” manipulating your/their hand as it scribbled outright lies?!?!? Ever hear the expression “Ignorance of the law is no exuse”? How is this any different? If someone is being paid to write/speak some bogus narrative supplied by someone else then they are equally culpable of the fraud if those statements don’t agree with facts. There are herds of people on TV and elsewhere spouting crap about how great the products/services they “represent” are and not one of them actually has a clue. They’re just reading a script… for pay. We’ve become a nation of paid liars and too few us are even cognizant of that and even less give a crap.

    I’ll grant you the apparent fact that you’re “redeeming” yourself (somewhat) with the posts I’ve read here but every “PR person” who touts any product or service by “misrepresenting” the facts, through ignorance or otherwise, is a liar, a cheat and a fraud. This is not in the least bit dissimilar from Madoff’s minions who “never thought to question” the ethics or legality of what they were aiding and abetting Bernie to perpetrate. After all, Bernie TOLD them it was all good so “what me worry? Me read MAD!”

  9. Greg –

    If you think this is even remotely possible, then you have never worked in a corporation. Everyone wants a promotion, and you’ll NEVER get past the first cut unless you drink the Koolaid and spout the party line.

    Only a fool or a small child will tell the Emperor his junk is dangling.


  10. colin –

    “Ignorance of the law is no excuse” applies to common people. For Emperors, Presidents, and CEO’s the relevant concept is “plausible deniability.”

    One more tragic relic of the Reagan adminstration.


  11. Thanks for the “clarification,” jzB! I’ve never had the privilege of “plausible deniability” which I typically refer to as “arrogant ignorance”… if not outright fraud. I doubt that Ronnie-the-simple ushered in the era of “p-d” but he and his cronies definitely elevated it to an “art form” and the defacto “standard” for our nation and its populace. More fool me! Alas, nature and physics have zero “tolerance” for such [self-]delusion as we’re all about (<5yrs) to "learn" in the most unpleasant ways.

  12. This is the spin culture that was institutionalized after the M&As of the late 90s. Contrary to popular myth Sr. Mgmt. is quite risk averse. Errors and problems are not tolerated, therefore they do not happen…enter the era of “opportunities”. Being risk averse, mgmt does not recognize risk when it appears, has no understanding of contingency planning, and not a clue how to deal with bad times. Everything is run by the numbers and the numbers will be made no matter how much creativity, stupidity or fiscal irresponsibility is needed.

  13. James

    You are mistaken about the meaning of willfulness in the securities law context. Willful does not mean knowingly false – it means knowingly made. See, Ratzlaf v. US, 510 U.S. 135, 141 (“‘willful’ . . . is a ‘word of many meanings,’ and ‘its construction is often influenced by its context’.”); Wonsover v. SEC, 205 F.3d 408, 414 (DC Cir. 2000) (“‘willfully’ simply requires the intentional doing of the wrongful act”).

  14. So I guess none of us actually _know_ “what the definition of ‘is’ is!” Moreover, your point (and the court cases mentioned) seem to indicate the best place for a dictionary is in one’s fireplace. How can a civilization persist when all forms of communication are in a constant state of flux (breakdown?) and every word is incessantly redefined on the spurious wants of a political or financial agenda?
    Just in case anyone is “interested” …


    will·ful [wílf?l] or wil·ful [wílf?l] adjective
    1. deliberate: done deliberately, especially with the intention of harming somebody or in spite of knowing that it will harm somebody
    2. stubborn: always determined to act on a desire, regardless of the opinions or advice of others (disapproving)

    Encarta® World English Dictionary © & (P) 1999,2000 Microsoft Corporation. All rights reserved. Developed for Microsoft by Bloomsbury Publishing Plc.

    …which is the same given in The American Heritage Dictionary of the English Language as well as Webster’s New Universal Unabridged Dictionary (page 2093). Alas, I guess those sources are full of shit since they don’t have some pet agenda at stake.

  15. “…people in general, saying things they want to be true, without bothering to find out if it actually is true.
    “Do all people behave this way?”

    I don’t know about all people, but I can tell you that physicians routinely tell patients (and each other) things having no clue whether they are true or not.

    More broadly, it is hard to imagine that a marketing industry of the kind and scope that flourishes in this country could exist if our culture valued truth and honesty.

  16. James, we both know that this is not positive thinking, and that, at the time he said it, O’Neal, as with most other CEO’s in the “ruling class” are stuck in a paradigm of deceit and greed. They know, without question, that if their lies (actually mostly half- or quarter-truths, which is the real problem) are accepted, they will benefit until the next opportunity at red-herring obfuscation presents itself. That’s why they spend a great deal on PR, front men, writers, etc. They need us, as Congress does, to belief the crap they are spreading as truth. Actually, if the media started fact checking every executive on every speech and publishing reality quickly and efficiently, we could go a long way to driving them away from this gaming paradigm.

    This has been going on a very long time, and will continue until the media decides that it is there (like Winchell and Cronkite) to shine a light into the dark corners of life and help us see lieing for what it is: harmful and damning to our way of life.

  17. Gobbledygook, mumbo-jumbo, pure crap or the truth—O’Neal didn’t know and didn’t care.

  18. The fact is that willful is subject to two possible meanings. 1) Consciously done (not drunk); and 2) deliberately done (with malice). There is a distinction. The fact that securities law chooses one meaning for very good policy reasons is not inherently insane. The fact that the dictionaries you chose only pick one of the possible definitions says more about them than anything else. Nor did I argue that words have no meaning at all. It was not my point that dictionaries are useless and I never said that. My point was simply that James made an error of law that is not unimportant in the securities law context.

  19. Why am I always so late to respond?
    The fact is, there are legal bases for bringing SEC enforcement actions against officers and spokespersons of public companies, even in those cases where the goverment cannot establish “scienter”, i.e. knowing intent to lie. One prong of the anti-fraud provision of the Securities Act of 1933 prohibits otherwise fraudulent or misleading conduct, even in instances where scienter cannot be established.

    Similarly, the reporting requirements of the Securities and Exchange Act of 1934 has been construed to allow the Commission to bring enforcement actions in cases where public companies make false material statements in their filings.

    As a practical matter, a showing of at least negligence is required for an such enforcement actions. And the SEC cannot and should not use its limited resources pursuing every officer or company that makes misleading statement. But many, many issuers and executives have been sued for such conduct. In most cases such allegations are made only when the Commission and the staff believe scienter was present but will be difficult to prove.

    One of the best protections against the widespread dissemination misleading statements we see today was the ability to bring a private action under the securities laws. Such actions played an important role in enforcing securities laws. But Congress and the courts have made maintaining such lawsuits extremely difficult in all but the obvious cases. Repeal the so-called reforms and legislatively override the narrow, pro-business court decisions and some of these falsehoods will be reduced. Of course, most cable business channels will lose viewers and money, but we can just consider that an unintended blessing.

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  21. In my (limited) experience this goes on at all levels of almost all business. CEOs etc have to put out the correct, over-optimistic PR spin just as you say because everyone else does the same. It’s the same in marketing new products. I currently work for a small underwater systems company and the ‘exagerations on the truth’ that our marketeers put out are quite staggering – but they have to be because our competition is doing the same. It’s only once a contract has been awarded that the real truth is allowed to come out. I don’t see this changing anytime soon.

  22. All you really need is shareholder control of corporations; this would stop the exec behavior immediately. Currently shareholders have no control over corporations.

  23. You cannot sit and blame positive thinking for a companies well being. I’m pretty sure a ceo doesn’t prefer to be negative instead of positive.

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