Thursday, August 20, 2009

Leaders Who Won't Leave

This week Brett Favre announced his return to the National Football League. Over the past few years, Favre has retired and then unretired several times. He just won't go away! Of course, many business leaders find a hard time saying goodbye as well. They remain at organizations for too long, and eventually, they become less innovative, more complacent, and too stuck in their ways.

In Favre's case, the Minnesota Vikings have awarded him a contract worth more than $10 million. They are counting on him to be something akin to the star quarterback he was in his prime, when he won multiple MVP awards and a Super Bowl. However, his skills have clearly eroded. Over the past four years, his average quarterback rating (a key measure of performance for NFL passers) is slightly below the NFL average during that period. However, people still remember his past performance, and they haven't fully come to grips with how far that performance has declined.

The same phenomenon often holds with business leaders. Put simply, we often take too long to adjust our evaluations of a manager's performance. Past success is "sticky" in the sense that it remains embedded in our minds, and we don't adjust our evaluations downward in a timely manner when performance does decline. We have to wary of this "stickiness" because it may lead us to overpay for past performance, or to hold onto managers for too long even if their recent performance does not justify it.

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