Episode 63: Joe Badaracco – Managing the Gray

Episode 63: Joe Badaracco – Managing the Gray

What do you do when there is no clear answer to your problem? In his latest book, Managing the Gray: Five Timeless Questions for Resolving Your Toughest Problems at Work, Joseph L. Badaracco, the John Shad Professor of Business Ethics at Harvard Business School, posits five questions to help us solve “gray area” issues by getting all the relevant information on the table. Learn Prof. Badaracco’s five timeless questions and subtle skills–like when to go with your gut–to help you make the best decisions possible.

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Book: Managing the Gray: Five Timeless Questions for Resolving Your Toughest Problems at Work
Bio: Joseph L. Badaracco is the John Shad Professor of Business Ethics at Harvard Business School, where he has taught courses on leadership, strategy, corporate responsibility, and management in the school’s MBA and executive programs. His books on these subjects include Defining Moments and the New York Times bestseller Leading Quietly.

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Peter: Welcome to the Bregman leadership podcast. I’m Peter Bregman, your host and CEO of Bregman partners. This podcast is part of my mission to help you get massive traction on the things that matter most. Joe Badaracco is with us today. He is the John Shad professor of business ethics at Harvard Business School, where he’s taught courses on leadership, strategy, corporate responsibility, and management in the schools MBA and executive program. His book is Managing in the Gray. This is his most recent book. Five Timeless Questions for Resolving Your Toughest Problems at Work. I really enjoyed the book. I’m really excited to have Joe here with us today. Joe, welcome to the Bregman leadership podcast.

Joe: Thanks very much, Peter. I’m glad to be here.

Peter: Joe, let’s start with why you wrote this book. Why you wrote this book and what is the gray that we’re managing in?

Joe: Well, to be candid, I started writing the book basically to avoid other research projects I had thought about doing, but didn’t really want to do that much.

Peter: I have to say already, Joe that that’s unusual because most people end up doing things like cleaning the house in order to avoid the writing. So the fact that you’re writing to avoid other things makes me scared for your other things, but I’m glad we got a book out of it.

Joe: Yeah, I thought it would be just easy because I had given a talk over decades and in various forms to business groups about how to make hard decisions. I thought, “Well, I’ll just put this down.” It turned out to be a much more challenging and interesting enterprise. What I found myself doing was focusing on this question of gray areas, of which there are all kinds. These are situations where you’re lacking a lot of the facts you’d like to have, you don’t know how to frame the problem, and if you’re working with other people on it, there can be disagreements. Sometimes sharp disagreements about what to do. Once I focused on that problem, I found that what I thought was going to be a kind of a simple task, actually got more challenging and much more interesting and ultimately became the book.

Peter: This idea of gray areas and the idea of leading in the context of ambiguity, is, I think such an important issue to explore because ultimately, that is leadership. Leadership by definition is your leading in the context of ambiguity. If it wasn’t ambiguous and if the answers were really clear, you wouldn’t have to lead at all. It hits at the core of what I consider to be the greatest challenge and an uncertainty of leadership and the anxiety that comes along with this challenge for leaders, who I know, for myself as a leader running a business, is this is this core of the anxiety.

Joe: Yes. Actually one of the leaders I quoted in the book, who is at the center of a really complex gray area problem, says that in a good organization, everything that landed on his desk was gray. In other words, the things that could be handled with a formula or the specialty that are routine, typically get delegated to somebody else but the complicated things tend to move upward in organizations. Somebody who’s running the team, the unit, the whole company, that’s not the way they spend all their time, but those are the tough ones that they’ve got to find their way through.

Peter: The opposite of that point is equally important I think, which is that if rising up to the top are these formulaic decisions, then we’re not leveraging the capability of the people in the organization and we’re wasting our time as leaders.

Joe: Exactly. That’s exactly right. I think in most organizations, most people have a sense that the tough problems, the ones that keep them awake at night are the ones that are gray. I found this phrase, gray area problem, to resonate with just about everybody.

Peter: Pull out of this morass. Solve this, deepest of all leadership problems. What are these five questions?

Joe: A touch of background on the five questions, you know a standard way to write a book like this would be to interview a lot of CEOs, or military leaders, or somebody like that. I decided in effect, to interview, if you will, a lot of great thinkers over the ages and across cultures. Obviously, that’s something that no single individual can do. To some extent, I was looking quickly and looking broadly, but what I discovered in doing this and asking the question, what guidance would you get from great thinkers of all kinds? This ranges from philosophers to successful leaders, to even artists and poets in some cases. What guidance today seem to provide on dealing with tough issues? And that’s what I distilled down into the five questions. If you’d like, I could spend just a little bit of time introducing them.

Peter: I’d love that.

Joe: Okay. As you and I have both said, there’s five. The first one says, look you’ve got a really tough problem, look broadly and think about all the consequences, the full consequences for everybody your decision is going to affect. Often when we face these problems and you’re under pressure in an organization, the risk and the tendency is to look at shorter-term consequences and more immediate consequences. But you’ve got to try as best you can, use your judgment to look broadly and get a sense of what you think the most likely consequences are and the most important.

Second question is, okay I’ve thought hard about the consequences, what are the basic human duties that I’ve got in this situation? It’s easy to imagine situations where you can get a good set of consequences just by telling somebody a lie, but most people think that’s wrong. They think we’ve got a duty not to lie. The second thing you’ve got to look at is the fact that your decision will affect the lives and the livelihoods of other people. What do you owe them in what you decide, how you decide it, how you explain it. So the second question is which duties do you think are foremost?

Peter: Is that an ethics question, primarily?

Joe: It is, I’d say a strong question of personal judgment. It’s got ethical elements to it but it’s also got legal elements because most people running most organizations are bound by legal duties and they’ve got to look carefully at those two or get advice from others on what their legal duties are.

Peter: So is the first question really, what is the outcome that this decision will reap? And that outcome could be the actual outcome and it could also be ancillary outcomes, the collateral. And-

Joe: You’re thinking terms basically of, a decision tree. You’ve got a bunch of choices, they have consequences, are you really looking at those thoroughly and objectively?

Peter: I mean as as Buffet, as I’ve learned from Buffet in a sense, and from other, sort of value thoughtful decision-makers, that we don’t really know the consequences of the future. That the future itself is hidden but we could offer percentages to what we believe may be consequences so there’s a 50% chance X will happen, there’s a 30% chance Y will happen, and we’re still in the area of gray. We still have ambiguity, but we have a sense as to what we think consequences might be.

Joe: Yes and you used an important word which is we, because I think it’s dangerous to use your own assessment of what the options are and what the likely consequences are. Typically, these gray area problems are somewhat complicated, sometimes very complicated. You need to work with and through other people to get a sense of the options and the odds, as you were saying. That’s really the first question, but then there maybe some options that look like they work pretty well or maybe very well in terms of the consequences, but you may put them off the table because you feel duties to certain people.

This often happens in the case of layoffs. You can get a much more efficient organization really fast if you just lay off a lot of people now and minimize your severance, but a lot of people and companies understand the consequences of layoffs and they don’t do it in a way that simply maximizes the net present value of the cash flows. They look at the consequences for people and the obligations they feel to these other people.

Peter: It’s interesting … So let me ask you this question about the second question, the obligations, because I could think of firms that are built around the philosophy of layoffs, in some ways. Which is, I think of financial services firms that pay people a tremendous amount of money in good times. There’s this implicit agreement that in bad times we’re going to make lot of money when we’re doing well, but in bad times were very focused on profitability and we’re going to fire you in bad times and maybe we’ll rehire you or we’ll hire somebody else but we’re not going to … We don’t have this long-term commitment.

I’m not saying every financial services firm operates this way and maybe it’s changing now, but that was certainly the philosophy and so I guess my question is, would the duty of a firm like that where there’s a sort of implicit agreement, organizationally, be different than the human duty in a manufacturing organization, where people aren’t paid in those same ways and there’s a different implicit agreement?

Joe: Yes. I think that’s exactly right. In other words, these duties, in many cases aren’t written in stone somewhere. You’ve got to see what they are and the … You have to see what you believe they are, what you feel they are, or think they are in a specific situation and the implicit contract assuming everybody knows the contract and is playing the same game, makes a huge difference.

Peter: Got it. Okay, what’s the third question?

Joe: Third question. It won’t sound like an ethics question at all, it’s essentially Machiavelli’s question, though you can find it in the writings of great thinkers and a wide range of places and traditions. It’s a question of, what will work in the world as it is? It’s important to isolate that last phrase, the world as it is. As Machiavelli saw it, as I think most of your listeners find it. The world as it is is a very complicated, very fluid, very unpredictable place full of a lot of people pursuing their own self-interests. Sometimes in shortsighted stupid ways, sometimes strategic malevolent ways, and there’s also people out there who are goodhearted, acting in good faith, and trying to make the world a better place.

They’re all out there jostling against each other and the third question says, do you have a plan that’s going work in the sense of being resilient enough against this range of possibilities, and are you resilient enough to persevere in pursuing your plan and maybe modifying it when necessary?

Peter: So an example of that might be, I’m going to make this decision. The people who are impacted by the decision should understand it. They should understand the situation I made. They should recognize the realities of the economic environment, but in reality they’re going to be angry, they’re going to be frustrated, they’re going to write bad things about me on Facebook, they’re going do all that stuff and I need to recognize that I’m kind of factoring that in in the consequences. To say in the real world this is how it’s going to play out.

Joe: Exactly, and inside your organization, the people who survive the layoff, or furlough, or whatever you do, are also going to feel more vulnerable. They’re going to have the question, did you handle this responsibly, fairly, were you being greedy, were you doing what was best long-term, short-term. You’ve got to think about those consequences as well. By the way, if you end up doing layoffs too often, somebody you work for, a shareholder, a board, somebody’s going to start wondering, “Wait a minute, does this person know what they’re doing?” These are the pragmatic aspects of situations that Machiavelli says you’ve got to look right in the face.

Peter: Let me ask you a question about these questions, are they, in effect, a clear questions with answers or are they questions that lead us to impact how we [roll 00:12:53] out the decision? To explain a little more, when you say, what are the survivors going to think or feel or etc., that might inform, not whether we do the layoffs, but how we do the layoffs. The questions aren’t necessarily just resolving what the decision should be, but also how we should roll out the decision how we should go about doing it. Am I understanding this correctly?

Joe: That’s correct. It’s how you make the decision and then how you execute the decision. But when you ask the questions, you typically don’t get clear answers and I’ll come to where the answer comes from and where the clarity comes from when we get to the fifth question, but each one of these questions asks you to use your best judgment and the book has a lot of guidance on working with other people to help you get your best judgment right. But at the end of the day, it’s your judgment that answers these questions.

Peter: In effect, because this is where my head was going also, in effect, these five questions aren’t and easy way out. They’re not questions that make a gray decision black-and-white, and removes the necessity for judgment and now I could sit back and lead easily, I actually have to make a number of more decisions and more judgments that will help me to come to some more clarity about making a bet in the future about a decision that may still be wrong but it will help me in directionally choose how to move forward.

Joe: They can actually make the decision making harder at first because they say look you really ought to think these things through. Think them through with other people, but the testimony of the best thinkers over the ages is that they make the decisions better. They give you a little more insight about risks, about what’s going to work, about what you will be proud of, what you can live with.

Peter: Beautiful.

Joe: They make you struggle.

Peter: Beautiful.

Joe: But it’s a good struggle. It’s a worthwhile struggle.

Peter: What’s the fourth question?

Joe: The fourth question is very succinct, it says, who are we? And it’s basically asking you to think about what I refer to as the core values of your organization. Most organizations have a long lists of values, vision statements, and the like and they’re on the wall and different places. I’m talking here about the values that absolutely define what people really care about in an organization. What they come in late at night to work about, the red ball, they really worry about dropping when you’re juggling a lot of different balls. These values are often implicit in stories that go through an organization of how the leaders, or the founders handle things when they got tough, and the stories are often somewhat inspiring.

These core values are the ones that are another criterion for looking at your options and saying, which ones reinforce the values we really care about? Which ones undermine the values? In terms of execution, which you asked about a moment ago, what decision can I explain effectively and persuasively in terms of who we are here and what we’re trying to accomplish and which ones just will not ring true? When I get up and explain that, people say, “That’s not us. We don’t do things that way.” So that’s the last question, the fourth question. Who are we?

Peter: How does that differ from the second question about our duty?

Joe: Well, I think you can think about duties as sort of a minimum threshold that you owe other people as a human being. You don’t lie to them. You treat them with respect. You don’t put innocent people at serious risk in a variety of ways and so forth. These considerations that come to the fore when you ask who are we, are beyond this sort of minimal threshold. They tend to be aspirational. They’re about who do we want to be? And who, in our best moments, do we think we may have become when things were going well? These are duties. These are aspirations, basically.

Peter: That’s helpful, and the fifth question.

Joe: Good. The fifth question is actually the critical one, because if you’re running something big or small, you’ve got a gray area. You’ve got to make a decision. You’ve got to communicate it. You’ve got to move forward, and probably then move on to your next gray area. The fifth question says, what can I live with? In other words, what can you, as the decision-maker and as a manager and as a human being, live with? What can you sleep with? What do you think you can look back on? You asked where the clarity comes from, and this is ultimately where the clarity comes from. It doesn’t come out of the analysis. It comes out of the decision. Someone says, “I’ve thought about the consequences, the duties, the pragmatics, our values, and this is what I believe is right for us. It’s my call. This is why I think this way.” That’s where the clarity comes from.

Peter: What happens when you’re answering these questions and they don’t all lead to a unified decision, that in fact, you think about your duties that’s different than the consequences, you think about the consequences that would lead you in one direction, but who you are and the aspiration leads you to another. I’m an indecisive guy, and I have a hard time choosing between the kale salad and the salmon. When it comes to the larger decisions, I can imagine answering these questions and having a lot more information and a lot more data, but still some confusion about which direction to go.

Joe: That comes with the territory, that’s the nature of gray area decisions. Now, I think there are some cases where you go through the questions and you pretty sure you’ve got an answer, and the people you work with feel that way as well. But there are other cases where even after asking these questions, you are pulled in different directions. Then you decide, that’s where the answer comes from. You decide what you can live with, as a manager and as a human being.

Peter: What I’m hearing and what this is really helpful at identifying for me is, that what I think these questions do, and I think what your book does is insure that we ask the right questions to get all of the available, useful information on the table so that we’re still making a decision that has a percentage chance of being wrong. That we’re still making a decision that, by its nature, is ambiguous at whose consequences we really may not know.

Joe: That’s right.

Peter: But what you’re saying is, ask these questions to make sure you’re thinking about all of the relevant things and you’re thinking about the business element of it and you’re thinking about the human element of it. One of the things you wrote in your book is, work through it as a manager and resolve it as a human being, which I love. You’re saying, take all of the data that you identify by asking the right questions, put it on the table, and then even in the context of the ambiguity and the lack of clarity and your inability to predict the future, you know at least that you have the right kind of data on the table, you still have to make a decision that is gray and that may not be clear but at the very least you know you’re looking at all the pertinent things that you need to look at.

Joe: Yes, you put that very well in the mantra about approach it as a manager, work through it as a manager, and then resolve it as a human being is the central idea in the book. You’ve referred to kind of placing bets and what [inaudible 00:21:32] rolling the dice and what you’re trying to do with these questions is load the dice in favor of a better outcome, but you’re still going to roll them. There’s a quotation the book that I like quite a lot. Unfortunately, I can’t put it in front of you exactly, but it’s from a very obscure play that was very influential among the American founding fathers. The quotation says, “Look, it’s not in our power to command outcomes, but we will do better than that. We will deserve good outcomes.” Often is gray area situations, all you can say to yourself and others is, “Look, I work the problem. I struggled with it. I did the best I could and this is what I think is right.” That’s all you can do. You may be lucky, unlucky who knows what’s going to happen.

Peter: Where does gut play into this?

Joe: Great question. Gut can be a trap and gut is also crucial. A lot of people get the sequence wrong. They think I’ve got a gray area and then they immediately go to their so-called instinct, their gut instinct, whatever you want to call it. You’ve got to a first work through it as a manager, get the best information etc. that you’ve got, then work through it as a human being. Make your judgment about the consequences of duties, etc. Then, if it’s still gray, then you trust your gut but only after you have engaged with and struggled with the complexities. Not before.

Peter: Joe, I’m really enjoying this conversation in a way that it’s making me reflect on … I’ve done 50, 60, 70 podcasts now and interviews, and there’s a different flavor to each one and there’s a different flavor to each person and I have to say first of all that I really … I’m seeing you over Skype, that’s how I do the interviews and I really enjoy your presence and there is a pace to your speaking and you’re thinking that is thoughtful, that has depth to it, and there’s a generational aspect to that, which is that I’ve interviewed some very young leaders who are moving super fast and who are making big bets super quickly and I feel like I’m going to come out a little judgey here, but I feel like we’re losing something in that process.

The first thing I want to say is I’m really enjoying our conversation. I’m really enjoying your presence, and the second thing is, I noticed that this whole process of asking and answering these questions comes out of that presence, comes out of your presence, and comes out of a sort of thoughtfulness that says, “I’m actually going to sit, and I’m going to think about this. I’m going to think about this in a number of different ways, and I’m going to make sure that I have the information on the table.” And I wonder what you’re experiencing, because you’re teaching students in business school, and you’re teaching a lot of young people, whether we’re losing something in the speed that we’re moving at in our society and world and whether … Partly why we need this book is to slow us down, and also, how we can help people who really want to move super fast, slow down enough to ask these questions. There was a lot in that, there’s probably five or six questions in there but I wanted to just reflect that to you and get your perspective.

Joe: Well, first, you’re right about the pressure to get things done, get them done fast, and maybe not look into them with the depth that they require today. I heard there was a hospital that used to give surgeons a SSW award, Swift, Sure, and Wrong. This is what they wanted to discourage. You can’t go through an elaborate process on small gray areas. Maybe you talk to somebody, you make a decision, and you move on but the big ones with significant stakes for yourself and others, you’ve got to stop, take the time and go through this process.

The next project I’m going to do, and I’ve actually started doing interviews on this is, what does reflection mean for busy people who’ve got serious responsibilities? I’ve been asking of this question people who were successful, not super successful, front of the magazine successful, but they’ve had really good careers and what surprised me thus far is how each person has had their own little system for stopping and reflecting on things that are important. They’d been ready, and willing, and eager to answer the question, what’s reflection? I would discourage young people who think just decision after decision, bang, bang, bang, that they ought to look at some of their successful predecessors and find some time to step back when they need to.

Peter: I love that and I want to write that book with you Joe so we’ll have to talk afterward, because I think it’s a very important book and I think it … To really understand … Because there is a reflection that’s happening and it looks different, but then sometimes there’s not reflection and then we go kind of fast barreling towards Swift, Sure, and Wrong. I love that award.

Joe, thank you so much for coming onto the Bregmen leadership podcast. The book is Managing in the Gray: Five Timeless Questions for Resolving Your Toughest Problems at Work. Joe, Badaracco, thank you for joining us.

Joe: Glad to be here, Peter.

Peter: If you enjoyed this episode of the Bregman Leadership podcast, please subscribe and leave a review on iTunes. For more information about the Bregman Leadership Intensive, as well as access to my articles, videos, and podcasts, visit PeterBregman.com. Thank you to Clare Marshall for producing this episode, and to Brian Wood, who created our music. Thanks for listening and stay tuned for the next great conversation.


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  • Fazl February 28, 2017 Reply

    This was really an excellent podcast Peter, thanks for it. I am in the middle of writing a book myself called The COVETed Leader and will be happy to share some work with you. The title is an acronym for five pillars. The first ‘C’ stands for ‘Courage’ and my definition of Courage is – “The ability to differentiate between two rights, or to select the better of the two wrongs and…say it so”. I will be more than happy to share more the work should you be interested. Fazl

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