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1. How the Wise
Decide
The Lessons of 21 Extraordinary Leaders
By Bryn Zeckhauser and Aaron Sandoski
Business Plus, 2008
ISBN 9780307339737
Introduction
To declare war or not to, that was the question.
John Whitehead knew he would have to make a decision soon. His competitors had already made theirs, and Goldman
Sachs was coming under increasing pressure to declare its intentions.
For years, Goldman had quietly competed with four other top-tier Wall Street investment banks for the business of
America's largest companies. All five banks had been successful enough to make their partners very wealthy.
Then Morgan Stanley fired the first shot in a new kind of warfare, agreeing in July 1974 to help International Nickel Co.
launch a hostile takeover bid for Electric Storage Battery. The unthinkable - one company trying to seize the assets of
another through financial force - had suddenly become possible. It didn't take long for the fever to become contagious.
Corporate executives across the nation were desperate. Many believed they were trapped: either they took over another
company or they faced being taken over. The stakes were enormous and investment banking clients were willing to pay
astronomical fees for help in launching hostile takeovers. Yet amid all the feverish takeover action, the partners at
Goldman Sachs could only watch from the sidelines. Whitehead, the firm's co-chairman, hadn't yet given the go-ahead
for Goldman to advise its own clients on how to launch hostile offers.
Whitehead knew that helping clients make hostile tender offers would be enormously lucrative. And anyone not taking
part in the merger mania risked being relegated to the second tier of investment banking. Yet to Whitehead it didn't
seem as if his competitors were really helping their clients. Many of the hostile deals were turning out badly for both the
acquirer and the target company. The executives at the acquired company often left in anger and the combined company
failed to realize the hoped-for benefits of the combination. Whitehead believed it just wasn't good business.
He made his decision. Goldman Sachs would not offer its services to any company that wanted to make a hostile tender
offer. He wanted the firm to be known as "the investment bank of integrity."
"We thought that good ethics was good business and that in the end people wanted to deal with the investment banking
firm they respected the most, not necessarily the one that was biggest or had the largest share of the market,"
Whitehead says.
The repercussions of that decision were immediate. A client company turned away from Goldman to retain another firm
to help it launch a hostile bid. Goldman's competitors were soon posting record profits on the large transaction fees that
floated from hostile deals. Some Goldman partners argued that the firm was leaving enormous potential profits on the
table. But Whitehead remained steadfast: Goldman was the firm of integrity.
Then something unusual happened. As word of Goldman's stance spread, companies threatened by hostile bids turned to
Goldman as the firm of choice to defend against the unfriendly offers. And that prompted executives at companies that
weren't threatened to look to Goldman for investment banking advice too, confident the bank wouldn't turn on them. It
didn't happen overnight, but Whitehead's decision set Goldman apart from its competitors and created an enormous
demand from companies that wanted to do business with a firm of integrity.
Whitehead's decision has become a Wall Street legend. Making great decisions isn't easy. Yet the cumulative decisions we
make will largely determine our success. The fact that more than 80% of new products fail over launch and more than
50% of mergers and acquisitions destroy more value than they create is testament to how difficult it is to make and
implement decisions in business today.

2. Six core decision-making principles have emerged from conversations with some of the world's most talented and
experienced leaders about how they make decisions:
1. Go to the source.
2. Fill a room with barbarians.
3. Conquer the fear of risk.
4. Make vision your daily guide.
5. Listen with purpose.
6. Be transparent.
Go to the Source
Mike Ruettgers , CEO of information infrastructure powerhouse EMC through most of the 1990s, made 400 customer
calls a year. Bill George, CEO of Medtronic, spent two-thirds of his time observing complex surgeries in operating
theaters in order to solve problems encountered by the medical practitioners using his equipment.
Both valued primary sources of information enough that they made going to them both a priority and a routine.
Among all the things a CEO could be doing, those two decided that the largest portion of their time was best spent
getting unfiltered, unbiased information. Other tasks can be delegated, but first-hand observation and conversation
require you to be where the action is, whether it's an operating room or your own factory floor.
First, information at the source is unfiltered by others. Organizations invariably edit and distill information as it moves
from level to level and from one department to another. Decision-makers need to supplement that diet with unfiltered
data, information straight from the source, which hasn't been manipulated or interpreted.
Second, information at the source provides subtle details and nuances that get lost in second- or third-hand accounts.
Reports and canned presentations lack emotional content, but emotions play a large role in business. It's the
decision-maker's job to understand what emotions are at play.
Finally, information from the source is critical because it shows us reality. Too often, second-hand information distorts
reality enough to give us a false sense of confidence.
Fill a Room with Barbarians
How would you like to work for a boss who requires you and your colleagues to sit in a tiny conference room arguing
with one another for hours every time he has to make a tough decision?
Most of us try to avoid conflict. Yet conflict is exactly what Dean Kamen, founder of DEKA Research & Development
Corp., seeks and encourages. Kamen, whose company focuses on such radical new technologies as delivering
chemotherapy to infants and helping people with kidney failure live normal lives, finds that bringing together people with
diverse backgrounds and well-informed opinions to vehemently argue their positions helps him make his toughest
decisions.
"I like it when 10 people walk into the room with 10 different opinions and are so passionate they're yelling at each
other," says Kamen. Yet he admits that if someone from outside attended one of those meetings, "they would think
we're all barbarians."
Not all decisions require extensive or full-throated argument. But when the choice is tough and there's no clear path
forward, a hearty debate can be the best tool you have for uncovering the right solution.
That doesn't mean seeking compromise. Tough decisions by their nature brook no compromise. Otherwise, they wouldn't
be tough. To get the best thinking from their teams, wise leaders actively seek dissent.
Conquer the Fear of Risk
Got a coin handy? Flip it. If it comes up heads, you'll be given $1,000. If it comes up tails, you'll write a check for $500.
Would you be willing to take that gamble?
Probably not. Princeton psychologist Daniel Kahneman often poses questions like that, and most people turn down the
gamble even though the odds are stacked in their favor.

3. "People really don't like that gamble because they might lose," Kahneman says. "Our brains are programmed to worry
substantially about the possibility of loss, and not enough about the size of the loss relative to the gain. We don't like to
lose, period."
Kahneman calls this penchant "loss aversion." It's a powerful psychological urge that causes people to put far greater
weight on losing than on winning. But the propensity to avoid loss can be a big problem for business. People at every
level of most companies fear to take risks because they believe a bad outcome will hurt their chances for promotion and
higher pay. The result is that entire organizations spend vast amounts of time, energy and money seeking the safest
option rather than options that offer the greatest risk-adjusted returns.
Make Vision Your Daily Guide
Virtually every company claims to have a vision, a long-term goal that's supposed to guide its management and
employees. But it's easy for idealistic visions to degenerate into mere words on paper, lost in the short-term fog of
day-to-day business decisions. Wise leaders know that to make the best decisions you need not only the right vision, but
also the discipline to let that vision guide every decision you make, even seemingly innocuous day-to-day tactical choices.
Your vision describes what you and the organization are trying to accomplish. Without it your company is likely to become
an unguided missile, whizzing here and there without a clue about where the target is or how to hit it.
Your vision also orders your primary objectives. It becomes the reference point against which you and everyone else in
the organization measures what needs to be done and what can be ignored. A great vision can and should be stated
simply, but it also should be the foundation from which you derive the specific marching orders for the organization to
follow.
Listen with Purpose
Wise leaders almost unconsciously prepare themselves for every meeting by thinking through why they're asking for the
opinion of the person they're meeting with. That way, they're prepared to make the most of the interaction, taking away
from it knowledge and impressions the other person had no idea he or she was conveying. They listen with purpose.
Wise leaders listen to gather information - but not just any information. You must be listening specifically to fill in any
gaps in the information you have. That means thinking carefully about what you already know and what more you need
to know, even before you go into the meeting.
You also need to listen to identify "hot points" that emerge, so when a decision is ultimately made you can address the
fears and concerns of those who were opposed and rally to you those who supported the decision.
Finally, listen with the purpose of generating ownership. Very few people want the responsibility of making the decision
themselves, but they want to know their point of view has been heard and is being considered.
Be Transparent
Wise leaders know there's far more to getting a decision executed than merely announcing it. They must also be candid
and forthcoming about how and why they reached the decision. To carry out a decision properly, employees need to
understand the details behind it (the good and the bad), why alternatives weren't chosen, and what a realistic future
holds for them if the decision is executed well or if it flops. Wise leaders tackle those issues up front, providing clear
explanations about decisions and their consequences in order to be transparent.
It isn't necessary that the entire organization hear how and why you reached your decision, but the core team that will be
in charge of making sure it gets done needs to know that you aren't making an arbitrary decision that isn't backed by
sound logic. Telling the complete story prevents rumors and second-guessing from diverting your team's energy and
efforts. If people don't know the full story, they'll fill in the gaps with rumors that are more likely to be negative than
positive.
It's important to recognize that nothing is gained by glossing over the severity of the problem you face or the
consequences of not fixing it. As well, transparency requires you to provide your team with a road map that shows
people what to do to execute your decision.
Conclusion
The six principles are universal and timeless. But everyone's situation is different, and there are probably some lessons
that will be more useful or easier to execute in your present situation than others. Start there. Use the experience of wise
leaders as a guide to do it better.

4. - End -
About the authors: Bryn Zeckhauser is a senior fellow at Harvard University's Mossavar-Rahmani Center for Business
and Government and a principal at Equity Resource Investments, a real estate firm with funds in the United States and
Asia. Aaron Sandoski is managing director of Norwich Ventures, a medical device venture capital firm.
Related Reading
Any of these books can be ordered directly from Amazon ( A), Barnes & Noble ( B) or Chapters ( C) or may be
summarized in our execuBook library (E).
Judgment: How Winning Leaders Make Great Calls, by Noel M. Tichy and Warren G. Bennis, Portfolio, 2007, ISBN
9781591841531. A B C E
Leading with Questions: How Leaders Find the Right Solutions by Knowing What to Ask, by Michael J. Marquardt,
Jossey-Bass, 2005, ISBN 9780787977467. A B C E
The Art of High-Stakes Decision-Making: Tough Calls in a Speed-Driven World, by J. Keith Murnighan and John C.
Mowen, John Wiley & Sons, 2001, ISBN 9780471415763. A B C E