Don’t assume that because someone is in a position of authority that they necessarily have outstanding decision-making or risk-assessment skills. In that sense, the Anheuser-Busch executive(s) responsible for the Bud Light trans campaign and the Tennessee House Republicans responsible for the petty, brief expulsion of two duly elected Democrats from their elected offices are all the same type of people. They all took a risk without any reasonable prospect of upside. They were “playing” business and political versions of Russian roulette, where the best possible outcome was that they would essentially “break even,” while the downside of failure would be … well … I guess we saw that.
In their own ways, Anheuser-Busch and the Tennessee Republicans each demonstrated an inability to assess the balance between risk and reward.
Decisions made in an emotionally charged atmosphere can be highly consequential and thus introduce an additional element of risk. If you are going to make a decision for which failure has a cost, you better make sure that success has a payoff.
The most basic form of risk management often comes from simply avoiding risks for which there are no potential upsides.
It’s highly unlikely that your bank is going to fail, but what is the upside to having more than the FDIC insurance limit on deposit at an institution? If the bank doesn’t fail, you’ve gained nothing. If it does fail, maybe the FDIC will bail you out anyway, but you still don’t have any upside if the bank doesn’t fail. So, what’s the point in exceeding the insurance limits?
At Anheuser-Busch, the best possible outcome for its recent campaign was that it might engender some goodwill among some people. But even if the response was unanimously positive (which I hope A-B executives knew was impossible), it would have had zero noticeable effect on the company’s profitability. The decision only had downside.
I understand how a business executive could be easily seduced into using shareholder assets to gain social currency with her friends – which I suppose was one possible upside that influenced A-B executives. But I still can’t figure out what possible upside the Nashville Numbskulls thought there was in expelling three elected officials from their elected office. Perhaps the only thing worse than expelling the three would have been if they could figure out some way to look like racists doing it.
If you are going to take a chance of making a mistake (which is a possibility with almost all decisions), at least do it with a reasonable prospect of a payoff. “Heads I lose; tails I break even” isn’t a great formula for success.
David Moon is president of Moon Capital Management. A version of this piece originally appeared in the USA TODAY NETWORK.