Rationalization

I just finished reading my October, Harvard Business Review. I always enjoy that publication for its strong intellectual quality and its practical application. This month’s issue contained several insightful articles on managing risk. One of the articles is a panel interview with risk management experts and it was in that article that a word caught my attention; rationalization.

Robert Simons commented that three things were necessary for the current financial crisis to occur. The first was innovation in financial products and markets. The second was short-term focused performance incentives and the third was rationalization. As Simons puts it: “The belief that a particular behavior is economically and morally justifiable.” For example, “The shareholder value principle-that social welfare is somehow best served if managers focus exclusively on delivering maximum value to shareholder.” Such rationalization required the managers modify or override what they knew was right in order to justify their actions.

All of us can rationalize behavior when we really want to do or achieve something. This ability to override our character is precisely why organizations need to build leadership development programs with character model at its core.