SVB’s executives remind me of confederate general Robert E. Lee at Gettysburg. Both were so high on their own fumes that they didn’t bother to ask “what if” their rosy projections did not work out.
Why it matters
Having what-if conversations with trusted advisors can help you make wiser decisions and avoid the hubris that brought down SVB and Signature bank.
SVB’s disaster didn’t have to happen
You make better decisions when you bring in fresh air. Freebasing your own gunpowder leaves you vulnerable to common decision-making errors.
Recency bias is believing the future will be like the recent past. Sometimes it takes the form of people being afraid to fly after a plane crash. The more subtle form is a belief that current trends will continue.
The confederates racked up several victories over the Union forces, including big wins at Fredericksburg and Chancellorsville. Confident that his army would keep winning, Lee made foolish decisions to invade Pennsylvania, attack dug-in Union positions at Gettysburg, and order the ill-fated Pickett’s charge.
He never asked what if the Union army didn’t break and run as they had before.
SVB’s execs believed historically-low interest rates would continue, showing an ostrich-like indifference to clear signals that the Fed needed to raise rates to tackle inflation. Their investments in low-yield 10-year treasuries created massive losses as the bank had to liquidate the assets before maturity when investors withdrew their deposits to seek more attractive investments.
Like Lee, they could have benefitted from a trusted advisor who asked, “what if ___ scenario occurs,” i.e., what if the Fed raises interest rates to curb inflation? Your subordinates are too busy or nervous to ask you these questions, so you need an outside point of view.
With these discussions, SVB could have identified preventive action, like keeping more cash on hand and balancing investments between short-term and 10-year treasuries.
Preventive action vs corrective action
Preventive action is better than corrective action
What-if questions from your peers are what’s going to drive your preventive action. Preventive action has its costs, but is always less expensive than corrective action. Just ask SVB and Robert E. Lee.
So who’s challenging you with what-if questions?