Okay in this video I want to get to the second of the three kind of central meta biases that we're focusing on in this module and this is around emotional attachments. What are they? Emotional attachments are connections we have to people, to places and to things, they're natural normal. They're often among the most enjoyable aspects of our work and our personal lives because they often connect us to other people. We feel a sense of loyalty to the people we work with. We have friends. These things are good, these emotional attachments are good but sometimes there's a problem. So while we usually think about them as positive things, we also can have negative attachments. An Wang had a negative attachment IBM which I've shared a couple of different times. He hated IBM, anything to do with IBM was a negative in his mind. Attachments to people we work with or interact with is kind of like our family and our friends and our team. Again it's all good except when we let these attachments affect or bias our thinking and decision making. A bunch of examples. So you know those surveys of of executives that have gone through a major change process and in the survey they're asked what do you wish you had done differently? Every now and then you see a survey like that that comes out in one of the business magazines or somewhere. And what do you usually see? Usually near the top of the list is I wish I had let Mark or Naomi, my right hand man, my right hand woman, I wish I let them go. I knew they weren't buying into this change. I knew they didn't, I just knew it that this was going to challenge them and would take away some of their authority or whatever the reason is. But I worked with them. I work with Mark and work with Naomi for 10 years, I couldn't do it. But as I went through and we went deeper and deeper, it was clear they were becoming blockers. They just could not get their heads around it. And eventually I was forced to remove them. I was forced to let them go and they regretted it, but they realized that they wish that they had done it earlier. And why is that? Because these attachments, especially people, the color, our thinking and loyalty is good I got that. But if it leads to really making a bunch of bad decisions, we have to really begin to think about that or how about this? I did a negotiation exercise with some of my students, NBA students and then some executives and some executive programs. And it was the same scenario and identical negotiation exercise. It involved a corporate raider who might try to acquire a family run business as as a target. And he was going to pay a premium of course for the company, thereby enriching the shareholders of that family run company because they had some independent shareholders looking to maximize their return. The CEO of that family run business, on the other hand, saw the company as his life's work and he didn't want to sell. The company wasn't doing so well. He was under a lot of pressure shareholders could probably make more money if they sold the company, but it was his life's work and he didn't want to do it. And that was a scenario and then there's a negotiation. And so what would you recommend? Well, it turns out that the Tuck students, my MBA students who adopted or were told that they had the raider, corporate raider roll, they related to their co students who played the company founder role. And it turns out they were much less likely to agree to take over the company, which is kind of kind of interesting because they related to each other. The visiting executives actually had no such compunction because the visiting executives, they just showed up. They they were together in this case for a three week program. The Tuck NBA students are together for two years. They built these personal relationships and the visiting executives overwhelmingly did the takeover. For the executives, it was a straightforward business decision. But for the Tuck students was a little different. The personal relationships they had with each other attachments. They have nothing to do with this negotiation exercise. But we're outside of the class, were people that were in the same community that we're in a tight community. They were powerful these attachments. And they chose to protect the family run business and not cause any anguish to the CEO of course this was just an exercise. There's no real anguish at all for any of the company's. Nonetheless, the attachments among students were so strong that it played out in this way. Again, really, so different from how executives with no prior attachments to each other viewed the situation. I had a different type of experience with my own Tuck, close knit community that didn't end up quite so well for me. And that's completely on me. One of the alums who had been out for, I don't know, 6, 8 years, he pitched me on investing in his company. And it was a cool idea. And it was kind of interesting. And anyways, he pitched me, because I knew him and I guess I trusted him I really didn't do the due diligence I should have. I didn't ask the right questions. I didn't dig deeper. I didn't do what a good investor should do, but I did invest in the company. And I really never should have. It was a mistake. I let my emotional attachment control me control my thinking. And that result is, well, I lost some money from that, but you can see how it could happen to anyone, right? This thing about trust that I just mentioned, that's pretty much the playbook of Ponzi schemers, like Bernie Madoff, for example, who invariably target affinity groups and others with some type of connection or attachment. And so we fall for it. When you look at Ponzi schemers, and you look at the scams that they perpetrate. It is really kind of amazing because you get people who might be, somebody with law enforcement background that will go to people with a law enforcement background to try to raise money because they could relate, they have an affinity. They don't ask questions. Bernie Madoff certainly did that with the entire Wall Street community and you know that the irony is they were almost certainly a bunch of people that invested with Bernie Madoff that had the background, the capability of skill set to question the legitimacy of the investment, but they never did because they trusted Bernie. He was one of them. And he played off of that. And that attachment became part of this really nefarious but well thought out strategy to run his Ponzi scheme. So attachments to people are powerful are important. Attachments are not just the people, they could be to places such as the office we worked in the division we worked in the school? Just think about how loyal alumni are of different universities. They they show up for game day, for football or basketball or what have you there tailgating. They're crazy loyal to the school. And they have that attachment. But you know, when you look at major corporate downsizing efforts when you let go a lot of people, when you fire a lot of people because of cost problems, profitability problems, you gotta cut cost when you look carefully at that. The division where the CEO spent a lot of his time or her time in their careers, they worked their way up to the top. That division is hardly ever targeted for the worst of the job losses. And how's that? Is that a coincidence? Doesn't matter what the company is. Doesn't matter what the division is. But because the Ceo feels for that group probably has some former colleagues that work there, which is the people side. But here he understands the the work that they do and their importance. Somehow the CEO thinks well there may be more central, more vital. It doesn't make sense in an economic basis, but when you start to see that pattern time and time again you start to wonder do they have a soft spot for this old group? Are they more likely to be protected? And is this really the right decision? I can't tell you if it's the right decision in every situation but it's a decision that's being made for nonbusiness reasons that's for sure. And then there's attachment to things. The corporate logo, a manufacturing process, a project you're working on. Years ago Marks and Spencer, the giant UK based clothing and supermarket really supermarket and department store acquired Brooks Brothers, the straight laced preppy US based company, clothing retailer. And I mean it's hard to believe but they paid $750 million dollars for the company almost doubled its valuation before the deal. Why? Because the CEO of Marks and Spencer Derek Rayner, he loved the clothes and what it represented the prep ****, Wall Street, the elite Nous, he loved that. And so he became attached to the image of Brooks Brothers and so he actually ignored his advisers and tons of other data that there were all these warning signs in the deal and he makes the deal for an outrageous price. A dozen years later they end up selling the company and the total write offs and losses from that acquisition amounted to one billion, that's a b dollars. Ironically the reverse story also happened this time with Yahoo and their founder and CEO years ago Jerry Yang he refused to sell to Microsoft. Don't you remember this story? Because Microsoft made an offer to acquire Yahoo and the offer wasn't was considered not acceptable which is fine you're negotiating. I get that. But then Microsoft came in with a higher offer. No, it's an insult. Microsoft came back with a third offer which was really really a big offer and Jerry Yang and the board of directors of Yahoo said no every time unacceptable. Now of course I wasn't sitting on the board. I wasn't observing the board deliberations that were going on. But what I could tell you is that the difference between the valuation that Microsoft offered for Yahoo how much money they were willing to pay and the actual valuation of the company after Microsoft went home and the deal was off a total difference. You know what that was was $30 billion. I mean a crazy, crazy amount. And is it possible that Yahoo had this idea that they could generate that type of value creation. That type of profitability maybe, but hard to imagine. I think what was really at play here is that Jerry Yang and Yahoo had this negative attachment towards Microsoft because back in those days this is a while ago Microsoft was the evil empire. So they couldn't imagine selling. I have this picture of back in the day, Larry page from google and, and Jerry Yang and maybe Steve Jobs when he was still alive and back in those days. And they're sitting around with Starbucks having their lattes. And Jerry Yang is explaining how he sold his company to everyone's arch enemy to Microsoft. And the others are kind of inching their chairs away. They don't want to be seen with him. I mean none of that happened. It's kind of the image that that I have that would have just not gone over well in his circle. It's kind of amazing though, because you could say that was $30 billion dollars of value that was left off all from attachments. So this is something we need to pay attention to.
