The Halo Effect

The Great Delusions

Investors and business managers operate under a variety of illusions. Since they face tremendous pressure to produce financial results, both crave simplistic, instructive stories about how great CEOs turned their companies into well-oiled, profit-generating machines. A plethora of books by consultants and professors retells these fables, which managers study as new, easy lessons about replicating the success of industry icons.

But fallacies are at work here. These company performance stories are delusions. Worse, their oversimplified explanations lure managers into thinking that a white knight CEO or a new business plan can easily rectify their problems. To counter these rampant fantasies, managers have to become more critical of business stories' sources, and more selective about what they believe and consider actionable. They must overcome emotional involvement and avoid quick-fix ideas. Critical examination shows that many of the solutions described in business stories are based on delusions about results and performance.

The business press attributes good qualities - without sufficient evidence - to companies that are doing well, ...