Most professional investors are well aware of the biases and risks involved in taking high stakes decisions having learned the hard way by making costly mistakes. As a result, a growing number of portfolio managers are seeking the expertise of Dr Nicholas Beecroft. A consultant psychiatrist by training, Dr Beecroft has over 20 years' experience of coaching investment professionals, entrepreneurs and business leaders on key areas including decision-making, performance, strategy and leadership. His Devil's Advocate, Red Teaming and Decision Facilitation service which helps individuals and teams to take high-value, high stakes decisions is now available to clients of Adan Corporate.

Adan Corporate Managing Partner, Chennakeshav Adya (CA), interviewed Dr. Nicholas Beecroft (NB) to find out how he helped the Principal of a Family Office avoid losing $27 million in an afternoon.

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CA: In your work with professional investors, how effective is the decision-making you've seen?
NB: I've seen a broad range of decision-making behaviour from wise to reckless, from considered to impulsive and from logical to intuitive. Some decision-makers are very thorough with their logical analysis of the options, risks, potential scenarios and data whilst others make a gut decision within a few seconds. Some teams have rigorous systems to improve decision-making whilst others suffer from groupthink and lack of accountability. Many investors put too much faith in numbers and models without really testing their assumptions. There are an increasing number who, like Olympic athletes, are willing to do what it takes to continuously improve their decision-making performance. Increasingly, businesses are putting in processes to make decision makers prove that they have thoroughly subjected the decisions to scrutiny and independent testing to improve the quality of the decisions and to reduce the risk of the substantial losses that come with poor decision-making.

CA: What decision-making errors do you see consistently?
NB: The most common one is jumping to conclusions before the decision maker has thoroughly tested all their assumptions, ensured they have the relevant information and looked at it from every angle conceivable. Many allow fear, anxiety, greed, fatigue, group dynamics and overconfidence to bias their decisions. In institutional decision-making, bureaucracy, egos and the fear of challenging one's boss lead to poor decision-making. Many get bogged down in the numbers, falsely thinking that numbers are a solid foundation and forget to look at the basics such as whether it's a good business idea and whether the leadership team have what it takes to deliver. Some experience analysis paralysis. A common problem is letting ego, reputation, shame or embarrassment distort one's judgement by not being open to questioning one's logic, emotions and judgement. It takes courage and wisdom to invite objective challenge.

CA: What can be done to avoid making poor decisions?
NB: The best way is to have a trusted Devil's Advocate to thoroughly test your decision making process. The mediaeval church knew this. They realised that all sorts of unsuitable people were being selected as Saints and then found themselves embarrassed after they had been canonised realising they had not done their due diligence properly. Consequently, the Pope created the role of the Devil's Advocate- someone to thoroughly test the assumptions, look for alternative explanations, independently and critically evaluate the reasoning, evidence and judgements so as to improve the quality of the decisions.

CA: I don't recall seeing the formal role of Devil's Advocate in my business experience. Is it becoming more common?
NB: If there was a way to significantly reduce the risk of making poor decisions, we would take it, right? Well, actually, no. In spite of very good research evidence that better investment decisions are taken if the decision-making process is thoroughly and rigorously challenged, high-stakes decisions are often biased by the mindset of an individual decision-maker or group dynamics of the decision-making team. It takes courage and confidence to open up one's decision-making process to scrutiny and constructive challenge.

CA: How would a Devil's Advocate be used in a business context?
NB: One of the most famous examples is Ray Dalio, founder of Bridgewater, one of the world's most successful hedge funds. After losing everything in a financial crash, laying off all of his staff, he built himself up from nothing to be founder of, by far, the world's biggest hedge fund. He discovered that his investment decisions were much more robust if they were rigorously tested and challenged from every angle. He completely redesigned his investment assessment and decision making process to consciously challenge every assumption, every decision using teams of people with different thinking styles, personalities, training and experience with a culture of systematic and respectful challenge. Crucially, he didn't fire people for publicly disagreeing with him, he insisted upon it.

CA: Many business decisions are taken by teams. How can they use contrarian thinking whilst remaining effective?
NB: The military are experts at doing exactly that. When the military thoroughly tests their strategies and theories before taking action, they are successful such as in the Battle of the Atlantic and D-Day. When they forget to do this, things don't go so well, such as in Vietnam and Iraq. There was a time when no one could beat Napoleon, who seemed unstoppable. The Prussian Army officers knew that individually they were no match for him, but they believed that if they worked together as a team, they might be able to beat him. So, they played war games in which some of them played the Prussian Army in their blue uniforms and others played the opposition in red uniforms- the Red Team. The job of the Red Team was to get into the minds of the competition and to test the Blue Team's strategy from every possible angle conceivable. They found the weak points in their strategy and creatively discovered ways to make it better. Napoleon spent his retirement in prison in the South Atlantic.

And so it is in business. To improve your chances of making wise decisions and implementing successful new ventures and investments, it makes sense to thoroughly test and optimise your decision, pitch, strategy, deal, plan or acquisition before launch.

CA: Can you give an example of how you helped a fund manager take a high-stakes decision?
NB: At the start of the coronavirus pandemic, when it was only established in East Asia, I was with the Principal of a very successful Family Office. He called me in because he wanted to test drive my Devil's Advocate and Decision Facilitation service. He had decided that he wanted to invest US$80 million in well known company. For him, this didn't feel like a very big decision as it's a small percentage of his fund, a routine decision he made frequently with great confidence and decades of experience.

When we started, he was confident that he was going to invest the $80 million that afternoon. It was a good company that he knew well. He understood the market and had assessed that it was relatively undervalued and destined for long-term sustainable growth. He saw my process as a quick exercise to test his judgement before going ahead. He had no significant doubts or worries about it. After two hours of Decision Facilitation and Devil's Advocacy, he had realised that it would have made a poor investment with significant unforeseen risks in marketing, supply chain and geopolitics. He changed his mind and did not invest. As we speak, that decision saved him $27 million.

CA: Walk us through your process. How does it work?
NB: I got the Principal to run through his rationale for investing in this company. The first stage, I call it my London Business School/McKinsey approach. I rigorously tested his decision, the logic, the assumptions, timing, options, criteria, pros and cons, the data, the information processing, the risk assessment, potential scenarios and likely outcomes. He knew the company quite well, its factories, suppliers, customers and stakeholders, and could explain its strategy. I was a bit surprised at how casual he was about the evidence for his judgements, but he was hugely experienced and was probably making a lot of cognitive and embodied shortcuts. He was not used to being asked to justify his reasoning, but managed to submit to the process. As a result of this cross-examination, some doubts arose about the marketing strategy. He had accepted at face value the assertions of the company but had realised that those assumptions were going to be tested in a month's time and the outcome of that would have a significant effect on the stock price either way and it would probably be better to await that new information.

The second half of the process is experiential in nature. Having inputted all the data, tested the logic and reasoning, we then use the inner compass- the heart, gut, emotions, sensations, muscle testing and inner dialogue. I facilitated him through the process of voice dialogue, speaking to all of his inner parts-the part who thought it was a good investment, the part that was doubtful, inner child, wise elder and we even brought in some external characters, role models whom he admired-Warren Buffett and Charlie Munger. In fact, he embodied their wisdom and perspective very well. Each of these parts spoke from their point of view and were thoroughly cross-examined and encouraged to argue it out between themselves. I asked him to speak to his inner fearful child. As is very common with ultra-successful people, he didn't feel any fear. He also didn't feel any self-doubt or self-criticism. It can take years of disciplined practice for people to achieve that degree of equanimity. Most of us are plagued with anxiety but, he was one of those lucky ones. In his case, it's not a sign of arrogance but somehow he's wired that way. Most of the time, that serves him very well, so he can take very high-stakes decisions coolly and calmly. However the downside of that is that you need some healthy fear in order to scan for threats and risks. As we went through this inner dialogue, I realised that he hadn't looked at the effect of the emerging Coronavirus pandemic on the manufacturing supply chain and the medium term geopolitical risk of an escalating trade war between China and the West and the subsequent effects on demand. Having introduced that into the equation, the investment no longer felt very appealing.

I then took him systematically through the process of assessing the decision to invest or not using other aspects of his intelligence. I trained him to consciously use his heart to make a decision. We checked this decision with his heart and it answered slightly against investing. We calibrated his gut instinct using baseline tests and his gut gave a definite "no way." We checked his emotions and found that the doubt had become much more substantial. I taught him to read his energetic awareness of the investment decision and that also gave a very ambivalent response to the potential investment. He was very familiar with the muscle testing methodology which he had used before and, again, that gave the very clear answer that he should not invest in this company.

CA: So, he had initially been confident that he would invest in the company but after running through your process, changed his mind. Does that mean that you gave him investment advice?
NB: No, definitely not. That's not my role. My expertise is asking great questions to get to the bottom of things, bring things to a head and help people come to their own conclusions. In his case, he knew the answers to all the questions. He knew the right thing to do but it was my structured and disciplined process which drew it out of him and got him to what he considered to be the right answer.

CA: What was his decision in the end?
NB: He decided not to invest that day and to review the decision after the new marketing results in six weeks.

CA: With hindsight, was that the right decision?
NB: It certainly was. That saved him a loss of $27 million.

CA: Can he now make better decisions on his own?
NB: I wouldn't quite put it that way because he was already a master investor. He sees himself as being like an Olympic athlete, continuously training, learning new things and getting an edge. Like most experienced investors, he is already super skilled at the intellectual side of things, but there is definitely room for improvement through practice and continuous feedback on the experiential aspects of heart, gut, emotion, inner dialogue, energetics and body intelligence. You could call it financial mindfulness. Embodied decision-making. That can certainly be improved with practice with feedback.

CA: Is it necessary to get in a Devil's Advocate for every decision?
NB: It's a good idea for high value, high risk decisions. Often people ask me to do it for personal decisions- shall get married, shall we have a baby or even political decisions- shall I vote for Brexit and shall we invade country X? For routine things, it's best to develop one's skills in decision making, contrarian thinking and to have teams with military style Red Team thinking- adversarial challenge from multiple perspectives, ideally in a truly diverse team- diversity of thinking and experience.

CA: Like Ray Dalio did at Bridgewater?
NB: Exactly.

The Devil's Advocate, Red Teaming and Decision Facilitation service is now available via Adan Corporate.
Interested in speaking with Dr Beecroft? Email coaching@adancorporate.com

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Devil's Advocate and Red Teaming Service

- Experience confidential, objective analysis, incisive questions, get to the bottom of things, test assumptions, bring things to a head, identify key priorities, threats and opportunities and generate new creative options.
- Be constructively challenged through the eyes of an independent outsider like a competitor, customer, shareholder, and military psychiatrist

Applications:
- Prepare and practice your pitch
- Challenge and optimise a strategy, plan or policy
- Rigorous facilitation of decisions (business, career, political, personal)
- Prepare for a successful launch, presentation or interview
- Due diligence on a potential investment, deal, acquisition, business partner or joint venture
- Test and practice your negotiation strategy
- Facing a new competitor or disruptive technology
- Developing new products, services and concepts
- Leadership assessment and development
- Relationship analysis and strategy for improvement
- Create and sharpen your future vision
- Manage a crisis, conflict or strategic challenge
- Achieve breakthroughs and overcome barriers, blocks and resistance

Benefits
- Test and improve your strategy, plans, product or service
- Make better decisions
- Foresee risks, threats, vulnerabilities and outcomes
- Test and optimise your pitch before you seek investment
- Assess potential business partners, acquisitions and investments
- Demonstrate rigorous due diligence with independent, objective scrutiny, checks and balances
- Generate and test new ideas, opportunities & options
- Increase success of a merger, acquisition, joint venture or change implementation
- Achieve breakthroughs and overcome barriers, blocks and resistance
- Anticipate and create disruptions
- Bring things to a head
- Get direction, confidence and clarity
- Identify alternative options or outcomes and/or explore the consequences of a specific course of action
- Negotiate successfully
- Outmanoeuvre competitors, adversaries and other players
- Enjoy a safe environment to explore sensitive, controversial and risky subjects
- Receive robust, constructive challenge, honest, objective feedback
- Avoid errors and strategic shocks
- Deal with challenges
- Avoid the opportunity costs of doubt, procrastination and analysis paralysis
- Decide between potential strategic options
- Overcome cognitive and emotional biases, complacency and groupthink
- Get objective analysis independent of internal corporate politics, egos and interests
- Innovate and adapt to thrive in a complex and uncertain world
- Perfect your inspiring future vision
- Face uncomfortable truths
- Thoroughly test your arguments, evidence, logic
- Practice fielding rigorous questioning
- Discover your Achilles heel and weaknesses and turn them around
- Integrate the shadow side for maximum authenticity and power

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Adan's executive coaches have decades of experience working at the executive level with leading organizations around the world. We have expertise in leadership, productivity, organizational change, team building, marketing, sales and motivation.

Our on-the-job experience coupled with extensive knowledge of the markets and functional areas enables us to deliver a variety of practical, high-impact presentations that engage, enlighten and entertain.