One night in Austin I ran into one of the city's early-stage CEOs. He immediately launched into a detailed account of how great his company was doing. It was set to be the next unicorn, he said! The conversation struck me as a little odd, but I didn't give it much thought.

The next day I had lunch with a former employee of mine now working for this CEO. When I mentioned what his chief executive said, he grimaced and said they had missed revenue in the most recent quarter by 30 percent! Now, a 30 percent miss is not something most CEOs would refer to as a great quarter. Why had this CEO gone out of his way to give me a glowing report? He could have just said business was fine and left it at that. Instead, he essentially lied.

What I witnessed was a telltale sign of the biggest mistake I see CEOs make: Failing to balance the enthusiasm necessary to lead the business with maintaining your credibility. In other words, this CEO was guilty of excessive cheerleading.

How can too much optimism be detrimental for a CEO, or any leader for that matter? After all, being passionate is crucial for entrepreneurs. It didn't matter that this CEO lost credibility with me. I wasn't a key stakeholder in his company. But I wondered: If he was spinning the news for me, had he done the same thing with employees, and might he do the same thing if he had public shareholders?

Apparently, this was a pattern of behavior for this CEO: He was later dismissed when he lost credibility with his board. CEOs and leaders need to guard against this. Here are the symptoms, effects, causes, and treatment. 

Symptoms and Effects of the Cheerleader CEO/Leader

How can you tell if you or your leader is too much of a cheerleader? Here are some signs that can lead to negative consequences:

  • Cheering every victory no matter how small
  • Being afraid to share negative information with anyone
  • Withholding material facts about the health of the business from the board or executive team
  • Arguing that any issue brought up is not really a problem
  • Hiring people on the executive team who are yes men and women
  • Overpromising and under-delivering on business results

Clearly, this type of behavior sets the stage for groupthink, dysfunction, poor performance, and low morale. CEOs and leaders cannot act this way for long and remain credible. Once a leader loses credibility, it is nearly impossible to get it back.

Being overly optimistic also has a snowball effect: The longer a leader denies that anything is wrong, the worse problems get, and the more embarrassment he faces by acknowledging the problem.

Causes 

I often hear CEOs justify this cheerleading behavior by claiming that their employees might worry too much or even quit if they learn things aren't going well. The truth is that employees quickly see through a leader who is too optimistic. They start to believe that he or she is out of touch, incompetent or even lying to them about the company's true state of affairs. 

Leaders - especially CEOs - are often driven to act this way simply because of fear of failure. Most have not experienced much failure in their careers and don't know how to deal with it. They may be paralyzed when faced with the possibility of a public misstep. It's human nature to want to delay facing a negative event as long as possible.

Treatment: Striking a Balance with Paranoid Optimism

How then should you strike a balance between showing passion for the business and being realistic about it? You should strive to be a paranoid optimist, acting as a shock absorber of sorts by focusing on reality and putting the natural ups and downs of the business in perspective for employees.

One of the ways you can maintain balance is transparency. Simply being honest is a critical element of credibility. If you are consistently straightforward with your employees about business results, no one should be shocked when you have to make difficult decisions such as layoffs. Transparency is key to maintaining credibility and inspiring people to perform at their best.

Another way you can maintain balance is to use a set of consistent measurements tracked over time to communicate to employees and the board how the company is performing. Excessively positive CEOs tend to change the metrics at each board meeting to focus on whatever good news they can find. Using a standard set of metrics such as revenue, cash flow, growth rate, and margins creates an objective view of the company. This will discipline you and all employees to heed what is important, regardless of whether the company is doing well or falling on hard times. 

It's tempting for leaders to err on the side of always being upbeat. Striking a balance by becoming a paranoid optimist isn't easy, but by doing so you'll maintain the credibility needed to lead effectively.