At age 5 Charles Jacobs fretted that the world existed only in his mind. As a teenager he fell hard for Freud. That lifelong fascination with the brain has informed his work with the world's largest corporations: first at Amherst Consulting Group, which he founded in 1982 and sold in 1999, and recently with One Eighty Partners. His book "Management Rewired: How Brain Science Is Revolutionizing Business" (Portfolio) comes out this month. Editor-at-Large Leigh Buchanan sat down with Jacobs in his Boston office to discuss why gray matter matters. Here is their extended interview.

Inc.: Why teach business leaders about brain science? Isn't psychology more practical?

Jacobs: The business executives I've worked with are all about execution, facts, metrics. Trot out a psychological theory and they don't want to hear about it. But if you can show them scientific data they accept it. If you say people respond to reward or work cooperatively because of what happens in the brain they see a logical reason to change how they do things.

Neuroscience expands what we know about how the mind works. It also convinces business people there's a logical reason to adapt how they do things to how the mind really works.

Inc.: Do business people put too much stock in logic?

Jacobs: Objective decision-making is a myth. We now know that when the prefrontal cortex -- the area of the brain responsible for logical thinking--is activated it is also receiving input from the amyglada, which is responsible for emotion. If you don't have input from your feelings--because of a lesion in that area, for example--you can't think long-term. You don't learn from past experience; you don't have the ability to empathize. The more complex the problem, the more of the brain should come into play. You want to trust your emotions.

Inc. The book is called "Management Rewired." Does that mean changing minds involves physically changing brains?

Jacobs: Yes. The brain is very flexible. We have 100 billion neurons that connect to each other in 40 quadrillion ways. There are gaps between neurons called synapses, and thinking about something causes synapses between specific neurons to fire, creating a pattern or network. If I say to you, 'Picture a seal balancing a ball on its nose,' you've just built a neural network. If you think about that seal over and over the network is ingrained deeper and deeper. The structure is changed. The threshold for firing at those synapses is lowered.

Inc.: So there really is power in positive thinking.

Jacobs: "The Power of Positive Thinking." "Think and Grow Rich." "How to Win Friends and Influence People." There's some hucksterism, but these books are saying that through discipline you can train yourself to do this. The same way you do a physical exercise to develop different parts of your body, you do a mental exercise to develop parts of your mind. Kids with ADHD can be taught to focus more effectively through meditation than through drugs. We are not victims of the neural networks we've inherited. A pessimistic person can train himself to be more optimistic.

Inc.: Optimism is a defining trait of entrepreneurs. If I looked at an MRI from an entrepreneur and a corporate executive could I tell the difference?

Jacobs: You may find enhanced firing in areas that indicated a positive mood as opposed to a negative mood. There's a famous test where you show people a picture of a woman crying. That creates a lot of activity in the amygdala. Explain that she's crying because it's her wedding day and she's happy, and suddenly the firing in the amygdala drops off. Perhaps with entrepreneurs you'd see less activity in the amygdala.

Inc.: In the book, you say the nucleus accumbens, which is responsible for pleasure, matures before the orbital frontal cortex, which handles long-term planning. Corporate executives are often willing to do anything to meet quarterly targets and reap their bonuses. Entrepreneurs are all about sacrifice and delayed gratification. Does that mean entrepreneurs' orbital frontal cortexes are more mature than those of corporate types?

Jacobs: Possibly. But it's also possible that entrepreneurs' nucleus accumbens are very active because they're so engaged in what they are doing. They get a big rush of reward from the work itself.

Inc.: Would that influence the kind of decisions each makes?

Jacobs: Let's say you are totally consumed by what you do and identify yourself with it. 'I am a consultant' or 'I own a flower shop.' You begin to tell yourself a story. 'This is who I am. This is my life.' You've built this big neural network that's going to drive decisions supportive of that. If instead you think logically -- this is just a job -- there's no context to drive decision-making. So you may make decisions that go against what you really believe.

Inc.: What does brain science tell us about being a good leader?

Jacobs: Recently we've learned a lot about mirror neurons. If I observe you doing an action, the premotor cortex neurons in my brain that are responsible for that action will fire. So do neurons in the area of my brain that indicates intent. I'm not only mirroring your action in my brain; I'm also mirroring the reason for your action in my brain. So the best thing a leader can do is set an example. Entrepreneurs are really jazzed by what they do. All they have to do is be who they are, and mirror neurons will cause people to pick up on that.

Inc: As companies grow it becomes harder for employees to mirror the leader, correct?

Jacobs: Chimpanzees seem to live in bands of 40 or so. There are anthropologists who believe that early human beings operated in bands of about 150. Up to about 150 people, strength of character drives your business. After that, things start to get uncomfortable for the older part of the brain. You have to start building systems. But rather than build systems to control, you should build systems that mirror what you're trying to accomplish, what jazzes you. As an entrepreneur how much can you make people feel entrepreneurial? How much can you pay them on profit as opposed to straight salary?

Inc. You also say leaders should tell stories. We've heard that before, of course. Is there more to it than stories being simple to understand and retain?

Jacobs: Cognitive scientists believe that the brain works through stories. Consciousness is us telling ourselves a story about our lives. Stories are so powerful because we feel as well as think them. They bring far more of the brain into play. And because we make sense of the world through stories, when we encounter one we naturally identify with it. Stories are also powerful because they pivot on dissonance. They're about dealing with something that doesn't work. When you encounter dissonance you have to change your thinking: rewire the networks. Experiencing that process through a story, the story changes your thinking for you.

Inc.: Are our current troubles causing mass brains re-rewiring?

Jacobs: Let's talk about what horrific times do to the brain. First, they pump up the amygdala, which shoots hormones into the system to prepare us for flight or fight. We're scared. We hunker down. But times like these also literally stop the automatic processing of the brain. Dissonance becomes so overwhelming there is no way to reduce it. And because we can't reduce it, it creates activity in the prefrontal cortex, the area in the right brain responsible for the processing of wholes. All of a sudden we stand back and see the big picture differently. And we say: we really need to change. When people are scared they are much more willing to do anything, so you can drive changes in organizations you couldn't before. For those who can get past what the amygdala is doing, there are huge opportunities.

I've been working with a large financial services organization that's been in the news a lot lately. I never saw a more paranoid group of people in my life. They don't know what they are going to do. The world is over. I gave a speech: why don't we see where the opportunities are? Everybody is so depressed in your business. The ones who aren't depressed are going to take market share away from you. Isn't that what entrepreneurs do so well?

Published on: May 1, 2009