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The fourth principle in readying for your risk is that you need pressure to nudge yourself from your current situation—your risk platform. Consider again the high dive. The moment preceding the jump is full of tension. The diver is well aware of being watched. The expectant eyes of the audience create pressure—pressure to leap, pressure to perform, pressure not to let the audience down. This is a pressure she’s felt before. She’s been dealing with it since she was a kid doing belly flops at the local pool. Other folks have pressured her too, like her parents, coach, and friends. But most of all, she’s felt pressure from herself. She constantly goads herself to dive higher and perform better.

Our lives have many points of risk pressure that act on us by forming an acute dissatisfaction with our current circumstances. Often our dissatisfaction intensifies until it grabs us by the throat and screams, “Take the risk and jump, you fool!” We reach this leaping point when the risk of changing outweighs the risk of staying the same. For example, when faced with a career transition, the risk decision often boils down to a choice between a known unhappiness and an unknown possibility of happiness. We become increasingly dissatisfied with our current job until it becomes nearly impossible to get out of bed and face another day at the office. We may call in sick to avoid the risk decision; but the decision won’t let us go. The more we allow ourselves to live in a state of dissatisfaction, the more we feel as if we are living a lie, and the pressure builds. Although many of us have a tremendous capacity for tolerating misery, eventually we will reach our high-dive moment and decide the risk of changing outweighs the risk of staying in a suffocating situation.

The trick in applying risk pressure is to apply enough to help you progress toward your risk, but not so much that it causes you to choke. To turn on your risk pressure means to become increasingly dissatisfied with your current circumstances by creating what I call purposeful anxiety. We all know that too much anxiety is unhealthy. But anxiety in lower degrees, and directed toward a purposeful aim, can be evidence of conscientiousness. Purposeful anxiety keeps us alert to the potential dangers and opportunities that the risk may hold. In balanced amounts, it also keeps inertia at bay.

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Personal Performance Pressure

Perhaps the strongest risk pressure comes from the demands we place on ourselves. Like the other types of pressure covered in this chapter, it has a good and bad side. At the negative extreme, the pressure we put on ourselves can be debilitating. We tell ourselves, “Good is not good enough. Good is never good enough.” For example, I once counseled a senior executive who was in a constant state of agitation. The executive was a tremendously gifted professional who had risen through the ranks because of her fine-tuned ability to solve problems and produce stellar business results. By every measure, she was a success. Her sharp business acumen had been handsomely rewarded; her annual salary was well over a million dollars, but that was part of the problem. She drove herself to the point of exhaustion trying to justify her income. The pressure she put on herself was a form of guilt assuagement. If I can just work hard enough, she’d think, I’ll deserve this much money.

In instances like these, the hell-bent pressure to perform teeters dangerously close to self-hatred, where one constantly berates oneself for not being good enough. The poison in this kind of thinking is that your motivation for taking a given risk operates out of a desire to “fix yourself.” This results in a perverse form of perfectionism that leaves you perpetually dissatisfied because good enough is illusory; once you get to good enough, you realize that it is not enough . . . and you cycle through this grass-is-greener treadmill all over again. Even those risks that are successful leave you perpetually unsatisfied.

But personal performance pressure can be a very effective means of nudging you off your risk platform. For example, one driver of performance pressure is having something to prove. How we apply this pressure is different, depending on whether we are proving something to ourselves or to others. When we are out to prove something to ourselves, we think, I can do this. But when we are out to prove it to someone else, we think, I’ll show them I can do this. This latter pressure is what you might call a positive form of negative motivation. In essence, you are taking the risk because you resent your detractors telling you that you can’t. The fact is, sometimes our detractors prompt our most audacious risk behavior. In these situations the most useful type of internal motivation is often good old-fashioned spite.

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It was spite, for example, that helped Jake Burton Carpenter invent the sport of snowboarding. In 1977 Carpenter quit his job at a Park Avenue investment firm, moved to Vermont, and began making snowboards in his garage. As with many such risks, he met with early failure, finding himself over $100,000 in debt. Things were so desperate, he even had to move back to New York to tend bar and teach tennis lessons. To the bewilderment of his friends, however, he also persisted with his snowboarding fantasies. Carpenter explains, “Out of spite I kept at it. I had to show my friends that they were wrong.” And indeed they were. Now Burton Snowboards is a premier supplier to one of America’s fastest growing sports, and Jake Burton Carpenter is considered snowboarding’s patron saint.¹ As Carpenter demonstrates, the secret knowledge that we are capable of far more than we are given credit for can fuel our ambition and help us take leaps of faith. Thus one of the best things you can do when readying for your risk is to pinpoint what you are out to prove and to whom you have to prove it.

Intriguingly, sometimes our detractors are purposely saying “you can’t” in order to inspire us to say “yes I can!” For example, Ed Catmull, the cofounder and President of Pixar Animation, notes that getting people to prove something is an essential part of the innovation process. Catmull says, “. . . there have been many times when people who work for me have told me that a project was possible, and I’d look at them and say ‘I don’t think so.’ And they’d come back at me with this fervor to explain why they thought I was wrong and why they should go ahead with it. That’s precisely when you want to let them go ahead. The very act of doubting them, and then letting them proceed, motivates them to go ahead and prove that they’re right.”²

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Peer Pressure

When it comes to risk, few pressures are as powerful and persuasive as peer pressure. At the root of peer pressure is acceptance. We do something risky because we don’t want to be seen as uncool—we want people to like us. Giving in to peer pressure is a form of conformity: We want to be included, on the inside, part of the group. Hence many of the risks we take are as a result of the goading taunts of our peers. The first time most fraternity pledges get drunk, for example, their friends are beside them chanting “chug, chug, chug.” And while former President Bill Clinton may not have inhaled, a lot of other people did and peer pressure usually had something to do with it. You know the scene: Neil Young’s Heart of Gold warbling in the background, a group of friends sitting in a circle, the glow of a black light, that pretty girl you’ve been trying to muster the courage to ask on a date, and suddenly someone passes you a hand-rolled cigarette muttering something that sounds like “eer.” Suddenly you feel the daring eyes of everyone in the room—will he or won’t he. This is a high-dive moment!

Like personal performance pressure, peer pressure has many redeeming qualities. It is the pressure of our peers, after all, that gives us the support to try things we otherwise wouldn’t have. As fellow high divers, my teammates and I were always cheering each other on to greater heights. We’d stand on the pool deck and cajole, wheedle, and dare each other to try increasingly difficult tricks. I remember, for example, being in Germany and learning a trick called a double half—two somersaults with a half twist. Performing it from a mini-trampoline set atop a 10-meter platform made the trick all the more difficult. Fortunately, prodding me from the pool deck was Steve Schriver. Steve and I had been through a lot together. We had even driven across America in my oft-breaking Fiat Spyder . . . with no radio. As team- mates, but also as rivals, Steve and I were always egging each other on. We enjoyed competing against each other because it furthered both of our talents. I trusted Steve. He knew how to play, but he also knew how to focus. So when I decided to learn this new trick, I asked Steve to coach me through it. After a considerable amount of positive, but persistent, pressure from Steve, I was able to do the dive. In that moment, Steve did what I couldn’t do for myself: hold me accountable to my potential. The effectiveness of the positive form of peer pressure is one reason why you should enlist a few key peers to keep the pressure on you when readying for the risk.

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Pressure of Potential Outcomes

Our attitude toward risk is in large measure a function of how we envision the potential outcome, whether we see the risk as an opportunity for gain or a threat of loss. It was the promise of a huge payoff, for example, that caused so many people to risk their careers by abandoning the familiar terrain of the traditional business world to become Buckaroo Banzais of the dot-com “space.” In the worst examples our desire for gain is driven by greed, causing us to take risks in the hopes of becoming more powerful, famous, attractive, and/or wealthy. Charmed by the attraction of gain, people have maxed out credit cards in Vegas, married wealthy but loveless partners, bought huge volumes of stocks on margin, and “cooked the books” at large corporations like Enron and Worldcom.

In the same way the potential gain can pressure us to seek out risk, the potential outcome of loss can pressure us to avert it. Loss looms larger than gain because most of us know from experience that loss is more permanent and more upsetting. Loss prompts painful recollections of past failures, such as career setbacks, financial hardship, and failed relationships—all things we don’t care to repeat. For this reason, the threat of loss causes us to clutch, to grab hold of, to keep what’s ours. With the stubborn consternation of a 3-year-old, we will hold on to what we’ve got and say “mine!” For example, a friend was once dating a woman for whom he had lukewarm feelings. After tiring of his indifference, she decided to break up. It was only when faced with the real possibility of losing the woman that my friend suddenly “realized” how much he loved her and started desperately trying to get her back. I am convinced that it wasn’t so much that he really loved her; he just hated losing her.

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While the pressure associated with the potential outcome of loss most often causes risk aversion, it can also pressure us to take risks. Part of the pressure stems from the feeling that if you don’t act fast, you’ll miss out. Marketers play into the fear of loss when they threaten consumers with limited-time offers. “Today only!” and “If you act right now, we’ll throw in the . . . “ are old marketing taglines designed to get you to think, Uh oh, if I don’t act fast I’ll lose!

As illustrated by this story from my college days, our perception of gain or loss, and thus our attitude about the risk, can change instantly. In 1983 I performed in a television commercial for McDonald’s. The advertisement, which was pitching their 100% grade A eggs, featured me performing a back one and a half somersault with two and a half twists— which I performed twice in the course of the 30-second spot. The ad ran regionally along the East Coast and was being considered as one of their official Olympic spots for the upcoming L.A. games. It was an exciting time for me; I was on the verge of making a name for myself and getting my 15 minutes of fame.

Like gymnastics and figure skating, diving is a sport where the winner is determined by an accumulation of awarded points. The sport has a sort of upward mobility— the more complex and difficult the dive, the greater the total number of possible points. Most often the diver who performs the repertoire of dives with the highest cumulative degree of difficulty—along with consistency and grace— wins. But at the elite levels, it takes more than difficult dives to prevail, it takes an extra edge. Though numerical scoring helps bring objectivity to the sport, the points the diver receives are awarded through subjective means: human judges. The “edge” the diver searches for often plays to this subjectivity. Before a contest, some divers work the pool deck like politicians, glad-handing the judges in the hopes of winning over their affections. Divers know that it is harder to give a low score to someone you know and like. The diver who has a “name” has a slight subjective edge. In a sport where a contest can be decided by less than a tenth of a point, name matters.

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Much to my dismay, just prior to the commercial’s national debut, a sports writer from West Virginia University (where I was a student) made a disturbing discovery—by performing in the ad, I had violated an NCAA rule prohibiting amateur athletes from making product endorsements. Though I received no money for making the ad, because I used my talents to promote McDonald’s products, it was viewed as a product endorsement. In my zeal to make a name for myself, I had neglected to check into the NCAA rules before signing the contract to do the commercial. The NCAA was now threatening to ban me from competing in intercollegiate athletics altogether. Instead of making a name for myself, I now faced a real possibility of losing my full athletic scholarship, not to mention letting down my parents, team, and myself. I have always been grateful to the McDonald’s Corporation for agreeing to pull the ad. I am sure that they lost thousands of dollars in the process.

Aside from sophomoric hubris, this story illustrates how it is possible to ricochet back and forth between the pressure of gain and loss in the same episode. When the sports writer notified me of the rule violation, my attitude shifted instantaneously from hope for gain to fear of loss. My perception, of course, was based on what I expected to happen. Before becoming aware of the NCAA rule violation, I expected that the commercial would bring me a small degree of fame and thus help me win more competitions (gain). After finding out about the violation, I expected that my scholarship would be taken away and that I’d be forced to drop out of school for lack of money (loss). Neither condition was assured, however. It was also possible for the opposite to occur. Pairing me with scrambled eggs, the commercial could very well have made me the laughingstock of the diving world (“Hey, there goes Bill McEgghead!”). At the same time, if the NCAA did take my scholarship away, perhaps McDonald’s would have kept the ad and offered me advertising residuals to offset my loss. The point is, the pressure of potential outcomes is driven by our perception about what the future may hold. This pressure strikes us most forcefully in our imagination, in what we envision the risk will give us or take away from us.

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While I think that both gain and loss can be effective risk pressure systems, there is a danger in framing each in purely material or economic terms. When we do, the predominant principle governing our behavior is greed, which, as demonstrated by the corporate implosions of the early 2000s, makes for notoriously bad decisions. Instead of narrowly framing your risk as “What will it get me,” I find it more useful to frame it as “Where will it take me.” In other words, not “How will my bank account grow,” but ‘“How will I grow.” When you broaden your definition of gain or loss to include qualitative references—like furthering the development of your character—your risk takes on a higher order purpose, and your decision-making becomes more composed than it is when governed solely by greed.

Organizational Pressure

Pressure to take or avoid risks in organizational settings often starts outside of the company. With public companies, for example, shareholders exert incessant pressure for ever-greater profits. Sometimes this pressure can embolden a company to move into new businesses or markets, create new product lines, or develop new technologies. For example, the pressure exerted from bedazzled shareholders caused many steadfast “brick and mortar” companies to create and pursue strategies for moving into the embryonic dot-com space. Other times, however, shareholders can cause companies to be risk averse. For example, shareholder pressure to drive down costs can inhibit a company’s ability to invest in opportunities that, though risky, have a significant upside potential. In these instances, funding decisions dictate which strategic initiatives will be pursued, and which won’t. Often initiatives that are viewed as most risky—but with the most upside potential—are scrapped first.

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Organizations themselves provide pressure that fosters or inhibits risk-taking behavior. Performance management and appraisal systems are two examples. As the saying goes, you get what you measure. If employees are held accountable to high sales quotas, they will feel a pressure to produce sales. If managers are held accountable for low employee turnover, they’ll feel pressure to retain their people. If the annual review process involves assessing and rewarding employees based on their number of innovative product ideas, they’ll feel pressure to be creative. But organizational pressure points can also lead to dysfunctional workforce behavior. As a consultant, I once worked for a utility company whose market had become increasingly deregulated. Its employees, who had grown up with the stability of government regulation, were uncomfortable in dealing with a far less predictable environment. While the company was battling with a sharp increase in unregulated competition, its employees had grown apathetic and were unresponsive to executive pleas for urgency.

After struggling with how to transform the workforce from order-takers to risk-takers, senior management decided to leak word of an “at risk list”—a list of all the employees who were in danger of losing their jobs. Though no employee ever actually saw the list, the message was clear: ratchet up production or get out. Though this type of “hold-a-gun-to-their-heads” strategy worked in the short run, over the long haul it resulted in a great deal of cynicism. Fear-based pressure tactics to increase risk-taking behavior among employees are unsustainable and nearly always end in bitterness and resentment. Nevertheless, in the short run, sometimes the only way to prod people off their risk platform is to make it riskier for them not to jump.³

Risk’s Perfect Storm

As mentioned earlier, the trick is to apply pressure in a measured way. Too much pressure, like too much ambition, can cause a person to crack. There is a point at which the anxiety that pressure creates isn’t purposeful at all. There is a point at which anxiety turns into plain old desperation, and the more desperate our situation becomes, the wilder our behavior gets. Consider the true story of how a lone risk-taker helped bring down a 232-year-old British banking institution, momentarily threatening the entire British banking system. The story is so astonishing that it was later made into a feature film staring a famous Star Wars movie star (I’ll divulge who at the story’s end). It is a cautionary tale of what can happen when intense risk pressures—brought on by ourselves, our peers, our perception of loss and gain, and our organizations—converge together. It is the story of risk’s perfect storm.

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Established in 1763, Barings Bank was Britain’s first merchant bank. Within 20 years of the bank’s inception, its founder, Francis Baring, became so powerful that he was elected to the British parliament and made a baronet. Before long, Barings Bank was conducting financial transactions throughout the world and had earned the notable distinction of being the bank of the royal family. Former Princess Diana was herself a great-granddaughter of a Baring. Over the course of its rich and varied history, Barings helped finance the Napoleonic wars and America’s Louisiana Purchase.

Enter Nick Leeson.

Barings hired Nick Leeson as a back office clerk in 1989. Early in his career he was sent to Jakarta to clean up the operations of the bank’s Indonesian back office. Leeson proved to be a deft manager, and based on this early success was sent to improve the similar operations of other fledgling Far East and European outposts. Then in 1992 Leeson was asked to manage Barings’ Singapore operations. But because of staffing shortages, he was put in charge of both futures trading and back-office record keeping. This was a highly unusual move and one fraught with inherent conflicts of interest, the danger being that if trading losses were incurred, there would be a tremendous temptation to manipulate the back-office accounting records. This excessive concentration of powers was not lost on Leeson, who in his aptly titled autobiography, Rogue Trader: How I Brought Down Barings Bank and Shook the Financial World, commented, “I was in a bizarre situation . . . I could see the whole picture, and it was so easy. I was probably the only person in the world to be able to operate on both sides of the balance sheet.”⁴

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To Barings’ great misfortune, Leeson could not resist the temptation.

At first, Leeson’s story is a tale of wanton greed, both his and Barings. He talks lustfully about how when he first stepped onto the trading floor he could “smell and see the money.” Later he says, “We were all driven by profits, profits, and more profits . . . I was the rising star.” But as the story progresses, the pressure driving Leeson the most became the threat of loss. An early mistake would snowball into one of the greatest acts of corporate malfeasance of all time.

It all started when one of Leeson’s new trading recruits made an honest but expensive error. Futures trading involves an open outcry communication method whereby a trader from one company yells his offer to buy or sell to a trader from another company, who yells back whether they accept or reject the offer. To aid in communicating, traders often use coded hand signals, similar to the messages sent back and forth between the pitcher and the catcher in baseball. It is an error-prone process, and amidst the trading floor chaos, Leeson’s new recruit mistakenly sold 20 futures contracts when her client had signaled her to buy. This mistake, which was discovered at the end of the trading day, amounted to £20,000. Knowing that the recruit would likely be fired if her mistake was discovered by Leeson’s superiors, and being frustrated with Barings because “the mean tight-fisted bastards” wouldn’t let him hire someone more experienced, Leeson decided to bury the mistake in a dormant back-office error account that had been set up some time earlier. Her mistake had now become his problem . . . and crime.

Loss has a strange effect on people, often causing two extremely different reactions. The once bitten effect is what happens when you become overly cautious in the present because of recollections of painful losses in the past. The double or nothing effect occurs when in an effort to recoup losses you take on even greater risk. Such was the case with Leeson. Within three days, the initial losses had tripled to £60,000. He recounts, “I was determined to win back the losses. . . . I traded harder and harder, risking more and more.” Later he states, “I had to take unprotected risks to try to win back the lost money. And although I was winning sometimes, more often I was losing.”

Unfortunately, Leeson was betting on an unstable Asian market, and the market only got worse. With his losses swelling, he knew that getting caught would mean more than the loss of the new recruit’s job, it would mean the loss of his as well. Thus in an effort to win the lost money back, Leeson began taking on even greater risk, and continued hiding the losses in the error account. By the end of 1993, though Leeson’s accounting showed that he had made £10 million (accounting for a full 10% of all of Barings’ profits), in reality he was hiding losses totaling £23 million! Based on the false profits Leeson was reporting, the unsuspecting Barings awarded Leeson a bonus of £135,000. Convinced they had a real whiz-kid on their hands, and wanting to keep the profits rolling, Barings provided Leeson with a company financed apartment and sponsored his membership to Singapore’s exclusive Cricket Club.

Meanwhile, Leeson’s reputation as the kid with a golden touch grew. To his peers, Leeson was becoming a powerbroker, someone to be reckoned with. Leeson notes, “To the outsider, I looked like Nick Leeson, the trading superstar who moved the Nikkei this way and that, the gambler with the biggest balls in town.” But the truth was far less glamorous: again in his own words, “I was drowning like an insect stuck in resin, clawing hopelessly but unable to pull myself out.”

As a result of Leeson’s criminal charade, Barings’ confidence in Leeson increased, and they entrusted him with more and more money throughout 1994. But unbeknownst to anyone but Leeson, his error account was nearly hemorrhaging. Driven by a downturn in the Asian markets and exacerbated by the economic impact of an earthquake in Kobe, Japan, Leeson’s hidden losses swelled to a staggering £208 million. To continue his frenetic gambles, Leeson requested—and received—more and more capital from the home office. To convince the home office that the large amounts of capital it was sending were not at risk, Leeson forged records to show that big payments were due from prominent clients.

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Finally, as a result of an internal audit, Barings became suspicious, so much so that a few senior executives decided to fly to Singapore to question Leeson about his large capital outlays. But on February 23, 1995, before Barings could meet with Leeson, he quietly slipped out of the office, leaving a handwritten note that said, “I’m sorry.” He would be caught a few days later while trying to sneak back to England. When Barings finally tallied Leeson’s wreckage, it was too late to save the bank. He had racked up losses in excess of £660 million—or the equivalent of over $1.4 billion U.S. dollars! With its debt far exceeding its liquidity, and with the British banking system under a real threat of collapse, the Dutch financing group ING agreed to purchase the 232-year-old institution for the paltry sum of £1.⁵

And as for Leeson? After serving 312 years of a 612 year sentence in a Singaporean jail for fraud and forgery, his sentence was commuted for good behavior. But don’t envy Mr. Leeson. He has had his share of misfortune. His wife divorced him during his incarceration. To make matters worse, he was diagnosed with colon cancer. And though Lee-son has become a sought-after professional speaker, fetching up to $100,000 per speech, the British government garnishes 70% of his compensation as restitution for his past crimes.

But all is not lost for Mr. Leeson. He has benefited from people’s morbid fascination with ex–white-collar criminals. After having his exploits immortalized in the film Rogue Trader, Leeson has even become a bit of a cult icon among the British. Which movie star played the ignoble Rogue Trader? The same actor who played the noble Obi-Wan Kenobi in the Star Wars prequels: Ewan McGregor.

Was Nick Leeson a Right Risk taker? Not even close. In fact, he is Right Risk’s antithetical opposite: a Wrong Risk-taker. The risks Leeson took weren’t based on any overriding purpose and they weren’t grounded on any noble principles. Rather, the risks Leeson took were based on greed and fear. He risked other people’s money because he didn’t want to lose the lavish lifestyle to which he had grown accustomed.

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To turn on your risk pressure means to create purposeful anxiety so as to help nudge yourself off your risk platform. The pressure points just discussed can be used to pressure you into taking the risks that will help close the gap between where you are and where you want to be. But beware. Use only as much pressure as you need to take your risk, lest, like Nick Leeson, you buckle under the pressure!

Putting Principle 4 Into Practice

• When thinking about past risks, what types of pressure have been particularly effective at getting you to take the risk? What types of pressure have been ineffective?
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• Personal Performance Pressure: Be clear about what you are trying to prove in taking your big risk, and to whom you are trying to prove it. Write down what standards of excellence you expect of yourself as you pursue your big risk.
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• Peer Pressure: Create a list of friends or relatives who would hold you accountable to taking this risk. Of those listed, reach out to the person who would hold you most accountable.
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• Pressure of Potential Outcomes: What outcomes are you hoping to derive from taking this risk? What do you stand to gain? Lose? How will taking this risk help you grow and develop as a person?
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• Organizational Pressure: Pressure yourself into taking the risk by identifying those measures that will let you know when you’ve accomplished your risk-taking objectives. Also, give yourself a deadline for getting off your risk platform. Lastly, create a way to appraise yourself relative to your risk-taking efforts.
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