Your Best Year Might Be Your Biggest Risk

Recently, over lunch with an ESOP Board member, he said something that stayed with us.

His company was having a good year. Growth up. Stock price climbing. By every measure that shows up in a board presentation, things were good.

But something was bothering him.

"Because we're doing so well," he said, "nobody wants to talk about the things that aren't."

He described a leadership team that had quietly stopped having uncomfortable conversations. A customer relationship showing early cracks that nobody wanted to address. A performance issue everyone could see but nobody would name. An underlying friction in the organization that kept getting pushed to "next year."

The company is winning. Winning today. And that winning was becoming a shield against the reality of tomorrow.

Psychologists call this the Ostrich Effect. It comes from the legend of an ostrich burying its head in the sand when it senses danger—not running, not fighting, just disappearing into the ground and hoping the threat passes. Research confirms humans do the same thing. We seek information that confirms what we want to believe and avoid what challenges it.

In an individual, this is understandable.

In an ESOP leadership team, it is dangerous.

Here's what we see in ESOP companies across the country. Leadership teams that are performing well develop a subtle but powerful resistance to confronting uncomfortable realities. A major customer showing early signs of leaving. Incremental investments that are not delivering incremental margins. A key leader whose performance has plateaued, but nobody wants to address because everything else is going so well.

The company is doing well. Why ruin the mood?

Think about it this way. If your child is capable of earning an A but comes home with a B, do you congratulate them and move on? Or do you acknowledge with confidence in their potential that they left something on the table?

The best ESOP leaders and Boards we know do something harder than celebrating wins or avoiding bad news.

They define reality.

Not the reality they wish existed. Not the reality that makes everyone feel good in the quarterly all-hands meeting. The actual reality of where the company is, where it's falling short of its potential, and what it will take to close that gap.

This requires one question that every ESOP leadership team should ask together, not once a year in a planning session, but regularly, honestly, and without the ostrich instinct taking over:

What is not trending in the right direction?

In the companies we work with, we encourage leaders to ask this question weekly and require it in Board meetings. When we Chair Boards, we use confidential polls of Board members and leadership teams to surface what may be trending in the wrong direction, then review the results over dinner before the meeting.

Here's what the difference looks like in practice. The superficial conversation goes like this: "Our on-time delivery dropped to 87% this quarter. We need to talk to the floor supervisors about urgency." Everyone nods. Action item assigned. Meeting moves on. The number gets discussed but the reality underneath it never does.

The thorny conversation nobody wants to have goes like this: "Our on-time delivery has been declining for three quarters. Our largest customer has mentioned it twice. We don't actually know if it's a capacity problem, a scheduling problem, a people problem, or a leadership problem and we've been too busy celebrating our revenue growth to find out. If we lose this customer, we lose 22% of our revenue. And we have no plan for that."

One conversation manages a metric. The other defines reality and confronts what Jim Collins, the author of "Good to Great," calls "Brutal Facts."

The first feels productive. The second feels uncomfortable. And in a good year, when the stock price is up and employee-owners are happy, the pull toward the first conversation and away from the second is almost irresistible.

That's the Ostrich Effect in a conference room.

When leadership teams ask this question—together with unwavering belief in what the company can achieve and the discipline to confront today's reality honestly—something remarkable happens. They don't become pessimistic. They become resilient. They build the kind of organizational strength that doesn't just survive the next crisis but emerges from it stronger.

The Ostrich Effect feels safe. It feels positive. It feels like protecting the culture.

But in an ESOP, where every employee-owner's financial future depends on the company's ability to see clearly and act decisively, burying your head in the sand isn't positivity.

It's a leadership failure dressed up as one.

Does your leadership team define reality or avoid it?