Building a business or running an established company is hard enough without making stuff up, so why do leaders sometimes believe in all sorts of things that are not true — even when it could hurt them?

Yet, make-believe facts are a feature of the business and political landscapes in far too many situations.

Why do seemingly smart and capable people act as if make-believe facts were actually true?

This past week at an extraordinary meeting of shareholders, for example, Bank of America chief executive officer Brian Moynihan’s quest to add the chairman title to his chief executive officer role culminated with a bruising battle with pension funds and other institutional investors who opposed the move.

But here’s the intriguing part: companies with CEOs who also hold the board chair position do not produce better or worse results than companies that separate the two positions.

Why bring on an army of protest to adopt a governance change that doesn’t even make a difference? This is just one of many examples in which a leader stirs up a hornets nest without the facts to back his or her actions. 

Journey to the land of make-believe

Why do seemingly smart and capable people act as if make-believe facts were actually true? It’s for the same reason that US Republican presidential candidates almost uniformly advocate for lower marginal tax rates to boost economic growth, despite evidence from the past presidencies of Ronald Reagan, Bill Clinton, and George W Bush that this policy only increases income inequality, not growth.

It's also for the same reason that politicians such as Francois Hollande in France, Jeremy Corbyn in the UK and Bernie Sanders in the US advocate for a much more activist government role in society despite the evidence of huge breakdowns in government-run services in these countries, such as public schools in France, the National Health Service in the UK and the conduct of war in the US.

The answer is ideology. Ideology is a strong, unblinking and fundamentalist view of what is right and what is wrong, undisturbed by both empirical evidence and carefully constructed contrary logic. In government, as in business, ideology precludes adaptation and agility. And so we surround ourselves with make-believe facts.

These non-facts can strike at the heart of what a firm does. Most international law firms deliver legal services to clients by relying on highly-educated but inexperienced law school graduates, leveraging the difference between the fees they receive and the compensation they pay out to generate huge profits for partners. Now that the value of such “service” to clients is being challenged, all but the very top-tier of law firms around the world are struggling, yet they stubbornly stick to the same business model. Reality has changed, but the facts these losing law firms choose to believe in — an outmoded business model — remain firmly entrenched.

Big Data holds the promise of taking on those make-believe facts.

We all convince ourselves that fantasies are reality from time to time, of course. Unfortunately, in competitive market places, there are huge incentives for entrepreneurs to directly challenge the make-believe world you created.

This was true for many of those companies that lived in an analogue world a decade or two ago, when digital was transforming multiple technologies (eg, Kodak in cameras, Motorola in mobile phones). And it is true now for many companies that invested billions of dollars in infrastructure and overhead while internet-enabled start-ups create seamless delivery of services (eg, the global taxicab industry; traditional cable companies).

Back to reality

All is not lost. We can call out make-believe facts for what they are. Even corporate board members can speak out — last I looked, that was a big part of their job description. Leaders need to support, not destroy, those people who have the courage to stand up and speak out.

You should ask yourself why you do things the way you do. Perhaps there was a good reason to do so years ago, but why has it remained so despite all that has changed around you? While I have my qualms about Big Data when it comes to promoting innovation and creativity, there’s no denying the power of the revolution taking place in human resource management and sales force management, in fact throughout modern enterprise. Big Data holds the promise of taking on and undermining those make-believe facts that depend on purity of ideological thought.

And remember that storytelling and emotional appeals — the heart and soul of ideologues that can’t rely on logic to convince others — can also be used to take on make-believe facts. Communicating a different point of view is not just a matter of stating your position, and don’t disregard the power of story-telling to convey your message.

I’m under no illusion that the favourite fantasies of leaders will just melt away when confronted by logic, open-mindedness and data — even when communicated in a compelling manner. But that’s all we’ve got.

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