Why wisdom isn't knowledge and why leaders should take heed.




12/12/2017 | Charles V. Firlotte

When I first began my corporate career and was managing a blue-collar workforce, one of the senior engineers told me the best treatment plant operators were those who could “see around corners.” They had what I eventually came to recognize as wisdom. While all the operators in that plant were knowledgeable and well-trained, the “corner seers” used their knowledge and experience to anticipate possible problems, predict probable outcomes, link actions and consequences, and suggest appropriate courses of action.

Aristotle characterized wisdom as the ability to think and act with understanding, insight, and common sense, tempered by knowledge and experience. His definition of wisdom was but one proffered by the ancients (Aristotle himself distinguished between practical wisdom and theoretical wisdom), but what the various definitions share is the conviction that knowledge is not enough. Knowledge merely has the capacity to inform, while wisdom guides us. Suffice to state that in today’s world, where knowledge is all too easily gained, wisdom takes on even greater value.

The wisdom advantage

My own understanding and appreciation of the difference between knowledge and wisdom has had a significant impact in how I have hired, managed, and behaved. I have come to recognize that wisdom is a powerful differentiator that sets apart the truly effective from the merely competent, let alone the also-rans. In fact, some of my greatest growth as a leader, and dare I say, any accumulated wisdom, has come not merely from the knowledge gained from my various successes and failures but also from rational awareness and reflection.

A few years ago our company had an opportunity to make an acquisition that would have been a game changer for us, and I wanted it badly. The problem was the company to be acquired had a weak management bench and my own senior team was in a state of transition. I made the painful decision to pass on the opportunity, because I knew we would have been unable to apply the resources and talent that would have been essential to making a success of that acquisition. I believed then and still now that my decision was a wise one that spared me, my senior team, and in fact, the entire company untold grief.

A high price

Sometimes wisdom comes at a higher cost; and after the fact. In 2009, against the advice of my board chairman, I agreed to serve on the board of a Chinese company. This manufacturer had just been listed on the New York Stock Exchange, and based on the performance of its stock it was touted as the most successful IPO of the year.

I failed the wisdom test on this one. I ignored the advice of my board chairman, a man who had vast corporate knowledge and also wise, and I ignored the information at my disposal. There was plenty of Wall Street chatter about the riskiness of Chinese companies listed on the U.S. stock exchanges, the difficulty of bridging the cultural divide between American investors and the Chinese executives, and the struggle the Chinese corporations were having with Sarbanes-Oxley, mandated by Congress post-Enron in 2002 to improve financial disclosures. I had been sought after by an executive search firm to join this board, and was charmed by the company founder and board chairman from Beijing. China was opening up to the world and I was going to be part of it. My enthusiasm and excitement – and yes, my ego – got the better of me.

Within a year I along with four other western directors had resigned from the board of that company, and the situation soon imploded. Shareholder lawsuits ensued, and while claims against the directors, including those against me, were dismissed by the court, it was a painful experience. Nevertheless, wisdom gleaned from this journey has since served me well. I am a better board director today as a result, more adept at balancing risk and good governance with management’s ambition and desire for growth.

Corporate America’s failings

I take no comfort in knowing I am not alone in having acted without wisdom. Stakeholders are entitled to the reasonable expectation that corporate leaders will make sound choices in the pursuit of sustained growth and profitability over the long term. And yet time and again, we have been witness to decisions devoid of wisdom that lead to catastrophic failures.

It was well within the wit of humanity to have avoided the financial crisis of 2008 and for the big banks to have remained solvent without handouts from the public purse. But the financial powerhouses had made appalling decisions, such as approving large loans for individuals with paltry credit scores and little if any documentation, and developing products whose long-term risks outweighed the short-term benefits.

Another prime example of a corporate detour from wisdom occurred at Wells Fargo. In October 2016, then-CEO John Stumpf made an ignominious retreat from the financial institution as a result of the scandal stemming from some 2 million credit cards and deposit accounts having been opened without permission or legitimacy.

Appearing before Congress, Stumpf suggested that the scandal was not as grave as was being portrayed. It turned out to be worse. Wells Fargo management had an awareness of substantive issues with the bank’s sales as far back as 2012 and was even aware of specific cases as early as 2002, but an investigation was not initiated until 2015. Knowledge was present. Wisdom was not.

Smart people, foolish decisions

Why do individuals with an abundance of intelligence, education, and knowledge make such poor decisions? Some attribute it to a peculiar combination of hubris, greed, or impatience. I cannot speak for the failures at other organizations, but I do know when I have failed to act with wisdom, the poor results could have been prevented by deep questioning around my intended action. Rather than ask questions of others, the wise always question themselves, talking less and listening more.

Corporate boards and other governing bodies have a responsibility to see that decisions are made with rational thought and an awareness of potential outcomes. Each of us, whether a leader, a manager, or team member, should approach learning with awareness, with the goal of subjecting that acquired knowledge to the standards that Aristotle put forth for the attainment of wisdom: thinking and acting with understanding, insight, and common sense, along with knowledge and experience.

The ancients knew that knowledge alone was insufficient. We would be wise to take note.