How To Know When Your Confidence Has Stopped Being Useful
The Rex Airlines ruling shows what happens when leaders remain optimistic for too long
“Argue as if you’re right, listen as if you’re wrong, and be willing to change your mind.”
During a recent stay on Phillip Island, as I stepped into its heavenly infrared sauna, I noticed a sign beside it: "Forget all the reasons why it won't work and believe the one reason why it will."
It was designed to be inspirational. Don’t listen to limiting beliefs. I’ve written before about the value of optimistically backing yourself. It aligns with my natural tendency. In an Edward de Bono Six Thinking Hats exercise, I wear the yellow hat, the one that argues for the upside and the possibility in the room.
Despite this preference, my legal and risk training gave me real insight into how the black hats think, the people who name everything that could go wrong. On audit and risk committees and boards, I put that hat on myself, testing whether management has thought through risks, because that is the role the room needs from me.
Complexity breeds optimism
Most leaders question someone else's optimism more readily than their own. Researchers studying optimism bias have found that as situations get more complex, leaders do not become more careful about their optimism. There is more detail to take in, so it becomes easier to notice the good news and miss the warning signs.
The leaders who avoid the trap keep their optimism and pair it with an unflinching read of what is actually happening. The recent Rex Airlines case shows what happens when leaders don't do that.
What Rex Airlines shows leaders everywhere
In February 2023, Rex Airlines told the market it was optimistic about achieving a positive operating profit for the financial year. As its position deteriorated, that statement remained unchanged until June, when Rex announced that it expected an operating loss of about $35 million. It ultimately reported a $31.7 million loss and entered voluntary administration in July 2024.
The Supreme Court of New South Wales has since found that Rex breached its continuous disclosure obligations. In April 2023, former executive chair Lim Kim Hai emailed the other directors describing Rex's sales as "bewilderingly bad" and cash “critically low.”
Justice Ashley Black found that from that point, the board should have been concerned enough to correct the market. Lim admitted the contraventions alleged against him, although the Court did not find the three former non-executive directors personally liable.
Leaders need optimism to move forward. But they create risk when the evidence changes and they let the message stay the same. Because they hold authority, other people may keep acting on confidence the evidence no longer supports. That is why leaders cannot test their optimism only once. They need to test it again whenever the underlying facts change.
Being a natural optimist, I understand the need to remain optimistic about success but if the facts don’t support it, leaders have a responsibility to adjust this view and communicate it.
Three ways to test your optimism this week
Before you believe a plan or forecast yourself, ask what evidence would prove you wrong. If nothing comes to mind, you are hoping rather than testing.
Before you tell your team or board something is on track, ask someone with no stake in the answer to test it. Do not ask whether they agree. Ask what would need to be true for the claim to hold, and whether that is actually the case.
Once you have said something is on track, decide in advance what would tell you it no longer is, and set a date or trigger to check. Facts move even when the original claim was reasonable, and Rex Airlines shows what the consequences of not adjusting the communication the moment things shifted.
Leaders practising adaptive stability do this as a habit. They check their confidence against the evidence as circumstances change, and they update what they say once the facts show things have shifted.
What indicators have you set that would tell you it's time to adjust your optimism?
