People often boast about their efforts when things are going well and place the blame elsewhere when things are going poorly. This is called the self-serving or self attribution bias. This tendency to think the best of ourselves and attribute good performance to our hard work helps us maintain high levels of self-esteem. Assigning the responsibility for poor performance to some external factor also helps maintain an idealized picture of oneself. To the extent that you exhibit this bias you probably go through life a little happier about your accomplishments (you deserved them) and take the bad experiences less personally (after all when bad things happen –it’s not your fault) than most. For the most part this bias is really only annoying if you live with a teenager, as they are especially good at avoiding responsibility.
Management teams also sometimes show this bias. Williams-Sonoma’s (WSM) management team for example is clearly taking credit for the recent good news after avoiding responsibility for the earlier bad news.
Last year when comparable store sales turned negative on the third quarter conference call, Howard Lester, Chairman & CEO, noted that “during the third quarter, the unprecedented downturn in the US financial market had a significant impact on our business.” Lester on the call also pointed that “the stores look terrific” and that “by and large, this thing is more macro now”. On the same call Dave DeMattei, the then Group President of Williams-Sonoma, and Sharon McCallum, CFO, both commented on the “these difficult economic times”. Although the management team admitted that merchandise could always be improved, the clear message was that the bad numbers were due to the economy.
During this years’ Q4 conference call the incoming CEO and current President Laura Alber noted in her discussion on Pottery Barn that “Comparable store sales increased 11.5%, and authoritative cohesive assortment and compelling price points, combined with a highly effective inventory management strategy drove these significantly improved results.” Alber doesn’t mention, of course, the fact that comparable store sales were down 29% at Pottery Barn during the same quarter last year. So if you’d ended Q4 2007 with $1,000 in sales, you’d now have $792in sales, clearly not a significantly improved result. Lester also commented “year-over-year growth trends once again sequentially improved, which validates for us, the effectiveness of our merchandising and marketing strategies that were deployed during the year”. WSM’s overall comparable store sales were 7.6% in the fourth quarter following a negative 22% last year.
The downside of the self attribution bias is that it distorts the participants understanding of the circumstances. In the case of Williams-Sonoma, the high compensation for the management team is ostensibly due to their skill at running the business. If a significant part of their performance in the 2002-2007 time period was because of the housing boom and not management diligence then the shareholders have been poorly served. WSM sales are down significantly from 2006 and 2007; this is clearly a smaller and less profitable business than it was two years ago. Interestingly, the stock price today is $2 higher than it was at the end of 2008 when profits were almost 2.5x higher.
Of course the most obvious alternative explanation for the “significantly improved results” might just be the improving economy. Comparable store sales across the board were better for retailers in Q4 this year and WSM’s recovery wasn’t really exceptional or significant. It was expected.