Recently, I spoke with L. J. Rittenhouse, president of Rittenhouse Rankings Inc., a strategic investor relations and coaching company. When I heard about her recent book Investing Between the Lines: How to Make Smarter Decisions by Decoding CEO Communications, I was intrigued by this idea that decoding executive communications can help me pick better investments.
After reading this book I realized that her research and findings go beyond investing. Rittenhouse’s research introduces new, important ideas about strategy, culture, communications, values, and trustworthy leadership. Not long ago, I asked L.J. about how philosophy and research are supported by her work with CEOs and investors.
The Power of Words and Corporate Culture
You have said frequently that, “Words matter as much as numbers in determining the investment potential.” That’s not something I typically hear on Wall Street.
I’m sure you’ve heard lots of pundits boldly predict the future by looking at past historical trends. How many of these predictions came true? Not many. In fact, Warren Buffett has observed that if the future resembled the past, then the Forbes 500 list of wealthiest people would include a number of librarians.
My research shows that while no one can predict the future, we can create the future through our communications. We do this when we choose words that inspire others to imagine new opportunities – and let go of the status quo. This is a critical competency in today’s world. Standing still is not a viable option.
One of the great delusions in business is the idea that words don’t matter. They do. When my clients choose candor over obfuscation, they build reservoirs of trust. In fact, the words a CEO chooses will reveal the trustworthiness of the corporate accounting. This becomes obvious when you understand how financial statements are created.
It starts with company employees who decide how much cash to recognize during a reporting period, and when and where to report it as earnings. These judgments may be conservative, like ones you’d expect at a Berkshire Hathaway company, or they may be aggressive, like Enron’s accounting.
CEOs who rely on jargon, clichés, and confusing statements to explain their strategies will weaken trust and create cultures of fear. Employees will be discouraged from speaking truth to power. Rather than attend to the needs of customers, colleagues, owners and other stakeholders, they will look out for themselves. This increases enterprise risk and destabilizes earnings.
On the other hand, CEOs who adopt a candor standard and choose authentic, relevant words will create high performance cultures. Striving to meet the needs of the company’s stakeholders, these CEOs and employees will execute clearly defined strategies.
Candor as a Competitive Advantage
Let’s go back to Warren Buffett. He’s a master communicator. Many people who don’t even invest in his company read his shareholder letters. Since you’ve studied them at a level most don’t, tell us what characteristics make them exemplary.
Buffett’s letters stand out because: 1) he writes them himself and imagines an audience; 2) they reveal his investor partnership philosophy; and 3) he’s never afraid to say, “I was wrong.”