The Importance of Candor in Business

Laura Rittenhouse: I’m here today to talk about my big idea, which is the importance of candor in business. Investors, when I talk to investors they will all tell me that I want to know what the bottom line of the company is.  In order to make a decision about whether I invest in that company I think about the bottom line.  Why not?  A bottom line is a number so it’s very precise, but is it accurate?  And what we have found, through doing research over the past ten years, is that words matter as much as numbers in determining the investment potential.  Because words tell you about the candor of a company, which reveals the underlying trustworthiness of a corporate culture.  So if you have a culture like an Enron then you’re going to be more mistrustful of the numbers.  If the business is like a Berkshire Hathaway you’re going to be more trusting of the numbers.  It’s so interesting.  The word candor means different things to different people.  I find that most often people talk about candor as meaning the whole truth, telling the whole truth all the time.  But candor means not just that you are being accurate in what you’re saying but you’re being authentic.

The lack of candor, which we call F.O.G.; standing for fact deficient obfuscating generalities, it’s an acronym.  I mean you, you probably want to know why really is this important?  Does it really matter if people aren’t being clear in what they’re saying?  Does it matter if their grammar is tortured and they’re using words, jargony words like, “we are streamlining our enterprise to accelerate our momentum in our project trajectory.”  I mean does it really matter if people are communicating like that?  It matters a great deal.  And why?  Simply.  If you hear people talking like that, if you’re in a company you’re not quite clear on how you should be spending your time. You’re not quite clear about what is the direction of the business.  You’re wondering what is it about the leadership that they’re not able to speak to you simply and directly and give you a sense of, not only where you’re coming from but where you’re going.

How does one actually decode CEO communication?  It’s going to shock you.  It’s so easy.  It’s quite extraordinary.  Now let me give you an example.  Here is a passage from Enron’s last shareholder letter.  They wrote, “Our talented people, global presence, financial strength and massive market knowledge have created our sustainable unique businesses.”  What have I learned from that?  Not very much.  And I will tell you that as the letter goes on there is really no further development of these ideas in a way that’s logical and context heavy.  So, right off the bat I advise people if you’re reading one of these communications take a red pen and start circling the jargony words.  Start circling the clichés.  Start circling the words that are really not adding much, if any meaning to your understanding of the business.

These letters reveal the personality of the person who’s writing the letter.  Think about it.  Every person in the world has a unique thumbprint.  Nobody else in the world has it.  Similarly a corporation, a company, has a corporate thumbprint.  There’s something that’s unique and special about that company, the culture.  And when that is revealed in a shareholder communication that is something that builds trust, builds engagement with the stakeholders and again is really important for the sustainability of that business.  But really in the real world what does it translate into?  Does it really improve market performance?  For the past seven years we have rank ordered, every year we create a benchmark survey of 100 companies in the fortune 500.  We code and score each company for the presence of candor, the percentage of candor a percentage of F.O.G.  And then we rank order the companies high to low.  For the past seven years we found that the top quartile of companies rate highest in candor have consistently outperformed on average the companies ranked lowest in the lowest quartile of candor and also the market, the S&P 500.  And that includes boom markets and bust markets.

Directed / Produced by Jonathan Fowler and Elizabeth Rodd

 

An investor-relations specialist, Laura Rittenhouse has compiled an annual survey of CEO shareholder letters since 1999 that ranks 100 big companies based on seemingly unquantifiable metrics relating to corporate culture and candor.

LinkedIn meets Tinder in this mindful networking app

Swipe right to make the connections that could change your career.

Getty Images
Sponsored
Swipe right. Match. Meet over coffee or set up a call.

No, we aren't talking about Tinder. Introducing Shapr, a free app that helps people with synergistic professional goals and skill sets easily meet and collaborate.

Keep reading Show less

Want to age gracefully? A new study says live meaningfully

Thinking your life is worthwhile is correlated with a variety of positive outcomes.

YOSHIKAZU TSUNO/AFP/Getty Images
Surprising Science
  • A new study finds that adults who feel their lives are meaningful have better health and life outcomes.
  • Adults who felt their lives were worthwhile tended to be more social and had healthier habits.
  • The findings could be used to help improve the health of older adults.
Keep reading Show less
Promotional photo of Lena Headey as Cersei Lannister on Game of Thrones
Surprising Science
  • It's commonly thought that the suppression of female sexuality is perpetuated by either men or women.
  • In a new study, researchers used economics games to observe how both genders treat sexually-available women.
  • The results suggests that both sexes punish female promiscuity, though for different reasons and different levels of intensity.
Keep reading Show less

This 1997 Jeff Bezos interview proves he saw the future coming

Jeff Bezos, the founder of Amazon.com, explains his plan for success.

Technology & Innovation
  • Jeff Bezos had a clear vision for Amazon.com from the start.
  • He was inspired by a statistic he learned while working at a hedge fund: In the '90s, web usage was growing at 2,300% a year.
  • Bezos explains why books, in particular, make for a perfect item to sell on the internet.
Keep reading Show less