Two Stanford professors have sought to ferret our the misleading and lying CEO. They have found that there is evidence that when chief executives are on earnings conference calls that they tend to use superlatives when a simple statement of the facts is adequate–unless their companies are doing badly.
The academicians looked at 30,000 transcripts of earnings calls from 2003 to 2007. They found that when CEOs and CFOs who tended to be deceptive used more “third person plural” and “impersonal pronouns.” The CEOs used more positive language than CFOs when results were bad. Perhaps it is the need for people with accounting backgrounds to be exact.What was clear from the study is that CEOs who say “I” did something or “I” believe were much more likely to be honest.
The research is hardly useful. It merely points out something that every good psychologist knows. Lying is a regular part of human life–something that even ministers and old ladies will resort to if it suits their purposes. The flaws that cause people to be dishonest are flaws built almost totally on self-protection.
The SEC has not been able to do anything about language that shades results one way of the other. The agency encourages companies to make a number of comments before conference calls begin. The comments of management do not have anything to do with future results. Current results are “current” results and nothing more. Any omissions from comments are not the company’s fault. In short, public companies cover their tracks–with the SEC’s permission.
Lying CEOs generally cannot lie for more than a quarter or two. Eventually poor results catch up to them. Deception only last a little while particularly due to noisy analysts and falling stock prices.
Lie and the world lies with you. Speak honestly and you do so alone.
Douglas A. McIntyre
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