The Emperor Has No Clothes

“The CEO who misleads others in public may eventually mislead himself in private.”
Warren Buffett

Is there a link between candor and execution? L. J. Rittenhouse thinks so.

Rittenhouse is the author of Investing Between the Lines: How to Make Smarter Decisions By Decoding CEO Communications, a book that Warren Buffett recommended in his 2012 Shareholder Letter. He writes:

Jack Welch and others have noted that the absence of candor in a workplace can be a significant deterrent to success. … Welch feared that bureaucratic cultures discouraged people from candidly speaking their minds. He advocated that companies develop corporate cultures to encourage “honest feedback.” He explained, “If you reward candor, you’ll get it.”

In an article titled, Truth-Telling: Confronting the Reality of the Lack of Candor Inside Organizations, Management consultant Lynn Harris describes the need to build a culture where “opposing views are debated and more effective solutions and innovations are created.”

I’m not talking about malevolent dishonesty. No one goes to work thinking “I’m going to hinder my own and my company’s performance by withholding the truth from my colleagues.” I’m talking about the many moments each day where we think one thing, but say something different; where we have an idea that may be of value, but we hold back and say nothing; where we are called upon to give an honest opinion, but decide to say what is easier or what we think others want to hear.

It seems simple enough, you should communicate with people as you would want them to communicate with you. But if candor is a necessary element to improving performance, why don’t more businesses promote it? Rittenhouse writes:

Polite and white lies are benign. They are told to smooth over difficult social situations and can do more good than harm. Deliberate omissions of facts or statements, however, can be toxic. Whether the motivation comes from fear or a desire to avoid conflict, it is important in all instances to consider the significance of the information that is left out and the consequences for doing so. The more significant the information is to understanding truth and consequences, the more toxic the lie.

When we state that something is true even when we know it to be false, we are telling outright lies. These are more toxic and can create bigger problems than the ones they try to avoid.

… Then there are the lies of self-deception, the ones we tell about ourselves. These are the most toxic, because they create dangers we cannot see. Why? Telling them blinds us to uncomfortable truths about who we are and how we see the world.

Rittenhouse uses real examples of corporate communication to point out the jargon.

Consider this passage from Coca-Cola’s 1995 Shareholder letter, written by Roberto Goizueta:

We sell a product that not only has universal appeal and accessibility, but also meets the fundamental, frequently recurring human need for refreshment.

By universal appeal, I mean we sell a product with physical attributes that the human palate enjoys, no matter what the culture or demographic status. Five or six decades ago, we stopped listening to those who said that Coca-Cola simply would not be accepted in certain societies, where centuries-old beverage consumption habits would surely lock us out. But, just as consumption of Coca-Cola surpassed the combined consumption of the two leading teas in Great Britain some time ago, so will the per capita consumption of Coca-Cola surpass that of the leading bottled water in France this year, two milestones most people said would never come to pass.

Yet, such milestones do come to pass, and one of the primary reasons is the “delicious and refreshing” nature of the product that comes in a bottle, can, glass or cup of Coca-Cola.

That’s of great importance, but so is the universal accessibility of Coca-Cola. Not only does Coca-Cola satisfy a basic human need, it is also highly affordable to an overwhelming majority of people worldwide.

“Nothing Goizueta wrote,” according to Rittenhouse, “could be described as insincere, although he could have bolstered his claims by citing third-party validation for the consumption trends reported in the passage. Goizueta doesn’t say that everyone finds Cola-Cola to be “delicious and refreshing.” Instead, he creates an impression that this experience is “universal.” Importantly, he omits clichés and jargon that would have diluted his message.”

Now consider this passage from Coca-Cola’s 2010 shareholder letter:

This past year, I had the privilege of visiting our Coca-Cola operations in 17 countries on four continents. During my travels with our associates around the world, we opened new bottling plants, visited research and development centers, worked with retail customers, met with consumers and suppliers, and collaborated with an assortment of amazing leaders from business, government and civil society. From the bustling cities of China to the remote villages of South Africa, I walked away with one overriding impression of the Coca-Cola Company. What I saw and continue to see in the second decade of the 21st century is a company that is steadily and strategically advancing its momentum all around the world. [author’s emphasis]

On this letter Rittenhouse comments:

Current Coca-Cola CEO Muhtar Kent’s description of his travels during the year is sincere, truthful, and personal. At the end, however, he stumbles when he reflects on the significance of these experiences and reports, “[ Coca-Cola] is a company that is steadily and strategically advancing its momentum all around the world” [author’s emphasis]. How is it possible for Coke or any company to “steadily and strategically [advance] its momentum”? This description doesn’t qualify as a lie. Instead, it is meaningless, the kind of doublespeak or nonsense that George Orwell portrayed in his classic novel 1984.

A Simple Candor Test

Just about anyone can measure the absence of candor in communications.

… start reading with a red pencil or pen in hand and use it to underline clichés such as “employees are our greatest assets,” “our future is bright,” “advancing momentum,” and “we aim to create shareholder value.” This kind of meaningless jargon and platitudes diminishes our understanding of the business and our trust in the leadership.

When you’re done, look back. If there’s a lot of red on the page, consider yourself warned.

Consider this passage, which happens to come from Enron’s shareholder letter for the year 2000, but could come from any company anywhere:

Our talented people, global presence, financial strength and massive market knowledge have created our sustainable and unique businesses. EnronOnline will accelerate their growth. We plan to leverage all of these competitive advantages to create significant value for our shareholders.

In one short paragraph, Enron introduced six popular clichés:

  1. Talented people
  2. Global presence
  3. Market knowledge
  4. Financial strength
  5. Leverage competitive advantages
  6. Significant value for our shareholders

This is meaningless to a reader. It doesn’t speak to candor and it doesn’t speak to the fact that the people in charge know what’s going on. Reading between the lines you can spot trouble and a void of leadership. Perhaps they are hiding something malicious through obfuscation and meaningless jargon, or, perhaps they are hiding their own incompetence. Either way, it’s a red flag.

Rittenhouse coined an acronym for the absence of candor: “FOG.” It stands for “fact-deficient, obfuscating generalities.”

The Emperor’s New Clothes

When we read something full of jargon and clichés we end up thinking that we’re the problem — we think that we’re just not smart enough to understand it and we ignore our judgment and common sense.

we fear our vulnerability in relation to leaders whom we must trust? To imagine that they would injure us to advance their self-interest is disturbing, even frightening. Instead, we choose to doubt ourselves.

In doing so we become like the adults in Hans Christian Andersen’s fairy tale The Emperor’s New Clothes. We praise the jargon of meaningless communication and deny what our eyes tell us to be true – the emperor has no clothes.

After reading Investing Between the Lines: How to Make Smarter Decisions By Decoding CEO Communications Buffett commented, “Rittenhouse is still on the side of the angels.”