Telltale Signs A CEO Is Lying (Or Not)

from the moving-his-lips? dept

NPR has a story about a study that tried to figure out indicators that a CEO is lying. The researchers went through the statements made by executives on earnings calls for companies that later had to restate earnings, and found a few key signals that indicate lies. The researcher’s own summary:


We find that answers of deceptive executives have more references to general
knowledge, fewer non-extreme positive emotions, and fewer references to shareholders
value and value creation. In addition, deceptive CEOs use significantly fewer self-
references, more third person plural and impersonal pronouns, more extreme positive
emotions, fewer extreme negative emotions, and fewer certainty and hesitation words.

Honestly though, reading through this, it seems pretty difficult to use this to really come to any serious conclusions. For example, one of the indicators is that:


lying executives tend to overuse words like “we” and “our team” when they talk about their company. They avoid saying “I.”

The argument is that the CEO doing so is trying to avoid responsibility for the statement, but couldn’t it also be that they actually appreciate the work of the team around them? My initial reaction to a CEO who uses “I” repeatedly is that he or she is hogging the credit and not a good leader.

That said, some of the other parts do make sense, such as answering a different question than the one asked. There was an example given of that:


For instance, in 2002 NPR interviewed Computer Associates CEO Sanjay Kumar, who later went to prison for securities fraud, about his company’s auditing practices.

Here’s what he said: “There’s no one out there today in the world of public companies who has the former chief accountant for the SEC running their audit committee. We do. There’s no one out there who has the pre-eminent governance leader, professor [Jay] Lorsch, for example, running their governance committee. We do.”

In other words, Kumar was asked, “Can your books be trusted?” And he replied by saying, “We hire the very best auditors.” Larcker says that can be a big warning sign.

Finally, the things to worry about are CEOs who use extremely positive wording on things:


“If all my speech is ‘fantastic,’ ‘superb,’ ‘outstanding,’ ‘excellent’ and all my speech sounds like a big hype — it probably is,” Larcker says.

Of course, if that’s true, then Steve Jobs is the worst of the worst of the worst when it comes to lying CEOs. As an example, in the period of about thirty seconds during the iPad launch, he used the words “extraordinary… the best experience ever… it’s phenomenal… it’s unbelievably great… way better…” etc. Which I think sort of points out why this kind of research, by itself, is pretty tough to be used to indicate anything.

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Comments on “Telltale Signs A CEO Is Lying (Or Not)”

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22 Comments
Anonymoussays:

Re: Steve Jobs is bad?

Honestly, the iPad, while a device with a decent touchscreen, isn’t really that impressive. While generally competently designed and executed, it’s kinda awkward to hold, and it doesn’t do a lot of things I’d expect a computer of that size to do. It does what Apple intends it to do well, and that’s about it.
Steve Jobs may not be strictly lying when he calls it “the best experience ever” by virtue of believing it himself, but he’s definitely trying to hype it up and make it sound like the second coming, which it isn’t. I tend to find that executives who make positive, but plausible, even downplayed remarks tend to have something much more compelling.

BBTsays:

“The argument is that the CEO doing so is trying to avoid responsibility for the statement, but couldn’t it also be that they actually appreciate the work of the team around them? My initial reaction to a CEO who uses “I” repeatedly is that he or she is hogging the credit and not a good leader. “

There isn’t an “argument”. It’s research that found a correlation. Lying CEOs’ collective reasoning for using “We” more than non-lying CEOs is irrelevant to the finding.

The possible reasoning that they’re trying to avoid responsibility is a reasonable one, though. Your proposed reason is lacking, since you give no reason why you would expect a lying CEO to appreciate their team more than a non-lying CEO.

Anonymoussays:

About Apple I just read that it is being accused of copyright infringement in China, but I think its trademark issue since it has to do with the iPad name there.

Now if not using I is something to worry about then every Asian executive out there is a liar, there is a cultural aspect to those things and I don’t think they have gone very deep yet, there may be clues there that could help people notice something is wrong but I don’t think they are there just yet.

Bensays:

Product Announcement vs. Earning Call

Honestly I don’t think that this research can be applied to any of Steve Jobs public announcements of new products. Remember, the research was done against “earnings calls” not new product announcements or other publicity type interviews. There is a very great difference between the two, one will dictate commercial success with consumers by appealing to their product desires while the other will give investors the information they want on the inner workings and administration of the company and is often used as an official statement of the company for which it is legally bound.

Steve Jobs is certainly the exception to the rule of the normal CEO and it certainly is a funny comparison to make about his extaordinary statements about Apple products.

Nastybutler77says:

Re: Product Announcement vs. Earning Call

You beat me to the point I was going to make, but said it much better than I could have.

Now if Steve Jobs is saying their projected earnings are “extraordinary… the best experience ever… it’s phenomenal… it’s unbelievably great… way better…” then you might have cause for concern as an investor (although with the way Apple has been performing it might be accurate), but when it’s a new product he’s hyping, that’s par for the course.

"I" can refer to "my" belief in the numbers, not credit

I have to disagree with Mike here. Use of “we” in statements about what the CEO thinks is one way to avoid responsibility (perhaps subconsciously).

It’s not taking credit away from anyone to say “I am really pleased with this quarter’s results”.

Re “lips moving” – do CEOs lie? Of course. As much as politicians? No way.

xssays:

Who's to say Steve isn't lying

or that Apple HAD been making up numbers. Every company will at one time or another be faced with the decision to whether fudge the number to cover up a disappointing quarter, or come clean about it and gets hit in the stock market.

When we see these signs, we’ll just have to dig deeper, be more suspicious, cool our head, so we don’t get taken by the lies, if there is any.

Research vs. Gut

“The argument is that the CEO doing so is trying to avoid responsibility for the statement, but couldn’t it also be that they actually appreciate the work of the team around them? My initial reaction to a CEO who uses “I” repeatedly is that he or she is hogging the credit and not a good leader.”

So you reject their research out of hand an then substitute your gut. Is that what you’re saying? If so, why not just say that?

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