CEO candor, a leading indicator of profitability

L.J. Rittenhouse is an investor relations, communication specialist who advises CEO’s on ethical communication. During her time focusing on CEO communication, Rittenhouse has uncovered the correlation between candor and profitability, which she develops in an annual benchmarking known as CEO Candor Rankings.

 

In short, those companies led by CEO’s with high candor were high performing, while those led by companies with CEO’s with low candor, were low performing. Specifically with this was evident in shareholder letters to the marketplace.

 

There is always a chicken or the egg scenario here, does candor precede profitability or does profitability make a high degree of candor possible. I would like to argue both are true.

 

Candor, is based on the ability to speak the unvarnished truth. It is a reflection of a businesses ability to be grounded in reality. Candor needs to be in place before a business can be high performing.

 

Candor is also the outcome of being in a position, where there is nothing to hide. One can expect candor wherever the truth is a pleasure to tell. Candor, therefore, is the output of a high performing culture.

 

Take for instance, says Rittenhouse, the final CEO shareholders letters from Enron, just prior to its collapse. The weasel words and smoke and mirrors in the language, was a red flag, signaling its imminent demise.

 

Rittenhouse upholds Warren Buffet as the master of candor and profitability. Buffet himself, spends month every year on his annual 12,000 word address to his shareholders.

 

Buffet believes that the clarity of letter writing is a sign of a corporation that is sure of its purpose and its direction. As Buffet once said:

 

“ If you can’t write something clearly enough, it’s because you haven’t thought it through carefully enough.”

 

Simple concepts are also key to candor in communication. Buffet is the master of the simple concept, using  simple analogies like the stock market and a butcher shop:

 

“Do we panic when the price of filet mignon drops, no we rejoice. Who wouldn’t want to buy the highest quality steaks at chopped meat prices?

 

The truth well told, is the essential ingredient behind every great brand and leader.

 

This article was inspired by Rittenhouse’s book, Buffet Bites, which is based on Buffet’s shareholder letters.

 

Louise Kelly

Managing Director

Hearts and Minds

 

www.heartsandminds.com.au

 

Resources

 

http://www.rittenhouseranking.com

One thought on “CEO candor, a leading indicator of profitability

  1. Pingback: CEO candor, a leading indicator of profitability | Rittenhouse Rankings

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