Laura Rittenhouse saw clues where others didn’t.
It was Rittenhouse who first scrutinized company annual shareholder reports with an adventurists eye, looking for the DaVinci Code among the verbal spew that was the typical annual report.
What was she looking for?
Candor. Evidence of leadership and a sense of accountability.
It turns out that candor counts (big time) when it comes to marketplace performance. Rittenhouse invented the field of “candor analytics” and has proven that companies that score at the top in demonstrating candor in their corporate communications have significantly outperformed the market over the past 12 years.
Rittenhouse cut her teeth in candor study through exchanges with a now long-time supporter, Warren Buffett.
The inventor, entrepreneur, and author of Investing Between the Lines noticed something interesting about Berkshire Hathaway’s annual shareholder letters from the CEO–they were 10,000 words long when everyone else’s were 2,000 long. This spurred an exchange with Buffett, leading to further exchanges and his enduring support of Rittenhouse’s work.
Here are six lessons on candor from Rittenhouse–influenced and practiced by the man many believe to be the greatest investor of all time.
1. Words matter.
Buffett believes this with fierce conviction, according to Rittenhouse:
“It’s absolutely critical that shareholders can see that the CEO understands what the company is doing. It’s the duty of the CEO to paint the picture clearly, with rich vocabulary. This is why Buffet’s shareholder letters are five times longer than average, and why descriptive words are carefully chosen.”
As Rittenhouse also told me, “If you don’t have a name for it, you can’t see it.” And as Buffett told her, “You have to have just the right word for it. If you don’t, you don’t have the thinking correct.”
So while you may not have shareholder letters to write, you can be just as thoughtful and precise in the written/spoken words you share with all your stakeholders.
2. B.S. is worse than lying.
The fact is that lying is connected to a truth, and someone is trying to avoid revealing it.
B.S. is not grounded in fact. It’s verbal sputter that serves only to confuse, create fear, and create trust issues.
The problem is that when people just make stuff up, the listener makes something up too–their mind. As in not to trust the tale-teller. Which leads to the next lesson.
3. Candor yields trust.
To be trusted you have to trust others and be trustworthy yourself. Unfortunately, candor sticks out as it is all too uncommon.
Think of the opposite. Is anything more transparent than when someone’s not being transparent? And a lack of transparency is spotted a mile away; we human beings are a fairly sharp species (factoring out the Real Housewives of Wherever stars).
Choose candor. It just might improve your candidacy for promotion too.
4. Candor creates creativity.
As Rittenhouse told me:
“If you spend more time uncovering truth rather than denying it, you’ll be much more open to what’s around you. And telling the truth takes a lot less time than the alternative–time that can be spent being creative.”
5. Candor energizes.
Despite (Colonel) Jack Nicholson’s insistence, you can handle the truth. And so can your people.
It fact, hearing the truth energizes people and unlocks potential. It creates a common starting point from which to build and focuses efforts.
Rittenhouse experienced this first hand when one company she was advising began instituting extreme candor with their investors and analysts (which the troops picked up on)–record stock prices followed.
6. Candor is critical for team performance.
Rittenhouse referred to the recent team study done by Google, covered by my fellow Inc.com columnist Michael Schneider here. The study of 180 teams (intended to reveal drivers of maximum team effectiveness) showed a need for feeling safe as being one of the key pillars of strong team performance.
It’s the job of a team leader to create an environment where people feel safe to be candid and where you commend, not condemn, opposing points of view.
Candor is key to producing outstanding results. Rittenhouse calls it “the single most important weapon that entrepreneurs forget to inject into their culture”.
So fortify your company communications with candor. The benefits far outweigh the risks.
This article by Scott Mautz also appeared on Inc.com. To read more Inc. articles by Scott Mautz, click here.