Expectations for how American corporate leaders communicate are changing. Historically, executives were measured on their ability to create wealth for investors. But now, as they navigate the demands of innovation, social responsibility, and globalization, executives are being held to a different—and higher—standard.
According to HBR – “the new measure of executive leadership is the extent to which executives create organizations that are economically, ethically, and socially sustainable.”
How can leaders achieve such ambitious goals? Their business strategies and tactics will vary, but we believe that best-in-class leaders will see that candid communications is an important first step.
can·dor(noun) – the quality of being open and honest in expression
Candid communication improves internal and external perceptions
No matter what your company does, or what your corporate objectives are, business goals are hard to accomplish without candid communication, and it starts at the top. Communications research demonstrates that it is critical for board members and chief executive officers to communicate their vision for the company in a way that allows every employee to understand how they can contribute, that encourages investors to feel confident in the direction of the company, and that excites customers to align themselves with the executive leadership and what the company stands for. See Tom’s shoes or Patagonia as examples. Creating a leadership culture of candid, transparent communication improves relationships with all stakeholder groups.
Candid communication improves market performance
Candid communication is important not just so that you are better understood, but it can affect market performance. Here’s what the research says:
- Lack of transparency in financial reporting leads to loss of investor trust and, in turn, the reluctance of investors to invest – CFA Institute
- Annual reports from companies with lower earnings are consistently harder to read than annual reports from companies with positive earnings – University of Michigan
- Companies exhibiting candid communication in shareholder letters consistently outperform the S&P 500 index – L.J. Rittenhouse
- Investing in social relationship marketing and promoting open communication produces strong returns – Marketing Science
How you can measure candid communications
Based on audience market research and an analysis of hundreds of thousands of pieces of executive leadership content, we were able to identify the factors that are significantly correlated with candid communication. Drawing from what we learned, here’s a brief overview of the linguistic framework we apply when analyzing communication for its candor.
- Does the communication provide necessary context and details?
- Candid communication gives you the context you need to fully understand the message. For example, a company communicating candidly will not only state decisions and accomplishments, but will also explain why those decisions and actions were taken.
- Candid communication will use numbers and quantifiers in a way that adds meaning to the message. Confusing communication might include too many numbers, making it hard to keep track of them all.
- Is the communication easy to follow?
- Candid communication will not include jargon, overly complex wording, or vague wording that leaves room for interpretation. For example “We are leveraging best practices in pursuance of adding value to our long term goals,” doesn’t provide you with much information. Instead, candid communication would explain which best practices are being used, how they add value, which goals will be affected, and how quickly those effects will take place.
Warren Buffett: A leader in candid communications
Warren Buffett, CEO of Berkshire Hathaway, is known for his candid and clear communication. One of the owner-related business principles in the Berkshire Hathaway owner’s manual states:“We will be candid in our reporting to you, emphasizing the pluses and minuses important in appraising business value. Our guideline is to tell you the business facts that we would want to know if our positions were reversed. We owe you no less.”
Below is an excerpt from Berkshire Hathaway’s 2014 letter to shareholders. This letter to shareholders scores in the 95th percentile of our communications database in terms of candor by providing the reader with necessary context and using easy-to-follow writing:
The Year at Berkshire
It was a good year for Berkshire on all major fronts, except one. Here are the important developments:
Our “Powerhouse Five” – a collection of Berkshire’s largest non-insurance businesses – had a record $12.4 billion of pre-tax earnings in 2014, up $1.6 billion from 2013… In other words, the $12 billion gain in annual earnings delivered Berkshire by the five companies over the ten-year span has been accompanied by only minor dilution. That satisfies our goal of not simply increasing earnings, but making sure we also increase per-share results.
You may not always have such good news to report. But in preparing for your company’s next announcement, earnings call, or town hall, consider how you can communicate more candidly and in turn, help to make more of an impact on your company’s success and reputation.
To learn more about how we can help your team use data to improve your communications, contact us at firstname.lastname@example.org.
More on executive communication measurement from Quantified Communications.