By Tim Hayes
A recent story in the Business section of the Pittsburgh Post Gazette offered an overview of a study performed at Penn State University about the effect of “charismatic” language used by CEOs to influence analysts’ valuations of companies.
The study concluded that higher levels of charismatic language – defined roughly as inspirational in tone – from CEOs led to slightly more optimistic valuations by analysts. It also noted that allowing charismatic language to shade their estimates of earnings led to less accurate one-year estimates by those analysts.
Lessons learned? For analysts, perhaps be more critical of a CEO’s choice of words. For CEOs, weigh your words carefully when addressing external audiences. Truth should be the barometer, as always. But can there be more than one truth?
The truth for a CEO’s own employees is that he believes in them. He trusts them to understand, follow, and bring about the organization’s vision and goals. He knows they have the enthusiasm, skill, training, and desire to do great things.
The truth for a CEO’s shareholders, analysts, regulators, customers, and peers is that the organization has a plan to achieve growth and that he is confident in the resources and people under his leadership to achieve that plan. Not overpromising, nor underestimating. Simply a clear statement of fact and belief.
One reality, two truths. Both truths are accurate while not in conflict. They simply are different expressions of the same belief in the CEO’s mind.
Since the study referenced above was conducted at Penn State, it’s fitting that the university’s legendary head football coach, Joe Paterno, has exemplified this approach in action for decades. During football season, Coach Paterno routinely tamps down expectations of his team and their chances. But he must be much more positive with his players, because Penn State is a perennial powerhouse. One reality, two truths.
Bottom line – it does a CEO little good to pump up the hyperbole when communicating with an external audience, but it does wonders to motivate his own people. If a CEO overstates his case externally when things are going well, observers will be happy to wait for the other shoe to drop and he’s brought low once more. If he does it when things are going poorly, his credibility will be shot from the start. Yet within his organization, employees look to the CEO to provide a steady vision and a heartfelt endorsement of confidence and pride.
To truly lead, CEOs should use language to energize internally and set more prudent expectations externally. One reality, two truths.
Copyright 2009 Tim Hayes Consulting