How Can You Tell If a Leader is Telling the Truth?

Linda Dulye's picture
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fingers crossed.jpgLaw enforcement will use a lie-detector test on suspected criminals in hope of uncovering the truth. What if the same could be done for corporate executives? Well, David Larcker, a professor of accounting at Stanford's Graduate School of Business, and Ph.D. student Anastasia Zakolyukina, decided they would try to see if there are any tell-tale signs of truth bending by the C-suite. According to a story on NPR last month, after studying thousands of corporate earnings calls, the pair of researchers think they've come up with a way to tell when senior executives are being loose with the truth.

Larcker and Zakolyukina pored through the transcripts of thousands of corporate earnings calls when CEOs and chief financial officers take questions from analysts. And then they studied the words of executives at companies that later had to restate earnings, which often happens after fraud has occurred. The researchers identified some key indicators of deception. Zakolyukina says lying executives tend to overuse words like "we" and "our team" when they talk about their company. They avoid saying "I." She says there's a reason for that: "If I'm saying 'I' or 'me' or 'mine,' I'm showing my ownership of the statement, so psychologically I'm showing I'm responsible for what I'm saying."

Have you ever noticed this throughout your career, a disconnect between the words leaders use and the reality they're describing? Enron executive Ken Lay famously promoted the company's stock as a worthy investment not long before the business collapsed. Or, do you telegraph the truth by using buzz words or verbal crutches? Just food for thought.

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