August 16, 2013

Why Words Matter As Much As Numbers In Business

By Laura Rittenhouse – Originally published on

This article is by L. J. Rittenhouse, president and chief executive of Rittenhouse Rankings and author of Investing Between the Lines: How to Make Smarter Decisions by Decoding CEO Communications.

Bezos: A CEO who gets it about words.

Bezos: A CEO who gets it about words.

Last week I learned that Amazon CEO Jeff Bezos expects employees to begin meetings by reading aloud an essay they’ve written.  It can be about the meeting agenda or a product. No Power Point slides. Why? Because writing at length requires thinking. Washington Post chief executive Donald Graham described this management practice when he welcomed Bezos as the new owner of his family’s paper. Graham also loves narratives.

After the Post sale hit the wires, bloggers analyzed the open letter Bezos wrote to the Post‘s employees. Each year, Bezos pens his annual letter to shareholders. I have analyzed them all since 1997. His 2007 letter is especially memorable. In it he announced the launch of Kindle, a product he hoped would rekindle interest in reading:

“We started by setting ourselves the admittedly audacious goal of improving upon the physical book. We did not choose that goal lightly. Anything that has persisted in roughly the same form and resisted change for 500 years is unlikely to be improved easily . . . we identified what we believe is the book’s most important feature. It disappears. When you read a book, you don’t notice the paper and the ink and the glue and the stitching. All of that dissolves, and what remains is the author’s world . . .

We hope Kindle and its successors may gradually and incrementally move us over years into a world with longer spans of attention, providing a counterbalance to the recent proliferation of info-snacking tools.

Bezos’ love affair with words inoculates him from the quantification bias held by investors who believe that words don’t matter. These quants tell me, “I analyze the accounting.  I trust numbers.” This blinds them to a fact: Numbers are precise, but are they accurate? In 2008, pedigreed companies that served up loads of numbers suddenly disappeared.  Their investors learned painfully about the limits of accounting.

I advise CEOs to use words that reflect the values of their corporate cultures. Why? These words will indicate if the accounting numbers can be trusted. Think about it:  The process to create financial statements begins with employees throughout a company who decide when to count cash, how much to count, and when to report it as earnings. Those judgments maybe conservative, as in a Berkshire Hathaway company, or aggressive, like Enron’s.

Think about CEOs who rely on jargon, clichés, and confusing statements to tell their stories and fail to provide relevant context. They are likely creating cultures of fear. These communications will encourage employees to hide out. Rather than attend to the needs of customers and colleagues and owners, they will feel compelled to look out for themselves.

Conversely, a CEO who chooses clear, candid, authentic, and relevant words is going to create a culture where employees focus on the needs of the company’s stakeholders.

In these companies, I want to see if a CEO: (1) respects and understands the audience; (2) chooses simple words over jargon; and (3) provides context.  Being forthright about problems is a good indicator of trust. For example, Ford’s CEO Alan Mulally did not sugarcoat the company’s situation at the beginning of his 2008 shareholder letter:

In 2008 the automotive industry faced a deep recession in the United States and Europe, the worst worldwide financial crisis in decades and a dramatic slowdown in all major global markets. Like all automakers, Ford Motor was adversely impacted by these dire economic conditions. . . . Certainly, the severe economic challenges of 2008 had a significant impact on our results for the year, both in terms of our operating losses and cash flow. After earning a profit in the first quarter of 2008, we had an overall net loss of $14.7 billion for the year . . .

You may recall that this was the year GM’s and Chrysler’s CEOs did not write shareholder letters. They were managing their government bailouts.

CEOs like Mulally care about leaving a legacy. So does Bezos. In Amazon’s 1997 shareholder letter (his first), he described an overriding mission:  “to build something we can all tell our grandchildren about.”

Maybe Winston Churchill said it best: Words are all that last.