Yesterday I began a series on the 2nd of my four management ethics principles. The second principle—without the sub-points–is:
2. Be clear, open and honest in communications with investors.
Clear.
Open.
Honest.
Remember the Meatloaf song from the 1980s: “Two out of Three Ain’t Bad.” Well, when it comes to my Management Ethics Principle #2, Two out of Three Ain’t Good Enough.
Being Clear and Open, but not Honest is obviously a major problem.
So is it a problem to be Clear and Honest, but not Open. This implies a lot of important parts of the story might be skipped over. It is very easy to be Honest and Clear if much of the most relevant information is simply not addressed. You can’t be held accountable for something you didn’t disclose. In the post Sarbanes-Oxley era, many public companies simply keep to a minimum the information they share with investors. In private companies, this is often the case as well. If investors ask for information, the management team will provide. Other information—including maybe the answers to questions the investors should have asked—is kept close to the vest. This puts a huge burden on investors to figure out what information needs to be extracted from the company.
What about Open and Honest, but not Clear? This often manifests itself when an executive uses complexity to make it hard for the audience to follow what is going on. Investors get frustrated, as it is hard for them to get their heads around what they are being told. The executive goes through the charade of that he or she is trying to be helpful, but complexity is a tool to keep investors in the dark about what is really going on. Time is usually an ally of this type of executive—as he or she knows time is a constraint of most investors. Those executives who are good at this strategy—where “good” equals “most dangerous”—leave their investors thinking how lucky they are to have an executive who understands such a complex business. At times, the result is that investors believe they are highly dependent on the executive. Perhaps they even believe that part of the company’s competitive advantages is that their executive is one of the only people who truly understands the business.
Don’t get me wrong—telecom is an extremely complex business—more so thaN most businesses. Though difficult, it is management’s job to find ways to communicate to their investors so that they can understand the business. As a side note, I read books on theoretical physics–if an author can explain quantum teleportation in a way I can understand, a telecom executive can explain their business to an investor.
There you have it. Two out of Three Ain’t Good Enough. By the way, there have been a few storied situations—such as Enron and Worldcom—where honesty was at the core of the problem. However, it is the other two combinations that I suspect are more common and, perhaps, harder to detect.
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