Corporate Charlatans: Seven Signs Your CEO Could Be Lying

For stockholders, earnings conference calls offer a rare opportunity to hear about their companies straight from the senior executives. But while corporate leaders tend to paint glowing pictures of their companies' prospects, these optimistic futures sometimes turn out to be little more than wishful thinking and hot air. Faced with the possibility of C-suite dissembling, some investors have wondered how to determine the honesty of their executives -- and the safety of their investments.

Analysts at Stanford University may have discovered a technique for gleaning useful information out of the dross of misleading earnings conference calls. David Larcker and Anastasia Zakolyukina, two researchers at the Stanford Graduate School of Business, reviewed executive statements from more than 29,000 conference call transcripts. Their recently published academic paper, "Detecting Deceptive Discussions in Conference Calls," identifies several behaviors and word choices that a dishonest or misleading CEO might employ when discussing his company.

Here are seven signs that could indicate a corporate executive (or your boss, for that matter) is being less than totally honest.

"We," Not "I"
You don't get to the head office by being a shrinking violet, and corporate execs are usually willing to take more than their fair share of credit when things are going well. So, if a company's CEO is suddenly eager to share the responsibility for a company's performance, it's a strong sign that something may be wrong. Larcker and Zakolyukina found that dishonest CEOs tend to use words like "we," "us," and "our," instead of "I," "me," and "mine." The researchers theorized that, in addition to reducing some of the CEO's personal responsibility, these words also suggest that the executive in question wants to distance himself from what he is saying.

"Everybody" Knows
Tied in with the tendency to reduce responsibility, Larcker and Zakolyukina also determined that dishonest CEOs also tend to diffuse their own authority. Rather than claiming special knowledge about business, they often defer to common knowledge by using phrases like "you know," "everyone agrees," "others would agree" and "shareholders know." While vague, these sorts of statements sound somewhat authoritative. At the same time, referring to "everybody" further reduces the CEO's personal responsibility.

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Super Duper Excited
Jeff Skilling aside, most CEOs try to appear dignified and somewhat restrained when addressing their stockholders. Part of this restraint plays out in their word choices: When discussing the state of their companies, honest CEOs tend to use specific, measured terms that have clear-cut meanings. Dishonest CEOs, on the other hand, are more likely to be effusive in their praise. Rather than using words like "good," "promising" or "impressive," they will indulge their inner cheerleader with terms like "flawless," "unassailable" and "phenomenal." The idea is that, the more exaggerated the word, the more intense its meaning and the more sincere it sounds.

The Worst of the Worst
Larcker and Zakolyukina's findings suggest that a dishonest CEO addressing his stockholders will tend to be on an emotional roller-coaster. When things are great, they're "phenomenal, "and when they're bad, they're equally intense. Rather than playing their cards close to the vest with subtle words like "tough," "difficult" or "problematic," dissembling executives go for the gusto, using terms like "annihilating," "heartbreaking," "mortifying" and "wretched" when the chips are down.

A Dirty Mouth Equals a Dirty Bottom Line?
Following the logic that strong language suggests honesty, foul language would seem to be absolute proof of one's sincerity. At least, this seems to be the game plan for many lying CEOs: According to Larcker and Zakolyukina, dishonest executives tend to swear more than honest ones, often employing soft curses, like "screw" and "hell."

Anger
Honest CEOs tend rely on facts, figures and low-key analysis to back up their presentations, but lying execs often resort to the tried-and-true "homicidal maniac" method for demonstrating sincerity. Larcker and Zakolyukina found that dishonest CEOs were far more likely to use words like "hate," "kill," and "crush." Actually, this makes a lot of sense: Nobody every questioned Ted Bundy's sincerity, did they?

You Trust Me, Right?
As part of the tendency toward extremely positive language, Larcker and Zakolyukina also found that many dissembling CEOs used synonyms for "honesty" to convey their truthfulness. By peppering their earnings reports with words like "genuinely," "truly," "sincerely" and "in truth," the execs seem to be demonstrating that they are completely trustworthy. Then again, as the old saying goes, "Never trust a man who says 'Trust me'."