C&B Notes

Clearing the FOG

‘People’ is one of our four core investing criteria, and we prize managers who clearly and openly communicate about both the opportunities and challenges facing their businesses.  A willingness to be candid and a commitment to discuss successes and failures are strong indications that an executive will treat his shareholders as partners.

Just about anyone can measure the absence of candor in communications.

“… start reading with a red pencil or pen in hand and use it to underline clichés such as “employees are our greatest assets,” “our future is bright,” “advancing momentum,” and “we aim to create shareholder value.” This kind of meaningless jargon and platitudes diminishes our understanding of the business and our trust in the leadership.”

When you’re done, look back.  If there’s a lot of red on the page, consider yourself warned.   Consider this passage, which happens to come from Enron’s shareholder letter for the year 2000, but could come from any company anywhere:

Our talented people, global presence, financial strength and massive market knowledge have created our sustainable and unique businesses.  EnronOnline will accelerate their growth. We plan to leverage all of these competitive advantages to create significant value for our shareholders.

In one short paragraph, Enron introduced six popular clichés:

  1. Talented people
  2. Global presence
  3. Market knowledge
  4. Financial strength
  5. Leverage competitive advantages
  6. Significant value for our shareholders

This is meaningless to a reader.  It doesn’t speak to candor and it doesn’t speak to the fact that the people in charge know what’s going on. Reading between the lines you can spot trouble and a void of leadership.  Perhaps they are hiding something malicious through obfuscation and meaningless jargon, or, perhaps they are hiding their own incompetence.  Either way, it’s a red flag.  Rittenhouse coined an acronym for the absence of candor: “FOG.” It stands for “fact-deficient, obfuscating generalities.”