It can be costly when a chief stumbles in the spotlight;
investors listen for hard swallows, changes in voice and tone
By John D. Stoll
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 17, 2018).
When General Electric Co.'s board hired Larry Culp to replace
John Flannery after one year, they sought a more seasoned chief
executive with a greater sense of urgency. Six weeks later, he
fumbled a task straight out of Executive Leadership 101.
In a 20-minute CNBC interview Monday, Mr. Culp assumed the role
of GE's chief spokesman to soothe investors who have endured a
rocky ride and myriad surprises. Mr. Culp said a lot, but only a
few things sunk in: GE's struggling power business hasn't hit
bottom, he said, and assets would be sold to raise cash.
The share price plunged as much as 10%, dipping below $8 for the
first time since the financial crisis. GE declined to comment.
GE's new chief committed a mistake that can wound almost any
CEO, even after years of polishing communications skills during
conference calls, town halls or board meetings.
"A lot of CEOs simply overestimate their ability to effectively
communicate when they aren't looking at a script," said Anett
Grant, a Minneapolis-based executive coach. Ms. Grant published
research in 2014 showing a gap between perceived ability and actual
performance.
"The feedback from their team is 'you're doing a good job,'" she
said. "But the public is trying to figure out 'what is he
hiding?'"
Leaders as powerful as Facebook Inc. founder Mark Zuckerberg
have been dinged for public performances that fell flat, raising
the question of how someone so smart can stumble as a
spokesman.
Remember Tony Hayward? Before he was the tone-deaf CEO bungling
a response to BP PLC's Deepwater Horizon disaster, he was just a
brainy geologist leading a seemingly successful turnaround. And
before Mr. Culp went on CNBC Monday, he was an accomplished
executive who spent more than a decade successfully leading a
lesser-known conglomerate, Danaher Corp.
Jack Brown, a physician and body-language expert in Henderson,
Nev., analyzed Mr. Culp's TV performance and noted mistakes in
everything from wardrobe selection to the use of nonverbal cues
that contradicted words coming out of his mouth.
GE's boss should have opted for a dark suit and a tie, for
instance. He also needed to avoid anxious signals, such as a dry
throat, and focus on giving direct responses.
Dr. Brown said Mr. Culp exhibited a cluster of hard swallows,
gravelly voice and voice tics that raise red flags with an
audience. "Any layperson or shareholder would look at this
characteristic alone and correctly interpret that this is a nervous
man who's bit off more than he can chew."
Bill Mayew, an accounting professor at Duke University who
analyzes conference calls of bellwether companies, said audiences
are on alert when a potential crisis looms or targets are missed,
listening intently to changes in voice pitch and tone. "The
listening goes up, and so does the intensity -- it heightens the
stress."
Corporations spend a $2 billion a year on executive coaching,
Ms. Grant estimates. Advances in technology make the examination of
communications patterns more accurate and more abundant.
"The explosion in the research is happening because the power of
statistical measures has gone way up," Mr. Mayew said. Even with
all that data, chiefs need to choose their words wisely.
Investors generally appreciate his blunt style of Glenn Kelman,
the outspoken CEO of real-estate brokerage Redfin Inc. But they
didn't like his message on an Aug. 10 quarterly conference call
that the housing market was slowing.
"I got angry email mostly from retail investors saying that I
should have been more diplomatic or pulled some punches," Mr.
Kelman said at a conference in October. "I've always thought
Redfin's instincts for candor would serve it well in the public
markets and my job during an earnings call is to bring investors
into my brain."
Shareholders didn't like what they saw inside there. Shares fell
22% the day of the call to the lowest point since the initial
public offering. Declines continue, and shares trade about 35%
lower than the Aug. 9 close.
In an interview Friday, Mr. Kelman said he doesn't use
conference calls to drive share prices. "If you use all your
special powers as a CEO to move your stock up as high as you can
for that one day, well you've just set yourself up for a fall.
Consequences of CEOs' missteps can prove fatal, or leave a
permanent dent in corporate reputation.
At the dawn of the financial crisis, Alan Schwartz, the CEO of
Bear Stearns Cos., took to CNBC on March 12, 2008, to try to
discredit market rumors of a cash crunch at the struggling Wall
Street firm. The stock closed at $61.58, already down dramatically
from the 52-week high. The decline quickly gathered pace. Two days
later, JPMorgan provided emergency financing to Bear, sending
shares to $30.85. Two days after that, Mr. Schwartz became the
venerable firm's last CEO, agreeing to sell it for $2 a share.
Investors eventually forced the price up to $10.
Earlier this year, pundits criticized Facebook's Mr. Zuckerberg
for a lack of transparency in televised interviews and Capitol Hill
testimony, staged to ease concerns about data privacy. The company
has struggled to recover. Shares are off sharply from annual highs,
multiple studies show an erosion of public trust in the social
platform, and employee confidence in Facebook's mission has
waned.
Ms. Grant said former Starbucks Corp. Chairman Howard Schultz
set a good example of how to reassure stakeholders amid crisis
earlier this year. The company was immersed in controversy after
the arrest of two black men who tried to use a restroom without
buying anything at a Starbucks in Philadelphia.
"Schultz did a good job of saying he didn't have solutions
ready, but still insisting 'this isn't OK' and 'what I care about
is a good solution.'" Ms. Grant said his audience walked away
confident company management "had a moral compass even if he didn't
have all the answers."
Mr. Mayew said that although Mr. Culp is experienced, he's
stepping into a much higher-profile role at GE than he held at a
smaller rival. He doesn't necessarily have the credibility Howard
Schultz enjoys.
"The market can form such strong expectations early in the life
of a CEO, " the Duke professor said. He suggests that Mr. Culp can
build a track record over the course of several quarterly
conference calls.
Unfortunately for Mr. Culp, investors don't have a lot of
patience left for the once mighty conglomerate.
Write to John D. Stoll at john.stoll@wsj.com
(END) Dow Jones Newswires
November 17, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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