Barron's recently stumbled across several hedge funds that have hired a five-year-old Boston company called Business Intelligence Advisors, which employs a number of former CIA and other national-security operatives to do behavioral analyses of corporate executives. The intent: to detect when managers are being less than candid or lying in their communications with shareholders, during interviews and quarterly earnings conference calls or even in press releases or management discussions in 10-Ks.
Other cues that BIA experts place a lot of stock in are management replies larded with irrelevant specifics, meant to obscure some troubling issue. Often the details are accurate as presented.
Qualifying words can be important also. When executives resort to such locutions as "candidly," "honestly" or "to tell the truth," watch out. They might be trying to manage perceptions rather than convey fact.
Ad hominem attacks on accusers are another staple of managements seeking to cover up problems and blunt charges. Typically, whistle-blowers and other critics are dismissed as "disgruntled former employees" or "cranks." The aim is both to impugn an accuser's credibility and to avoid having to directly deny the charges.
Nonverbal cues can also be important, though they are often subtle. For example, BIA officials assert that, in judging credibility, most people are overly biased by such nonrevelatory externals as lack of eye contact, apparent nervousness and posture. Instead, BIA looks for such indicators as what it calls "shifts in anchor points." Executive zingers are often proceeded by a sudden shift forward in body weight, for example. The onset of fidgeting -- such as playing with a water bottle or cup of coffee -- can likewise betoken acute discomfort in an executive. This is particularly telling if it contrasts with previous mannerisms and tics.
Where are the ex-CIA spooks when you really need them? I'll tell you where: in Boston, collecting sweet fees from hedge funds grown fat. Too bad, because I think can think of a really big liar who regards himself as a CEO to whom all of this applies. Everything: the reliance on irrelevant specifics meant to obscure some damaging truth, the verbal qualifications, the ad hominem attacks on accusers as an avoidance strategy, the disingenuous body language. It's all there in a highly managed choreography of deception.
Except that this whopper of a liar doesn't have a stock to short. Wait a second, hang on, I almost forgot — he did.