When It Comes to Half-Truths, No News Is Bad News

Insights by Stanford Business, March 15, 2023

by Theodore Kinni


 iStock/PeopleImages

Voluntary disclosures, like those issued by managers in quarterly earnings calls, inform investment decisions across financial markets. They can buoy — or puncture — corporate valuations and stock prices. But it isn’t always clear what effects result from the policies governing these disclosures, especially when it comes to rules about half-truths and the duty to update.

In a new article in Management Science, Anne Beyer, a professor of accounting at Stanford Graduate School of Business, and Ronald Dye of Northwestern’s Kellogg School of Management, use static and dynamic models to understand the effects of regulation on both voluntary corporate disclosure policies and the investors who depend on them.

Half-truths are disclosures that are true in and of themselves but misleading in light of other information managers know but choose to withhold. For example, if a company announces that it will be losing one of its major customers but doesn’t mention that it’s also aware that another major customer is likely to leave, that would be a half-truth. These kinds of omissions are illegal under federal securities law, but their definition is not universally agreed upon. This creates loopholes that can make it difficult to hold managers legally accountable for skirting the whole truth.

Legality aside, whether permitting half-truths in disclosures is preferable to prohibiting them is an open question. Many disclosure regulations aim at providing transparency for investors and other stakeholders. However, it is not self-evident whether barring managers from issuing half-truths leads them to disclose more information.

On the one hand, if a prohibition of half-truths is enforced, then a firm that wants to make a disclosure must disclose the entire truth and cannot selectively withhold part of the relevant information. This may cause the firm to not make any disclosure. On the other hand, if half-truths are allowed, a firm may be willing to share some information on a topic that it would be unwilling to share if full disclosure was required. Read the rest here.

Profiles in burnout

strategy+business, March 14, 2023

by Theodore Kinni

Photograph by PeopleImages

After New Zealand Prime Minister Jacinda Ardern unexpectedly announced her resignation on January 19, the lead on CNN’s analysis read, “Burnout is real—and it’s nothing be ashamed of.” Indeed.

It would have been more surprising if the PM had, as she described it, “a full tank, plus a bit in reserve for those unplanned and unexpected challenges that inevitably come along.” After all, she led New Zealand through a series of major crises, including the covid-19 pandemic and the Christchurch mosque shootings, which were the worst terrorist attacks in the country’s history. She endured extreme abuse online and received an unprecedented number of personal threats—so many that she may be the first ex-PM in New Zealand to require high levels of security. And she became a parent while PM, giving birth to a daughter, now four years old.

Going by The Burnout Challenge, by Christina Maslach and Michael Leiter, Ardern’s five-year-plus run as PM was a perfect storm for burnout. The authors should know. Maslach, who is professor of psychology emerita at University of California–Berkeley, created the Maslach Burnout Inventory, the first and leading burnout assessment, in 1981. Leiter, who was a professor of organizational psychology at Australia’s Deakin University and held the Canada Research Chair in Occupational Health at Acadia University, has been researching burnout—and collaborating with Maslach—for almost as long. Read the rest here.

Beware the Pitfalls of Agility

Learned a lot lending an editorial hand here:

MIT Sloan Management Review, March 3, 2023

by Bernadine J. Dykes, Kalin D. Kolev, Walter J. Ferrier, and Margaret Hughes-Morgan

Given the panoply of recent disruptions — including COVID-19, inflation, Russia’s invasion of Ukraine — it’s no surprise that many leaders are striving to quickly dial up the agility level of their companies. Indeed, the ability to rapidly adapt to changing conditions can be a shield against disruption and a healing prescription for crisis. But organizational agility is not a panacea. There are pitfalls in the pursuit of agility that can and do produce unintended consequences.

Agility is a multidimensional concept that comprises three sequential and interrelated processes: alertness to the need for change, the decision to make the change, and the mobilization of the organizational resources required to execute the change. Our agility research and observations regarding the behavior of companies, especially during the pandemic, revealed that each process contains a pitfall that can subvert its outcomes: Alertness harbors the pitfall of hubris, decision-making harbors the pitfall of impulsiveness, and mobilization harbors the pitfall of resource fatigue. Read the rest here.