Lee’s study aimed to measure the effects of admitting to errors in judgement and faults, and how these actions would affect stock prices. Experimenters read one of two fictitious company reports. Both reports listed reasons why the company had performed poorly last year.
The first report placed emphasis on strategic decisions.
The second placed emphasis on external events (e.g, the economy, the competition, basically it’s not our fault, etc.)
What they found was admitting Shortcomings Shows that Companies are still in Control.
The test subjects viewed the first company far more favourably than the second. Admitting to shortcomings in areas like strategic thinking showcased that the company was still in control, despite their faults. After examining hundreds of these types of statements, Lee found that the companies who admitted to their strategic faults also had higher stock prices the following year.
When blaming external forces (even if they’re true), companies gave skeptics a reason to view them as not having the ability to fix the problem, in addition to the consideration that they might just be making excuses.
Admitting to honest errors in judgement helps your customers understand that you are still in control of the situation and increases their confidence in you.
By Alan S Adams