If you’re in the business of communicating financial data, don’t succumb to the charm of state-of-the-art technology, especially online video. In choosing a messenger medium, a conservative approach is best.
Trust is paramount.
That concept was underscored by a 2012 academic study that concluded the use of online video by CEOs to release a financial restatement will not be fully trusted by investors, especially when blaming others for accounting errors.
The study’s researchers: Frank D. Hodge of the University of Washington’s Foster School of Business, W. Brooke Elliott of the University of Illinois at Urbana-Champaign, and Lisa M. Sedor of DePaul University.
A headline for the article regarding the study at accountingtoday.com read: “Study Examines Use of Video for Financial Restatements.”
The site explained the study was published by the American Accounting Association in The Accounting Review.
Apparently, it’s OK to use a YouTube video when management is contrite for reporting errors.
But such contrition for errors and a restatement raises suspicious eyebrows when management points the finger at outside accountants.
“Video announcements of this kind require very special care,” said Dr. Hodge, according to accountingtoday.com.
“Managing the response of investors to events as negative as restatements (which, according to the GAO, reduced market capitalization of companies by $36 billion over a three-year period) is a formidable undertaking,” he explained. “Doing so via video over the Internet makes it all the more formidable.”
The study reveals a CEO who apologizes in online video for the need of a restatement – on a rating scale of 1 to 7 – receives a 6.15 rating. But a CEO who attributes the errors to outside accountants only gets a 4 rating.
On the other hand, such CEO statements in print were accorded ratings of 4.75 and 4.55, respectively.
The use of such online video also affected the amounts invested by fund managers. The amounts only decreased 3 percent if the CEO accepted fault.
But if the CEO pointed fingers, the investments dropped by nearly 26 percent. If the same information was presented in print, the decreases were 16 percent and 13 percent, respectively.
Methodology for the fictional scenarios: The researchers compared the opinions of 80 managers who had an average nine years experience. They were divided into four groups.
“Restating financial statements is inconsistent with investors’ positive expectations regarding an investee firm and its management, thus damaging investor trust,” the researchers wrote.
“Although excuses can be effective, individuals who deny responsibility for a failure (i.e., excuse their behavior by blaming others) risk being viewed as more deceitful and as possessing lower character than are individuals who accept responsibility for the failure,” they explained. “Beliefs about another’s character are key components of trust, and once violated trust is difficult to repair. Even when the violator issues an apology, accepting responsibility by making an internal attribution repairs trust to a greater extent than does denying responsibility by making an external attribution.”
The study makes sense. However, my view as a business-performance consultant is that a video should only be used to direct viewers to the source of information – not conveying the full information.
From the Coach’s Corner, suggested reading for consultants:
How Twitter Levels the Playing Field for Small Cap Companies — Good news for venture capitalists and entrepreneurs who are known to kvetch that that their companies fall below the radar screen of Wall Street analysts and the media. It’s widely known that mainstream media coverage seems to favor large companies over small ones. It’s a valid concern.
Insights into How Twitter Users Can Forge Opinion — If you want to influence public opinion on Twitter, the trick is to get your message out early. Once your message is stabilized on the social medium, it’s too difficult for your competitors to overcome your lead according to research.
Performance Gap Solutions for Consultants in Income and Image — How’s business? Is it time for a little biz coaching? If there’s a disparity between your income goals and your current financial situation, it would appear that you have a performance-gap issue.
Consultants – 5 Strategies to Build Trust with Clients — The five strategies that enhance relationships between consultants and clients.
Tips for Building Long-Term Client Relationships with Effective Meetings — How are you faring with your clients? Not sure? To be certain you’re doing well, you must ask yourself three key questions.
“In a networked world, trust is the most important currency.”