In 2001, President George Bush issued this appraisal of Vladimir Putin after meeting him for the first time: “I looked the man in the eye. I found him to be very straightforward and trustworthy.”

You would think it impossible to say anything stupider about a first meeting with a professionally trained liar, but fund managers constantly make equally flabbergasting assumptions about their ability to assess business leaders. Here are five reasons that meetings with C-Suite executives are overrated:

1. They lie, and they are good at it.
2. You are not anywhere near as proficient at detecting their lies as you think you are.
3. Their ability to control results is far more limited than you imagine.
4. They are not allowed to tell you anything that is not publicly available anyway.
5. You have better things to do.

Recent research indicates that as much as 21% of corporate leaders exhibit clinically significant levels of psychopathic traits, compared to only about 1% in the general population. This is only 21% of the problem. Unfortunately for us, you do not have to be a psychopath to be a skillful liar. Jeffery Pfeffer explains in his book “Leadership BS” that all people in positions of power lie more often than others because powerful people are less likely to suffer the consequences of dishonesty than those without power. A 2011 survey of American workers found that only 14% of employees considered their leaders to be ethical and only 7% believed senior management was truthful about their actions. If managers cannot win the trust of people they work with every day, what chance to you think you have as an outsider of getting to the truth?

Most fund managers who interview senior managers on a regular basis think that they are good at detecting lies, but this usually as laughable as George Bush’s assertion that he could look into a man’s soul. I’ll tell you how I know this in a second, but let’s be honest. There is no school for interviewing CEOs. It is not part of the CFA or the MBA curriculum. I like to think that I have an edge because my first career was in journalism, but even in that field, interviewing was something you learned on the job. The best book on the topic is still “The Craft of Interviewing, by John Brady, first published in 1976. Except for the quaint references to how to choose a cassette tape recorder, it is still highly recommended.

The only professions that actually teach interrogation techniques are law enforcement and espionage. Most fund managers have no idea what to look for when interviewing senior management. Interrogation experts Scott Rouse and Greg Hartley teach in their highly recommended training program  that there is no behavior that automatically always identifies a deceiver. Rather, you must look for changes in both verbal and non-verbal clues. If you only meet with the C-Suite manager only once, you have little chance of knowing what the manager’s base-line behaviors are, so there is no way you are going to detect any changes from that baseline. The reason for this is that every individual in every culture has a different baseline, just like different poker players have different tells. But in every individual and every culture, changes typically indicate stress. Just remember, that the higher in stature the manager is, the less stress he or she is likely to experience when lying. They have fewer and more subtle tells.

The signs you need to look for are not always changes in body language. If the manager uses a different tense or a word to describe an activity differently than the baseline, it may be an indication that they are hiding something. An unusual use of a word that a particular speaker had never used before in my 10 years of covering one of the strongest companies in my sector helped me sell the stock at its peak, before it has halved at the same time that the market had doubled. There were maybe as many as 200 people in the same room with me who heard the same speech, but apparently, I was the only one who knew it was a departure from baseline. Another time, an unusual bounce in the voice of a normally dour manager alerted me to the fact that an unloved company was going to post blow-out results in the next quarter. If you were hearing that bounce in the voice for the first time though, there’s a good chance you would dismiss it as a normal public relations stunt.

You cannot possibly detect these changes if you are working through an interpreter. In my case, I always work in my second language. Even if the subject confidently offers to speak English, and even if it seems that would be easier for me, I decline. I see other fund managers and analysts working through an interpreter or asking the manager to speak English. The interpreters will automatically correct any slip ups in diction so you will never have any chance of catching these. Repeatedly, throughout my career, I’ve been in a room with an English-only speaker and an interpreter, and I came away with the exact opposite conclusion from that of the English-only speaker, not because I’m naturally disagreeable, but because I had significantly more information. Even if your subject speaks English-as-second language with apparent fluency, you are hearing a practiced message, rather than one that comes naturally. The average college-educated native speaker of any language knows about 25,000 words in his or her own language. Proficient speakers of a second language can seem completely fluent with only about 10,000 words, so their ability to express the same idea differently is more limited, and this simply reduces the opportunities for the interrogator to detect stress. In my view, if you are not speaking in the subject’s native language, there is little point in conducting the interview.

For one thing, professional liars never actually lie. They will rarely tell you something that is not true because this is too easy to detect. Most often they will either omit key facts or they will try to change the subject. The more senior they are in management, the more skillfully they will pull this off. If you are not speaking their language, if you are just meeting someone for the first time, you have little hope of noticing. Even if you notice, you might not get the chance to react. It is not enough to know someone is lying. Your job is to find out why they are lying.

I have conducted more than 1,000 interviews with CEOs and CFOs and IR representatives, and in my experience, the likelihood of being lied to increases with the status of the interviewee and the decreases with the amount of knowledge of the interviewer. It also decreases with the level of familiarity that the interviewer has with the interviewee. I have asked junior analysts to call and ask questions without identifying themselves. I then called myself, asked the identical question, and got a completely different answer just because the speaker knew that I could not be as easily fooled. I have even had this happen to me in the same phone call! I was talking to a manager who did not catch my name at the start of the call. He gave me an answer that I knew to be inaccurate, and I challenged him. He then asked me to re-identify myself, and he audibly gasped, saying something to the tune of, “Oh, Mike Allen. I’m sorry. Yes, your right, we actually (did something completely different than what I just said.”) This really happened, and not too long ago. This is so normal I did not even think to get angry. If you are not familiar to the speaker, you have to find a way to establish the fact that you are a worthy of receiving the truth.

My rule of thumb is that if I am going to establish my credibility and demonstrate to the speaker that I’m worthy of being taken seriously, I’m going to need to ask them a material question they haven’t heard before within the first ten minutes of the meeting. If I am speaking with the CEO or the CFO that I have met before, I am still going to spend more than a full, distraction-free day preparing. If it is the first time to meet, I may need to dedicate a full week to the preparation.
If you are a generalist, you cannot devote an entire day to preparation even if you want to. So, in my view, you are better off talking to someone in IR. They are less likely to lie, and it will be easier to detect when they do. A generalist interviewing a C-level executive for the first time is going to get eaten alive every time. If you must meet with management, consider bringing an expert with you. This can be an internal or an external analyst, but the mere presence of an expert is a signal that you are not going to be an easy mark, and the person you are interviewing will automatically increase the level of honesty in his answers.

I had a problem teaching this concept when I became the leader of a team of eighteen buy-side analysts. Every single one of them would come to me with an idea that started with: “I just met with the CFO of company-X, and he told me Y, so I think Z” My first question, always, was, “Were you the first person to be told this?” If the answer was “yes,” then we could not use the information legally. If the answer was “no,” then we could not use the information profitably. Either way, the fact that the CFO just told you something is irrelevant.

On the other hand, whenever I have worked as a sell-side analyst, I’ve long ago learned that the best way to get a client’s attention is still to say, “I just spoke with the CEO, and…” Even though I know this to be a complete bullshit line, clients seem to want to be lied to this way. Just remember, whether you talk to a senior manager, the head of the IR department, or even a janitor in the back office, they cannot legally tell you anything that is not already public. What matters far more frequently is what they did not say, or how they did not say it.

Of course, the elephant-sized assumption in the room is that a single exceptionally talented leader can have a meaningful effect on performance. Corporations are complex organizations, and the opportunities for any one individual to make very much difference are rare, at best. Warren Buffett famously once quipped that he would rather buy companies that can be run by an imbecile because eventually, all companies will be. Academic research backs him up. A paper on CEO Change and Performance in Large Firms in the Strategic Management Journal acknowledged that understanding the relationship between managerial succession and organizational performance remained an elusive goal after more than two decades of research. A more recent asking “Does it Pay to Change the CEO?” concluded that it does not.

Geoff Colvin’s book Talent is Overrated explains how scientific research has proved that what most of us believe about superior performance is off base.  He shows how most organizations value the wrong things, such as managerial talent, experience, intelligence, and hard work, which turn out to be irrelevant. Instead, he shows how world-class performance comes from behaviors that every person and organization can adopt. Badly run companies can improve, and well-run companies can collapse.

The final nail in this coffin is that it is not even your job to buy well-managed companies or sell poorly managed companies. In all markets, at all times, stocks outperform because they exceed expectations and the underperform because they fail to meet expectations. The common thread is that expectations are faulty. This can happen just as easily to either well-managed or poorly managed companies. If you are going to interview management, your objective should be to find reasons to believe that the market has badly misjudged the current management. The question you should be asking yourself is, “Can you reasonably expect to do that in a one-hour meeting? If you have to go through an interpreter, then you really only have 30 minutes. The point of this article is that maybe you can, and maybe you can’t, but don’t rely on this as your primary source of investment ideas. The odds of it proving consistently fruitful are low.

Institutional Investors can ask Azabu Research to interview management directly in Japanese. Mike Allen has been interviewing Japanese managers for more than 30 years. He was trained as a journalist and has taken military-grade interrogation courses. While we cannot guarantee that the results of any single interview will make a difference in any investment decision, we think this approach can greatly increase the odds that a management interview makes a useful contribution to the investment process.

Please click here for more information or to request a management interview or any other be-spoke research project.