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Reading Body Language: The Investment Community’s New Secret Weapon

“Lie to Me.” The name of the prime time drama on Fox is a challenge. “Go ahead. I dare you to try to pull one over on me.” The show’s protagonist, played by Tim Roth, is an expert in detecting deception and is hired by corporations, government agencies and private citizens to analyze body language.

We’ve all heard about how valuable body language is in interpersonal communication, but is Lie to Me more fiction than fact? Not even close. The investment community is now using real-life consulting firms like the one in Lie to Me to analyze the truthfulness of corporate executives.

In his 2010 book Broker, Trader, Lawyer Spy, POLITICO White House Reporter Eamon Javers recounts stories of former CIA agents working with major hedge funds and bulge bracket investment banks. Boston-based Business Intelligence Advisors (BIA) is one firm mentioned by name in Javers’ book. BIA, which consults solely for the financial services industry, including institutional investors and venture capitalists, is comprised of former intelligence community agents.

The firm uses its Tactical Behavior Assessment Methodology® “to help clients to systematically analyze and measure the quality of information in corporate disclosure, resulting in better and more informed investing decisions.” BIA claims to have analyzed more than 50,000 Q&A exchanges and 4,000 earnings calls since its inception in 2001.

BIA operates in a growing market niche. Both buy- and sell-side firms are routinely being trained to “read” the body language and speech patterns of corporate executives. At a recent NIRI Boston meeting, a panel of investment community members assured the audience that this is no urban myth. Investors and analysts always have been wary of over-exuberant CEOs, and now they have the tools to detect whether these executives actually believe what they’re saying.

A sophisticated deception expert will be able to read all of the verbal and non-verbal signs, including very quick, involuntary micro facial expressions. But for those who have not been through a training program at Langley, what are a few of the giveaways that these experts might be looking for? Covering the mouth with one’s hands while answering questions is a sign of deception. In addition, if someone says yes while subtly shaking their head, their subconscious has betrayed them.

Of course, reading body language in investment community situations is not always about “truth” or “lies.” It can be about how comfortable management feels about a particular subject (say, for example, financial guidance). Covering one’s neck (i.e. subconsciously seeking to protect a vulnerable part of their body) is a sign of discomfort, as is adjusting a tie or loosening a collar. How about rubbing the forehead? Another sign of insecurity. Experts also listen to verbal cues. For example, executives who are uncomfortable with what they are saying often use “distancing language,” such as changing pronouns from “I” and “we” to “the company.”

Of course, all of these signals on their own are not prima facie evidence that a person is lying. Good readers of body language and verbal cues understand that to truly “read” a subject effectively, they must be in tune with that person’s normal speech and body language patterns. The thousands of investment professionals who have been exposed to entry-level deception training are probably not skilled enough to determine the difference between a lie and an inadvertent gesture. For example, is that shaky voice the result of trepidation, or a cold?

This leads us to a valuable lesson for corporate executives. It is critical for anyone who presents to the investment community to be trained in using body language and verbal message delivery to ensure that they are not unknowingly sending signals that may cause unnecessary alarm.

With help from ex-CIA and FBI agents, investors’ guards are up more than ever before. They believe they have the tools to detect discomfort with guidance, insecurity about a company’s future, and lack of candor about competitive advantages. When investors walk into a one-on-one meeting, they’re issuing management a challenge: “Lie to me.”

David Calusdian, an executive vice president and partner at Sharon Merrill, frequently coaches executives and board members on presentation and message delivery, including the effective use of voice and body language. Sharon Merrill develops critical communications for public and private companies that need to inform, engage and persuade shareholders, employees, customers and other key constituents. Since 1985, the firm has served as a strategic advisor to management teams and boards. Sharon Merrill’s award-winning programs focus on investor relations, crisis communications, transaction communications and reputation management.

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