28 Aug Investing Between The Lines – Interview with Laura Rittenhouse
Listen To The Episode Here
Laura Rittenhouse is a trust and valuation expert, as well as a financial strategist and innovation coach to fortune 500 and small cap companies. She is also the founder of Rittenhouse Rankings, Inc. and the author of Investing Between the Lines. On this episode, Laura explains the importance of candor within an organization. She believes candor is what makes a company and its team succeed against the toughest of odds.
Investing Between The Lines – Interview with Laura Rittenhouse
Hi and welcome to The Successful Pitch. Today, I’m thrilled to have as my guest, Laura Rittenhouse, who is a trust and valuation expert as well as a financial strategist in innovation codes to Fortune 500 and small cap companies. She’s the founder and CEO of Rittenhouse rankings and the author of an amazing book called Investing between the Lines, How To Make Smarter Decisions By Decoding CEO Communications. I’ve had the opportunity to talk with her before the show. You are all in for a huge treat. Laura, welcome.
Thank you, John. What a pleasure to be with you on this call.
You are not only someone who’s smart and kind and connected, but just so enthusiastic about life. I just love people like you who make the world a better place. Before we get into all the books and your connections to Warren Buffett. Who by the way everybody, Warren Buffett said that you are on the side of the angels. Laura is in fact somebody that you’re going to want to get to know and you must read her books, Investing between the Lines, Buffett Bites. Just such an expert.
How did you become who you are? Take us back a little bit before you started your company and your first early jobs that made you want to get into all this world of investing.
Coming out of college, my first job was being accepted as a Peace Corp volunteer.
I love it.
I worked in an orphanage in Turkey. That was one of the most meaningful. It was a great experience because it was a total failure. It wasn’t a total failure. It was a failure in the sense that we had signed on for a two year commitment. It ended up being one year because the revolutionary fists of a free and democratic Turkey wanted to bang on their heads. It was thought that it would be a good idea for us to leave the country at that point.
I’m going to jump around, but we’ll go back to your background. You were ranked one of the 100 Most Trustworthy People in America by Trust Across America. You’re an expert in candor and trust. You do just wrote this amazing blog, Clowns Without Borders. Now that I know that you were in the Peace Corp, it speaks more to why you have such authenticity around this.
Can you just tell us a little bit about that great blog you wrote, Clowns Without Borders, and how you’re making such a difference in the world by just putting that out there for people?
What an amazing story, John. The story gives us a window into the whole topic of candor. I blog for Forbes. What I’ve wanted to start is the series on Candor Heroes. Who are the Candor Heroes? They’re people who, and as you and I have discussed, are courageous and shining light into dark places. That mission is embodied in the very word.
The word candor comes from the Latin candere, which means to illuminate. The word candle of course comes from that same root word. When you think, what does illumination do? It shines light into dark places. Leaders who do that, very impressive and also very courageous.
The blog started out of a webinar I was listening to on a topic very much related to candor, called conversational intelligence. Wonderful work. It links brain neuroscience with the opportunity we have to use conversation in a way to create good things in the world and to avoid creating bad things.
The person who hosted this, a man named Benjamin Croft. At the very end of the blog he said, “Glad that you’re on the call today. By the way, in a few weeks, I’m going to be near the Syrian border with Clowns Without Borders. Wish me luck.” I was stunned. I thought, “Oh my heavens, Clowns Without Borders? I know about doctors, but whoever heard of clowns?” I immediately googled them. It’s a legitimate organization.
I contacted Benjamin. He wrote back to me and we’ve become friends since then. Yes indeed, this story happened after the Paris attacks. He was in Istanbul at the time. He said, “We have to do something. What can we do?”
He used the money that they earned from giving this webinar and they sponsored a tour of Clowns Without Borders. They brought clowns over from the US. They contacted clowns in Turkey. After about a week and a half of training and so on, they actually went to these refugee camps along the border.
There was one place they went to in Eastern Turkey where only just months before, 20 people had been massacred, on the same stage where they were performing. It was almost like an exorcism there to have this horrible experience, now turned and transformed by the clowns into a place of joy.
I felt so strongly that it was important to get this message out to the world. I’ve gotten terrific response, wonderful emails back from people who were so inspired by it.
It’s just taking a wonderful concept of lighting something in dark places and bringing it to life because it doesn’t get much darker than that. Clowns are such a opposite, you don’t think you have time for laughter and joy when you’re in survival mode. Yet, something like that can remind us all of how we can shift our focus so quickly. Like you said, “Don’t curse the darkness. Light a candle.”
Absolutely. I love what Benjamin said too when he said, “There are lots of things. We could’ve brought them stuff. Stuff can be stolen, stuff is used.” We wanted to bring something that couldn’t be stolen, that could last forever. A memory like this, how could you not love it?
That’s so wonderful. Making a difference. You were at Lehman Brothers for ten years, being involved with corporate finance. Now, you’re running Rittenhouse Rankings. You really have become an expert in being able to cut to the chase, as it were. Really cut through the clutter and get to what’s going on. Tell us about Candor Investment Fund and what you do there.
Leaving Lehman Brothers, and you asked earlier, how did I get to do the things I’m doing today. I loved being in Lehman Brothers. This was the time when Wall Street was still very much guided by the value of making sure that clients were taken care of and serving them and coming up with brilliant ideas on how they could run their businesses better.
I reached a point in my life where I felt that … I think a lot of people, if you’re lucky, you get to the point you say, “Who’s life am I living? Am I living the life I should live or the life that I truly was born to live?” I decided I wanted to take some time out, to figure out what that was.
I spent a year travelling, talking to people. A lot of the CEOs that I had worked with on Wall Street called me and they said, “We still want to work with you. What can we do?” We began to set up investor relations programs, which at that time was a new thing to do.
In doing that, it became clear that the reputation of the CEO was a major factor in the stock price valuation. If my CEO clients could become truly effective, authentic communicators and build trust because, without candor there is no trust. Then this would be a very powerful way to enhance the valuation of their company. Trust is the foundation of a corporate culture in a business.
You’ve got people operating in all cylinders, wanting to work together. They’re aligned in a mission, aligned in a strategy and you’re going to be generating better results than your competitors who don’t have high levels of trust.
We’re going to tweet that out, “Without candor, there is no trust.” That is so insightful. What do you think caused you to be ranked as 100 Most Trustworthy People of Business? You’re clearly an expert in this. I’d love to have you define what makes people trustworthy as they have to be candor and transparent. I believe that’s one of the things you’ve talked about before.
I have a client that, when he introduces me to people he likes to say, “I’d like to meet LJ Rittenhouse. She spots bullshit faster than any …” I consider that a great tribute.
That’s great. It is. One of your key expertises is looking at the shareholder’s letter and a stock report and being able to not even have to read anything else to determine whether that’s a good investment or not, right?
That’s exactly right, John. That is what has led to creating the first ever Candor Investment Fund. In that work I was doing with CEOs, working with them on their strategies. In order to be effective with your investors, you have to have a very compelling story and it had to be real. Again, the basis of conversation intelligence is that nothing happens outside of conversation, nothing. Conversation is the special sauce that creates things in the world.
It’s not emails, it’s not your proposals, it’s not your business plan, it’s conversation, right?
It’s conversations about the business plan. It’s emails that stimulate conversation. Again, person to person is still more powerful ultimately than digital to digital. Although, I don’t like to take anything away from digital. We’ve seen that it can have a lot of power too.
In my experience, moving things forward in the world, especially new things, something like candor. It’s funny. People are afraid of candor. When I say the word, they get nervous because they think that I’m judging them as to whether they’re lying or telling the truth.
I think more importantly, what people miss is the element of authenticity. Mark Twain wrote so many wonderful things about candor and truth and lying. He said, “Tell the truth and then you don’t have to remember what you said.”
There you go. It is so important when you’re pitching for an investor too, that you are authentic. Because you can’t lie. It’ll come out during due diligence and then the whole deal will fall apart.
There goes the trust. You’re asking about the shareholder letters. As I was advising my CEO clients, I read lots and lots of shareholder letters. I read my clients letters and then I read letters of their competitors or their peer companies.
Over time, I began to see patterns. That’s the first step in creating a model of reality. That’s the first step in creating a taxonomy so that you could begin to find the similarities and the differences and the ability to compare and contrast. That does make sense to you?
It does. I think it’s fascinating that you can measure something like candor into structure and then make predictions based on that.
The book, Invest between the Lines, which I never expected this. It was more than a dream come true. This book was recommended by Warren Buffett in his shareholder letter. The granddaddy, the gold standard of all shareholder letters. Warren, throughout the years, has been very supportive of our work.
What the analysis, when investors, portfolio managers, I’ve talked with them over the years and I’ll give them my conclusions about the value proposition, the investing value proposition in a company. It’s almost ludicrous.
They’ll say, “Yup, we understand. We agree with that. Yup, we agree with your assessment on management. Spot on. Yes, this is a strategic vulnerability they have. Yes, they’re doing great. They make great products.”
So much agreement. At the end, I’ll sit back and I’ll say, “It’s just great that we see so much of the same thing. But let me just observe something. Number one, you spend hours and hours running, spreadsheets, talking to management, talking to employees, visiting customers, talking to competitors, going to industry conferences. You’re doing all this effort.” All I did was read the shareholder letter and we came out with basically the same conclusions.
Crazy. It’s a huge amount of time and money you’re saving people if they just use your expertise. What advise would you have Laura, for someone who is a founder? Maybe they’re public, maybe they’re not.
They have to communicate in whatever form that’s going to be, whether it’s a pitch or a shareholders letter, to people so that you can get a sense of who they are. Is it the candor that we’ve had some troubles and we’ve addressed it versus trying to just gloss over things? What is it you really look for when you’re looking at those letters?
There’s something called a strategic balance. I described this in my book. After all the years of reading these letters and creating this taxonomy, it became clear that all the topics we were coding and scoring for could be organized into a seven system model.
Those seven systems are, strategy supported by accountability systems. That’s two. Vision supported by strong leadership. The back bone of a company are the stakeholder relationships, the quality of those relationships.
In the center of a business is the commitment to capital stewardship. After all, it’s a profit making company. If you’re not focused on how smartly you’re allocating the capital, you’re probably wasting it and you won’t be meeting your investors’ expectations and you could go out of business. Capital stewardship is the key principle. Something to observe. Most importantly is candor. That’s the seventh system in this business.
As we’ve said, candor supports the quality of those stakeholder relationships and builds trust. Now, you asked how do we make assessments of companies. We have seen over time that companies that are balanced, which have high scores, high linguistic scores, content scores.
They’re not all strategy, but they have good balance between strategy and accountability systems. Good balance between vision. It’s not over 50% vision and then very little on the other systems. Companies that are very well balanced, you think about it, that gives them a solid foundation to deal with whatever, the economy, their competitors. Whatever gets thrown at them.
That’s one factor. Another factor is the BS and the truth telling. That’s a very important factor. Those are the rankings that we publish every year. We rank order 100 companies based on how much candor, positive candor truth telling they have and how much obfuscation or BS they show in their communication.
When we correlate these top ranked companies and the bottom ranked companies, we’ve found over the past decade, that the top ranked companies outperform the bottom ranked and also outperform the market over this period.
Let’s talk about the connection between candor and vision, which is one of your other strategy systems that you talked about. I’d love to hear that connection and how important it is to balance your vision and your candor.
Let me ask you, what do you think of when you think of vision?
I think it’s important for a founder to have a vision that they can communicate to the employees about where they see the company going. What the mission statement is? What the big picture is? Then turn around and communicate that to anybody who is going to invest. Whether it’s an Angel investor or stockholder, eventually. Having that vision and if that vision needs to change, being able to communicate that with candor.
I’m so glad you asked me that question because it gives me a chance to focus on something that I’ve been spending a lot more time thinking about. You’re absolutely right. When people think of vision, they often think of what’s our mission. I think the word that kind of relates to that but I think is more powerful is, what is our purpose?
There we go.
What is our purpose? I’ve been watching this video of Richard Leider, who does a lot of focus on this. He likes to say, “What are the two most important days in your life? We can look on this as both a business and as one’s own individual life. Is it the day you’re born and the day you die? No,” he says. The two most important days are the day you’re born and then the day you learn why you were born. Purpose.
Nice, I love that. We’re going to tweet that out, “The day you were born and the day you learn why you were born.” Great.
That is no different from a company. If you are in a company where you feel that this company is bringing something meaningful into the world, doing it with integrity, you can see what a difference it’s making, boy, that gets you up in the morning. That gets you up. It’s like Warren Buffett likes to say, “I tap dance to work every day.”
What a great image that is. Because there’s a purpose behind what he’s doing. It’s not just to make money.
It is about making money because it’s a score card to tell who’s winning, right?
Right, but if not just about that.
For him, it’s how he’s making that money that’s important.
It’s how can we analyze companies better than others more smartly? Here’s the really important distinction. How can we do it for the long term? What we have is the cancer in our financial system. Here’s a tweet for you. The cancer in our financial system is this focus on short termism.
Yes, that is a cancer. That’s what causes turnover. That’s what causes in morale. That causes fear. When you’re just focused on short term vision of, “Oh, if you don’t hit this number for the quarter, you’re all fired.” Or, “We’re totally changing our purpose and our mission statement and shutting down factories,” as opposed to seen the big picture of what this could be.
What are some of the other quotes that you like from Warren Buffett? Because he has so many and I just want to hear what some of your favorites are since you’re so connected to him.
The one we shared that comes from his owner’s manual. It’s so interesting. Berkshire Hathaway is the only company that has published an owner’s manual. Just like if you’re buying an appliance and you get in the instructions here, “This is what you can expect from using this.”
He wrote the owner’s manual. If you buy the stock, this is what you can expect from us, the owners. The reason that candor is one of the principles that he follows and promises to investors is because he says at the end, “The CEO who misleads others in public will eventually mislead himself in private.”
There we go. That’s it. There’s the gem. If you lie to other people, you’re eventually going to lie to yourself.
Exactly right. Thank you for saying that because that gets us into the topic of Candor Boot Camp. I have worked with corporations on how to bring more candor into the organization. That means working with teams. What’s most successful is when I worked with multi-level teams. Anywhere from presidents down to factory workers.
It’s so powerful to get the people who don’t normally get to communicate with each other have conversations with each other, to stimulate that. There’s so much learning that goes on. It requires a certain humility. You’re bringing a humility to that and an openness that leads to innovation and creativity.
Candor Boot Camp, when you think about it John, this is what we’re developing now, Candor Boot Camp needs to be taught in three modules. First, and it’s what we’ve just mentioned in relation to the Buffett quote. First is intrapersonal candor. Bringing people together and helping each other suddenly confront the BS in their own lives. What am I lying to myself about? What is special? What’s my purpose? What is my purpose? If I don’t know what it is, how can I find that out?
There’s that whole piece. People come out of that session and it’s almost like I don’t want to say they’ve been to church because that has a certain connotation these days. It’s very freeing. However, once people have experienced what it means to live candidly, to go back into the workplace and work with other people that haven’t had this experience can be very hard.
The next module is to bring teams together and practice, have skills and exercise where people can practice team-based behavior.
Because that allows everybody be speaking the same language when you do that.
Exactly, and feel safe. The whole point about candor is that you create an environment where people feel safe to say what they really think and what they really mean.
Laura, it’s so interesting you said that because to me, that’s the highest compliment anybody can ever give me. Is, “I feel safe when I’m with you to be myself.” It’s also the highest compliment I can give anybody. “I can take my mask down, I can be a little bit vulnerable with you.”
When you said earlier about humility is one of the keys to innovation, that’s such an important takeaway for our listeners. When you’re pitching for funding for your company, you have to come across confident and humble at the same time.
In other words, you have to be coachable because that’s where the innovation comes. You can’t know everything. Nobody wants to invest in somebody who thinks they know everything. They want somebody who has a vision, with candor and humility.
Beautifully said. That gets us to the third module, which is creating the candid enterprise.
What’s a candid enterprise? Tell us about that.
We’re inventing that even as we speak.
What it means is you start from the individual. The individual works in teams. Then there is a business, an enterprise, a corporation, whatever, that has a set of principles, a set of goals and strategies. That if these are not based on candor, then your teams are not going to be able to be supported in their efforts to candidly co-create and work together and achieve greatness.
There needs to be a design work to make sure that the enterprise itself has principles and expectations built into it. Getting back to our prior comment, that make it safe for people to experience candor on the job.
It goes back again to what you said. If you have a purpose of doing greatness, then everyone’s focused on that as opposed to necessarily trying to claim all the glory for a big idea or something.
Not only do you have to create a great team to get investors to want to invest in you, but then you also have to keep them working well together. It seems to me that this Candor Boot Camp is the secret sauce to keeping a team on the right track. Because you can get somebody who wants competitiveness, “I want to get promoted over you and want credit for this,” you’re way off purpose. It happens all the time.
That’s right. That’s why those three levels, intrapersonal, team-based and enterprise, are absolutely essential to be viewed together. Because if you have one and not the others, you can’t support people in this candid enterprise.
How did you come up with the title, Investing between the Lines? I love the title so much. It implies a little bit of intuition. I would love to hear how you came up with that title.
It’s a play on words. In fact, a lot of people say to me, “I love your book. Reading between the lines.” I have to say, “No, it’s Investing between the Lines.” Of course, that’s the phrase that most people are familiar with.
What does reading between the lines means, to your point, it means that you intuit, that you’re taking signals on what’s obvious, the surface. You’re getting deeper meaning from it. Similarly, investing between the lines means, “Okay, I’m reading this and I’m intuiting ideas and I’m analyzing, I’m processing information that allows me to make a better smarter investment decision.”
So great. I love it. Laura, how can people find out more about you, Investing between the Lines, the Candor Boot Camp, Twitter, all that good stuff?
Did you have any last thoughts for our listeners about how we can all have a bigger purpose, make a bigger difference in the world from what you’re doing? Is there something that you would like to leave us with that’s inspirational?
Here’s a very, very important concept. People often say, “We need more trust in the world. We need more candor in the world.” That’s only going to happen if everybody makes a commitment to be trustworthy. If everybody makes a commitment, “Okay, I will say what I really think, what I really mean. I’ll say it in a way not to attack people, not to be a jerk, not to beat around the bush. But because I’m committed. My purpose here, I’m committed to work creatively with other people to make a positive difference.”
What’s so great about you is not only do you put that out there, but you also show people how they can do that and make money at the same time. Most people think it’s one or the other. You’re a living example of how to put something positive into the world and be strategic and still make a great return on your investments. Laura, I can’t thank you enough for being on the show today.
John, thank you for having me. Thank you for the work you’re doing.
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