Lying, whatever word you use is bad for business

Published in the San Diego Union-Tribune, January 23, 2017

Clinton becomes 45th president.

That is what is known as fake news. It might also be wishful thinking by some, but let’s get real, it is simply a lie. Disregard for facts can be dangerous. For example, the Comet Ping Pong pizza parlor shooting was based on a false conspiracy news story about child sex trafficking.

We know that fake news occurs in politics, but let’s look at its twin brother — “paltering” — the active use of truthful statements in the service of deception. One of my favorite Harvard Business School professors, Francesca Gino, has done some thinking in this area. She says, “business executives regularly use sly tactics to get a better deal during negotiations — often making statements that are technically true, but purposely skewed to mislead the other side.”

This is the game that the startup CEO plays against me, the aging (and hopefully cagey) venture capitalist. It is how you get to the next step — engagement. At first blush, you hear the deal, and it all “sounds” good. This lures you into beginning “due diligence.”

However, it is not uncommon, after the deal closes, to find out that instead of 12 months of cash in the bank, after paying what they owe, a deal that was firm, but somehow slipped away and some revenue that didn’t quite show up, they have only six months of cash in the bank. No one lied, but they probably tilted the facts a little.

Gino says, “new research indicates that many people who palter see nothing wrong with it, whereas people on the other side feel scammed.” In the case I discussed, the venture capitalists were quite annoyed. They lost faith in the CEO and ultimately removed him. No one thought he lied, but new facts tend to shed cold light on past behavior. Ironically Gino’s research shows “that people using this strategy actually think they are telling the truth, so they think they are being honest.” It seems we have come to a point where self-deception is reality.

Now, let me take the other side for a moment — defending our beleaguered CEO. Stuff does happen. A company exists in real time, and Friday comes after Tuesday every week of the year. What was true on Tuesday can change radically through no fault of the leadership. I understand the need to be optimistic. My little biotech company has had conversations with many pharma companies but we do not have a deal yet — but when we pitch, we (honestly) talk about the “conversations.” Perhaps we have a bit of wishful thinking in our opinion of when the deal will actually be signed.

Gino contends that all of us tell “one or two lies a day.” I would probably agree statistically, but I know that some of those make my marriage better. Those of us who are mathematically inclined call that “hedging our bet or adding increased optionality.”

But let me come down clearly on one side — namely that lying is dishonest and wrong. You cannot tell someone the used car has never been in an accident when it just came off the tow truck. It is the nuance of omission vs. commission in the deception. Gino talks about “passive omission” which means I do not make the effort to correct you when you assume something that is false. I let you continue your belief or expectation. Silence is not a sin (tell that to you know whom when you check in at the pearly gates). You just don’t answer the question that was asked.

Gino conducted a study with 184 mid-level executives. They confessed that they paltered 52 percent of the time in their negotiations, but thought they lied only 28 percent of the time. (The mind has a wonderful way of rationalizing.) We also justify our behavior by shifting a bit of the obligation to the other side — let him figure it out on his own — it is all there for him to see (but only if he knows the password to the real financials).

The risks of paltering are severe — and as we all know — we assume we will not get caught. Hah. The other side has a long memory, and any trust you may have built up will be dissipated for a very long time.

Rule No. 494: The truth is– lying is common.

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