"Corporate bullshit": why investors are worse off when they start believing it

In the corporate world, there's a term for corporate bullshit - sonorous but essentially meaningless or vague phrases that a company uses in situations of failed strategies or even trivial uncertainty. In a new study, psychologist Shane Littrell shows that the tendency to "fall for" such corporate speak is linked to relatively low-quality decisions at work. For an investor, this can be another tool for filtering information and a way of assessing how much to trust the people whose companies you've invested in.

The author of the study, Shane Littrell, a cognitive psychologist at Cornell University in the United States, defines corporate bullshit as a special kind of information: logically and semantically dubious, but presented in such a way as to appear meaningful and impressive. In the case of corporations and companies, it is more of a mix of jargon, vague promises, lofty goals, and buzzwords - "transformation," "ecosystem," "synergies," "user experience revolution," and combinations thereof. The goal of such a speech is not to explain the business, but to affect emotions.

Littrell and colleagues did, in fact, what many investors dream of: they created the Corporate Bullshit Receptivity Scale. This is the product of experiments involving more than 1,000 people. They were shown a set of phrases: some were generated by an algorithm that collects typical corporate jargon into sentences, and some were real quotes from top managers' speeches. Participants were then asked to rate how meaningful they found the utterances, and then rated their analytical thinking as part of their cognitive function, as well as the quality of their decisions in simulated work situations. Those who gave corporate bullshit higher ratings performed worse on average on tests of effective decision-making. They were more likely to admire "inspirational" leadership and lofty company missions, but less likely to demonstrate a cold, critical eye for the facts.

Based on the study, we can identify several criteria that are peculiar to corporate bullshit.

- Ratio of slogans to specifics. The more a company uses phrases like "we are rethinking the industry" or "creating the ecosystem of the future" in its communications without explaining the mechanics of making money, the higher the level of corporate nonsense.

- Focus on "vanity"-vanity metrics. If a company talks mostly about the number of users, downloads, "volume of transactions processed" and barely discusses margins, funding costs, credit losses, or other financial data, this can be considered a red flag.

- Moving away from reporting to "adjusted" metrics. If a company often uses adjusted metrics in communication, such as EBITDA, "adjusted profit" and other indicators without a transparent bridge to official reporting, it makes sense to look at it as a convenient screen behind which it is easy to hide problems.

- Attitude toward risk. Corporate bullshit doesn't like to talk about failures, so if management's speech barely talks about threats, or there is no acknowledgement of mistakes, discussion of regulatory risks or deterioration scenarios, and everything is presented as a linear movement towards a "bright future", it is a reason to be wary.

- Investor communication style. It is important not only what they say, but also how they say it. Often short, yet informative answers to uncomfortable questions from analysts, readiness to explain negative trends and not to "gloss over" them is a sign of a healthier management culture. On the contrary, a constant retreat into general words when asked specific questions is a signal of corporate nonsense.

For an investor, the conclusion is simple: if a company's management and a significant part of its employees live in a world of corporate nonsense, the risk of poor quality management decisions is higher. This, in turn, means that it makes sense to pay more attention to words, because corporate nonsense interferes with the investor through two channels.

First, it distorts the business picture, creating the illusion of clarity where in fact there are many risks and unknowns. Secondly, it makes it difficult to evaluate management decisions: you hear a high-flown speech and come out feeling "great", but you cannot formulate a single concrete thesis that can be verified with figures or other facts.

In practical terms, you can rely on at least three sources: CEO letters, investor presentations, and conference call transcripts. The key question here is more like this: after reading or listening, how easy is it to formulate 3-5 verifiable statements about the business model, profit drivers and risks? If you have a list of abstract slogans instead, then corporate nonsense may prevent a rational decision from being made by the investor, not just the company's top management.

Another way is to monitor the dynamics of statements. If, as the company grows and market conditions change, the tone of communication becomes more down-to-earth and the discussion of risks becomes more open, this can be a positive signal. It's as if the company is passing a maturity test: less abstract concepts and more adult conversations about money and threats.

Corporate bullshit is not just a buzzword, but an investment risk factor that makes sense to exploit. Studies show that people who are poor at distinguishing empty but effective wording from confident, meaningful language make poorer decisions on average. The correlation with intelligence is noticeably weaker - the problem is not IQ, but how people process information.

This article was AI-translated and verified by a human editor