Warren Buffett likes companies led by CEOs who talk to investors as partners.

Last week L.J. told Henry Blodget of Yahoo Finance that she does not know what stocks Warren Buffett will buy. In fact, no one knows this. Buffett never discusses this publicly and certainly not at his annual meeting. But we do know he likes companies where the CEO talks to investors like partners. Over the years, Rittenhouse Rankings, Inc. has developed a model to analyze which CEOs do the best job in this department. We award points for certain topics so we can quantify the amount of positive candor and negative FOG (Factless, Obfuscating, Generalities) in an executive communication. We total these points to get a score and then rank order the 100 companies in our survey on the basis of these scores. Over the past 8 years, we have found that high-scoring companies outperform low-scoring companies.

And why not? A CEO that chooses to communicate candidly is less likely to start believing his or her own press. They will have clear strategies and elicit better execution from their teams. Clear, straight and balanced talk shows that a CEO respects investors as owners and partners. Why would any investor trust a CEO who communicated with them in unintelligible and muddled prose? Words are powerful. Smart and principles CEOs know this. Just like Warren Buffett does.

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