Fuqua Insights Podcast: Can Your Voice Indicate Leadership Potential?

Scott Dyreng 00:05

All right, welcome back to the show. Today, we're diving into a fascinating intersection of finance, psychology and human behavior, specifically how the sound of a CEO's voice can shape their career, influence investor perceptions and even predict the future performance of their firm. My guest is Professor Bill Mayew here at the Fuqua School of Business, whose groundbreaking research explores how subtle vocal cues like pitch and emotional tone carry real economic consequences in the corporate world, from deep voices being associated with higher compensation and longer tenures to the emotional undertones managers convey during earnings calls, signaling good or bad news ahead. His work opens up a whole new dimension of how we understand leadership and market communication. I'm thrilled to have him on the podcast. Let's go so Bill. Thanks for joining me today. I hope everything's going well. Let's just jump right in. And let's talk about first, this paper that you have, which I believe is published in the Journal of Finance, called “The Power of Voice: Managerial Affective States and Future Firm Performance.” So in this paper, you analyzed emotional cues in managers voices to predict firm performance. Can you explain how layered voice analysis, sometimes called LVA, works and what kinds of emotions it can detect.

Bill Mayew 01:26

Well, thanks for having me excited to talk about this. LVA is a commercial product that was on the market way back in the early 2000s and was one of the first of its kind, where you could analyze audio files as an outsider. How the software actually works as proprietary, it turns out, but the intuition is that they utilized actual interrogation audio files to try to harvest out vocal markers that indicate a range of emotions related to deception. It's like reverse engineering for vocal markers. Of course, in the review process of the paper, we reverse engineered the software a bit on our own to get a sense for what vocal features it was picking up, things such as voice pitch.

Scott Dyreng 02:05

That’s very cool. So, and I'm just out of curiosity, has this been used like outside of academia, or was it done mostly in academia? Or where did it come from?

Bill Mayew 02:13

It started outside of academia, and its initial applications were for police interrogations. And so it has made its way into academics since our paper outside of the financial sector, but it's primarily used in call centers and in interrogations, for example, in insurance fraud claims.

Scott Dyreng 02:33

Very cool. Okay. One of the striking findings that you guys have is that analysts seem to react to positive emotion, but not to negative. So why do you think it is that analysts systematically under react to negative emotions?

Bill Mayew 02:45

Well, so as a CEO sounds, certainly is a clue to how they feel, and how they feel is probably tied to the economic conditions of the firm. And so an analyst certainly would be interested in whether the CEO felt or seemed positive or negative. But it turns out analysts have what we call an asymmetric cost function, and all that means is that it's very costly for an analyst to say something negative about a firm compared to the effects if they say something positive about the firm. And the reason for this is saying something negative about the firm will cut you off from the information flow. So as an analyst, you need to be very sure before you say something negative about a firm. And of course, vocal signals are soft in the sense that it's hard to quantify exactly how the negative emotion is going to map into the firm's future fundamentals, like earnings. So how analysts deal with this, then is they're quick to respond to the positive emotion, because if they're wrong, they will not get cut off from managers.

Scott Dyreng 03:49

So when you say they get cut off from the information flow, how exactly does that happen?

Bill Mayew 03:53

So managers will stop taking your phone calls, stop interacting with you outside of the earnings call, and as a manager, as an analyst, that's your lifeblood, the information flow from managers. And we're not talking about insider trading here. We're just talking about things like getting invited to an investor conference or just being with a management team who will be responsive to the questions that you'll ask.

Scott Dyreng 04:16

So you guys show that managers’ emotional tone predicts both short term market reactions and future firm fundamentals. Should investors be listening more closely to how things are said on earnings calls instead of just what is actually said?

Bill Mayew 04:33

Well, we'd say from our paper that they absolutely should. And it turns out our paper was one of the first to suggest that this is a phenomenon, that there's information and how someone sounds. But now hedge funds have machines that can listen and execute trades in real time. And as an example of this, in terms of how the industry has advanced, there's a company now called markets EQ, and they do both sides of the equation, if you will. They provide services where managers can upload what they intend to say and get feedback from them to score their own communication. And they also sell a service that, all in real time, analyzes conference calls for signals, and it's making its way into academic research now in an in-press paper that's coming out the Journal of accounting and economics.

Scott Dyreng 05:16

This type of research blends psychology, linguistics, finance and accounting, how do you approach interdisciplinary research like this, and how has it been received in kind of more traditional accounting and finance circles?

Bill Mayew 05:31

Well, I think in finance and accounting, we ultimately care about credible signals of fundamental value. If analysis of numbers, for example, if you think about how we've conducted finance and accounting research for over 50 years. We've been focusing on numbers that come from financial reports. The analysis of text in large samples has increased a ton in the last 20 years, and voice has probably been around for the last decade. CEO speaking in public on a regular basis has happened ever since the early 2000s and so it's enabled researchers to go in and try to figure out if there's important information that leaks or is pushed out on purpose by managers based on how they sound. And those groundings of the signal are partly based in psychology and linguistics, and those help inform how we might look for a signal when we're thinking about pricing the firm or pricing a stock

Scott Dyreng 06:22

Looking ahead, how do you see voice analytics shaping things like corporate governance, investor relations or even the type of executive that one might hire?

Bill Mayew 06:33

Well, going back to you know this, the study that was over a decade ago now, one comment received was whether firms would learn how to mask signals better, or whether technology would continue to get better, making it hard for managers to mask signals. It's kind of a chicken and egg problem, and one that's really hard to answer. I think if you look at the again that company markets EQ, that provides services on both sides, both to help managers deliver the message they want, and also analyze what managers say at other firms, it leaves no doubt that there's a bit of circularity that the market has to deal with.

Scott Dyreng 07:09

Yeah, it's really, really interesting to think about how managers learn from research and how it could actually change the if you were to redo your study, like 10 years later, the outcome of the study might change because people learn from the study that you created. So very cool. All right, so you have another paper that's related to this. It's called “Voice pitch and the labor market success of male CEOs.” So let's talk about that paper for just a minute and tell me a little bit about what inspired your interest in studying voice pitch as a factor in CEO success, and maybe specifically, was there a particular moment or idea that led you to consider voice as an economically meaningful signal?

Bill Mayew 07:43

Well, it turns out that was a byproduct of working on the first paper, where we were trying to measure emotions from voice. And as you might imagine, emotions are a deviation from your normal voice. And one nice feature of a conference call is there's a presentation section before you get to the question and answer, where you're being essentially interrogated by analysts. And so we have a nice setting where you can measure the normal voice pitch, and we needed to do that a bit in the Journal of Finance paper to try to reverse engineer the black box LVA software. And so we began thinking about whether the deviation mattered for voice in terms of emotions, but also did the starting point matter, which is a person's normal voice pitch? And it turns out, there's a lot of research outside of accounting and finance on the signal that voice pitch itself carries among males.

Scott Dyreng 08:29

You find that CEOs with deeper voices manage larger firms and earn more money. So to what extent do you think this reflects perception based bias versus actual leadership ability?

Bill Mayew 08:43

It's probably a bit of both when you think about the literature on early life effects. So if you perceive someone earlier in life to be dominant and have some leadership qualities, you may give them more opportunities. And all of this happens well before a CEO who's in their mid-50s takes the helm at the firms that we study. So even initial perceptions, even if they're only perceptions can read to lead to real impacts that impact the development of any individual.

Scott Dyreng 09:09

So what you're saying, if I understand correctly, is it could be some of it is bias, because maybe I as a human am more attracted to letting somebody with a deep voice lead me. But because of that bias may be very early in life, before one is actually managing a firm, they get opportunities to practice being leaders, which then, in fact, leads them or turns them into good leaders. And so they might have a little bit of both. It's a perception-based bias and an actual leadership ability that what you're saying?

Bill Mayew 09:36

That's exactly right. And and disentangling the two pieces is really hard, because, of course, by the time we observe and measure the voice pitch of a CEO, they have a lot of leadership ability in various capacities to become a public firm, public company CEO.

Scott Dyreng 09:49

How did you go about collecting and analyzing voice data from nearly 800 CEOs, and were there any interesting challenges in working with earnings call audio and ensuring consistency?

Bill Mayew 10:02

Well, earnings conference call broadcast because of regulation FD [fair disclosure] actually made the data available to analyze in the first place, and you don't need a large sample in terms of audio length. You only need a few seconds to get a good measure of voice pitch. One of the things we were concerned about was whether the call audio was of varying quality just because of how microphones work in the early 2000s this was an emerging technology in terms of broadcasting, but what we had to do in the paper to make sure that wasn't a problem was benchmark our voice pitch metrics, the averages we observed against adult males of similar age in the general economy, because that had been done in other papers. And so we were able to see that the average adult male in our sample had voice pitch similar to what you'd expect for a 55 year old male in the general population.

Scott Dyreng 10:50

I see so you're just going out and you're grabbing conference calls and audio, but somebody might be on an amazing, you know, studio quality microphone, and somebody might be on like, some crappy microphone. And the concern is that what you're detecting is differences in microphones, not differences in actual voices, but what you're saying is you were able to sort of demonstrate that the pitches that you captured were very consistent. And so it's probably not the microphone, it's probably actually the CEO today. Di I understand that right?

Bill Mayew 11:14

Yeah, that's exactly right. And you know how you look for that also, is you look at the distribution. And if you picked randomly out of the distribution, and you listen to it. It's very obvious that ones that we characterize as having a deep voice definitely had a deep voice, and the ones that didn't had a much higher pitch voice, which gave some comfort. And in fact, those are the sort of examples that you want to want to give in a presentation, so that the audience can get a sense for what do we mean by a difference in voice pitch by, you know, 10 hertz, which is, you know, technical jargon for what fundamental frequency is. But actually having public companies that you can point to the CEO and demonstrate that, you know, every time they talk, you can hear that same sort of voice gives comfort to the to the validity of the measure.

Scott Dyreng 11:59

What role do you think evolutionary psychology plays in the corporate world today? For example, how much of this deep voice preference is innate versus socially conditioned?

Bill Mayew 12:11

If I had to conjecture, I'd say it's a bit of both, and disentangling them is difficult without an experiment. And it does turn out, though, that experiments do exist, although not we didn't conduct an experiment. But for example, we had colleagues over in biology and political science at Duke that we worked with on another paper, where they studied voice pitch in a laboratory where they studied political outcomes, and they found that deep voice mattered, the same for men and women in political leadership positions, while others have suggested there may be different perceptions depending on the setting. So if you're, for example, a school board leader versus running for public office, you may have different gender connotations to those two settings. And it turns out the closest that we've seen in a financial analyst setting that we might care about in accounting is where masculine traits were shown to disadvantage females, and again, an experimental setting where they can disentangle the social aspects from

Scott Dyreng 13:12

You control for factors like age, education and even facial traits, yet pitch still matters. So why do you think voice carries such an independent explanatory power, even over and above these other characteristics?

Bill Mayew 13:26

I think the reason is we know that executive traits, which in academics, we call this, so called CEO fixed effect, what makes up a person that doesn't vary over time? That's what a fixed effect is. It matters a lot in explaining firm outcomes of many kinds, and voice pitch is one of those innate traits that might capture something inside that fixed effect that we see. And so surely there are other unchangeable factors that likely matter. But our study was one of the first to go after an innate trait that was tied to voice and look at its effects in the CEO labor market.

Scott Dyreng 13:59

Well, Bill, this is really great research. Thank you so much for coming on the show to talk to us about the things that you're doing, and good luck in your future endeavors.

Bill Mayew 14:07

Thanks for having me.

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