Leading the Witness

Today’s note is a simple – but important – reminder.

It’s the old-fashioned echo-chamber: driven by the desire to prove a thesis, over-eager diligence professionals draw confirmatory conclusions by leading the witness.

An example from 2014 when the price of oil fell from $110 all the way down to $80: “With the price of oil sliding so dramatically, is it hard to maintain commitments to capital equipment investments?”


  • First, of course it is hard to keep up commitments. When is it ever truly easy to keep up with any commitments? The investigator asked the question in a way where it is virtually impossible for the interviewee to say no because it embedded a question within a question, and the first question pretty much deserves a yes – unreserved, unconditionally, and in every circumstance
  • Secondly, structuring a question with a negative [or positive] frame forces the interviewee down a path of thinking the worst, which can cause the interviewee to offer a “sensible” answer under these negative circumstances. At the same time, the investigator did not explore the response to various potential price points, and we all know how much further the price has ultimately fallen below $80
  • Now, imagine you take this approach and ask 70 customers the same question and then you stack up the evidence and draw conclusions – it’s easy to build a conclusive but utterly wrong PowerPoint slide

A far better and a proper investigative approach: “How has your pace of capital investments continued in the current market conditions? Is there anything that you see on the horizon that could impact your commitment to continue to invest in new capital equipment? If that did come to fruition, how confident are you that you would reduce your purchases? What are the thresholds at which you imagine procurement volumes changing? At the price of X, how much do you think you would reasonably reduce purchases by and why?”

Ultimately, the investigative approach seeks to overcome two common challenges:

  1. Forming an opinion too early in the diligence process and then seeking to prove your thesis (and everyone is subject to this risk – no doubt)
  2. Not recognizing how easy it is (and therefore not being careful enough) to draw an interviewee to an answer

Everyone in this business is smart and can craft questions that support a pre-determined viewpoint. However, crafting questions that lead to sound, unbiased conclusions is a much bigger challenge.

Copyright © GRAPH Strategy LLC