The Watercooler Effect

I finished reading The Watercooler Effect: a Psychologist Explores the Extraordinary Powers of Rumors by Nicholas DiFonzo. I would recommend reading this business/social psychology book. Here is an excerpt from the book about good leaders:


Sixty-seven percent of employees in the United Kingdom and France hear information about an important matter first through rumor, according to an April 4, 2005, report issued by the global employee research and consulting firm ISR. The study was based on responses from 40,818 European workers, 63 percent of whom agreed with the statement “We usually hear about important mat­ter through rumour first.” According to the study’s authors, this indicates that employers are poor communicators. Leaving employ­ees uninformed fuels the rumor mill. Conversely, good communi­cation lessens the need for rumors. Further, good communication is associated with company performance. The investigation tracked stock prices for fifty-seven multinational companies over two years. In the companies in which an above-average number of employees felt that the company was keeping them properly informed, stock prices rose an average of $7.80. In companies in which a below average number of employees were satisfied with communication, stock prices fell an average of $8.10. ISR executive director Yves Duhaldeborde suggested a causal connection between communica­tion and performance:

Good leaders are good communicators. . . . Employees care about their manager’s ability to communicate and want to know as much as possible about their organizations. They want to understand its core values and feel involved in key decisions. Managers need to change their approach…. Clear, unambigu­ous communication helps ensure employees are willing to work harder, understanding and supporting their company’s goals and vision. Without it employees are likely to just tread ‘water and this will be reflected in financial performance.

The study points to the ubiquity of rumor in organizational settings and suggests that the rumor mill is alive and well because communication is poor in those environments. Conversely, when com­munication is good, rumor activity is dampened. The study also suggests that an active rumor mill is an indicator of a poorly per­forming company. 


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