In the early days of our company, we hammered out a set of principles. Not only corporate principles, but in particular those that our system should embody. One of those was transparency, which has turned out to be a bit of a thorny issue.
What I’m thinking about more and more these days is simply the importance of transparency.— Esther Dyson
In this post we’ll first talk about corporate transparency: why it can be a good thing, and why some people don’t like it, at least in some situations. In a following post, we’ll illustrate this with an example from our performance management system, PerformanceHub, where we’ve had to address transparency.
There are two main types of corporate transparency: external and internal.
External transparency is a measure of how open a company is with its customers, partners, shareholders, and the general public. More and more companies are realising this is important, and the dangers of not being transparent.
Investors should steer clear of companies that lack transparency in their business operations, financial statements or strategies.
There can even be financial reasons to be transparent:
Mounting evidence suggests that the market gives a higher value to firms that are upfront with investors and analysts.
Angela McClellan describes the link between lack of transparency and corporate corruption:
In addition, as the recent banking scandals have demonstrated, lack of access to information also means a lack of accountability, which creates an enabling environment for, as Transparency International (TI) puts it, “the misuse of publicly entrusted power for private gain”. In other words: corruption.
There are plenty of examples now of companies trying to hide problems from their customers, only to be embarrassed very publicly by customers banding together against them. An early example of this was Intel’s poor handling of a bug in the Pentium chip [Emery].
Internal transparency is a measure of how open a company is with its employees. Until recently most companies treated employees paternalistically, and only shared what they wanted to with employees. This is changing, for a number of reasons.
The Facebook generation (aka “Generation Y”) are used to being open about all aspects of their lives, and expect that to apply to all facets, including work. And they have no compunction about moving on from a company which has the ‘wrong’ ethos:
As Gary Hamel gingerly pointed out in his speech this morning, the best and the brightest Gen Y employees require a high level of transparency, and companies that don’t deliver on that will risk losing their most talented future managers.
[…] for the Gen Y members of our workforce transparency is a given. They post their life stories in public domains; they expect nothing less in their workplaces.
Vineet Nayar, the CEO of HCL Technologies, recognised that transparency helps a company be more effective and binds the organisation more strongly together:
transparency helps to ensure that every stakeholder has a deep, personal commitment to the aims of the organization.
Nayar drove a transformation of HCL’s culture over a number of years, with transparency as a central pillar. The transformation is described his book “Employees First, Customers Second” [Nayar]. He notes that many people feel uneasy at the prospect of transparency, for a variety of reasons; for example, middle managers might worry that they’ll lose their power. Transparency does flush out many things which often lurk in the shadows:
A transparent house [has] a dramatic effect on the culture inside […]
if you can see the dirt, you will be much more likely to get rid of it.
Being transparent holds a company to a higher standard: you can’t be lazy. But everyone gets held to that higher standard:
We’ve always known that radical transparency is only advisable where an operation is orderly. But still, isn’t it ironic that the most disciplined companies are the ones that are letting it all hang out?
This is one of the reasons I believe many people are wary of transparency — they’re worried they’ll be caught out winging it. But if you are winging it, your employees are certainly aware of that, and will think better of you for admitting it. Those same employees will be more forgiving of screw-ups if you have been open:
Those who follow the [transparency rule] get a chance to survive, even possibly thrive. Those who do not, suffer, and perhaps die.
External and internal transparency are really two sides of the same coin:
Because no organization can be honest with the public if it’s not honest with itself, we define transparency broadly, as the degree to which information flows freely within an organization, among managers and employees, and outward to stakeholders.
A company is fooling itself if it thinks they can achieve one without the other.
- Vince Emery, “The Pentium Chip story: a learning experience“.
- Julia Kirby “Is your company buttoned-down enough to be see-through?“, Harvard Business Review Blog Network, 6th October 2008.
- Ben McClure, “The Importance Of Corporate Transparency“. Investopedia article, 24th October 2010.
- Angela McLellan, “Lack of transparency is the path to corporate corruption“, article on Consumers International Blog, 23rd August 2012.
- Nick Morgan, “Is Corporate Transparency always a good thing?“. Harvard Business Review Blog Network, 17th October 2008.
- Jacqueline Murphy, “Transparency and Employee Engagement at Unstructure 2010“, Harvard Business Review Blog Network, 12th April 2010.
- Vineet Nayar, “Employees First, Customers Second“, 2010.
- James O’Toole & Warren Bennis, “What’s Needed Next: A Culture of Candor“, Harvard Business Review, June 2009.