How transparent should your company be?

“Transparency is a fake and it’s overvalued,” the CEO of a food company told me recently at a business lunch. We were discussing demands for businesses to be fully transparent, as well as the trend on the social networks for people to share their experiences and thoughts in real time urbi et orbi with friends and strangers alike. The CEO added that what he called the digital striptease some people perform on their Facebook or LinkedIn blogs was simply an act, the projection of a fictitious identity, and that all they were really doing was creating a personality to please an audience, rather than truly reflecting what was going on in their lives. What’s more, he said, hammering home his point, businesses typically respond to demands for complete transparency by launching overloaded and unconvincing marketing and communication campaigns that quite frankly are not in shareholders’ interests.

I am sure this largely negative analysis of transparency in business is shared by many other CEOs uncomfortable with the idea of constant and total scrutiny of their actions and decisions. Let’s be honest: few of us find the idea of being under a microscope very appealing.

But if we’re not going to dismiss the question of transparency out of hand and want to discuss it in any depth, then we have to start with some basic questions: first of all, what do we mean by transparency in business? And secondly, does transparency help make companies more profitable?

To begin with, transparency means different things to different people. On the basis of compliance requirements, it can simply mean that a company will provide full, accurate, and timely disclosure of information, mostly to the company’s shareholders (1).

But some advocates of corporate transparency want to go far beyond just observing the requirements of traditional reporting, and argue that compliance alone is not enough. Sustainability in business pioneer Adam Werbach, for example, writes: “True transparency itself (…) is the one that most companies miss and the one that makes all the difference. Beyond bringing operations into compliance, share the information broadly inside and outside an organization. This will allow a company to open up to further improvements and innovations” (2).

To attain this degree of openness, Werbach recommends companies develop a quadruple bottom line that as well as weaving together environmental protection, social equity, and economic health also incorporates cultural vitality. Werbach explains that these practices should not be seen by the company as a public relations exercise, but should also drive and support internal transparency, which is in turn reflected in what the company says to the wider world.

That said, research finds many companies wanting as regards internal transparency. According to one recent survey, 71 percent of employees said they felt their directors didn’t spend enough time communicating the company’s objectives to the workforce. (3) “When asked what was holding their company back, 50 percent of these employees pointed the finger at a lack of company-wide transparency.” (4)

To improve internal transparency, senior management has three options at its disposal:

-Internal communication based on interactive platforms to facilitate contact between employees such as Yammer, Chatter, Jive, or Telligent. Managed properly, these can improve interaction at different levels, spark discussion between formal and informal groups, contributing to information flows, as well as in demonstrating best practice. Needless to say, transparency will increase as senior management shares information about the key issues facing the company.

-Recognition of individual or group contributions via incentives that promote new ideas and innovation. It is important not just to recognize those ideas that are implemented, but also those that have not been able to be carried out for whatever reason, whether costs or opportunity.

– Installing an open plan office system that facilitates access and interaction between different departments.

In regard to the latter, on a recent trip to the United States I had the opportunity to visit a number of buildings that best exemplify the principles of transparency applied to architecture. The Ford Foundation’s headquarters, created by Kevin Roche in 1963 in Midtown Manhattan, has at its heart a huge, tree-filled central atrium from which all the floors run, and from where it is also possible to see just about everything that is going on in the building, except for the directors’ offices. The design, using glass, symbolizes the transparent practices of a not-for-profit organization like the Ford Foundation through its programs and communication initiatives.

I was also impressed by Evans Hall at Yale School of Management in New Haven, Connecticut, where Norman Foster has created a four-storey building with exterior and interior glass walls built around a courtyard, just like the Ford Foundation, although open to the sky. The library, the cafeteria, the auditorium, and access to the classrooms and passageways all run round the courtyard, making it possible to see what is going on in most parts of the building. Again, the design is meant to reflect the ideal of transparency in the corporate environment.

So should this ideal of physical transparency be applied across the board? Should all companies adopt the open-plan office?

The Apple campus, which I have also had the privilege to visit, is located at the intriguingly named 1 Infinite Loop, in Cupertino, California. Apple is now the world’s leading company in terms of its share value, and is also considered to be among the most innovative. At the same time, the corporate culture that founder Steve Jobs imposed was one that restricted communication, saying nothing about its products and services until the moment of their launch. Jobs’ obsession with keeping projects strictly under wraps is well known, and employees who discuss company business with the media are still likely to find themselves looking for a new employer.

The design of the Apple Campus, which dates back to 1993 (it is building a spectacular new headquarters, also designed by Norman Foster, a few miles up the road), very much reflects the culture of secrecy that has come to characterize the company. Access to the central atrium is through a single entrance flanked by security guards who check everybody’s identity, whether visitors or employees, turning anybody away who doesn’t have permission to be there. It is forbidden to take photographs inside the building. The sancta sanctorum is the research laboratory run by Jony Ive, and it is a closed space, with tinted windows and to which access is extremely limited. (5)

Interestingly, the design of Apple’s headquarters is very much in contrast to its retail outlets, which are open to the world, with glass staircases and open-plan floor space, brightly lit and where it is possible to see everything that is going on. Surely there’s a contradiction here?

Not really. Apple’s culture of secrecy applies to the early stages of its value chain: design, production, and distribution. Its goal is to protect innovation up to the final moment, keeping the element of surprise about its products until they are launched: a strategy that makes perfect strategic sense. But once the product is out there, Apple is the very model of transparency when it comes to providing information about its creations, as well as in terms of customer service. Apple reveals very little about its corporate policy, its strategies or its research, but says a lot about its products and what they can do. Steve Jobs was a born communicator, a skill thatTim Cook shares.

In short, Apple is proof that full transparency in all areas of a company’s activities is not necessarily the best way to generate innovation and profitability. Ethan Bernstein’s article The Transparency Trap convincingly argues that complete transparency is not advisable, at least in three areas of a company’s activities.

In the first place, open plan offices where everything is on view can actually inhibit innovation and employees’ ability to carry out their tasks, and who may feel that they are essentially under surveillance. This is particularly the case when different work groups are sharing the same area, with each seeing the task in hand from very different perspectives. A friend of mine who is a chef has told me that many cooks feel more comfortable working in a kitchen that is away from public view than in restaurants where the cooking area is open to diners, a tendency that has become fashionable in recent years. Areas set aside for a department to work in can often lead to greater productivity, freeing employees from the feeling that Big Brother is watching.

Secondly, Bernstein argues that while transparency great for letting the workforce know about key decisions, it’s not so beneficial for generating feedback about employees’ performance. Some departments, for example, use a white board for charting success in meeting objectives. Bernstein warns that sometimes it’s better not to publicize what individual members of the team have accomplished. Somebody may be going through a difficult time, or who contribute to the collective effort to their personal detriment, and the feeling of e being named and shamed is hardly the best motivator.

The final area where transparency is ill advised is during certain stage of the innovation, experimentation, or development process—as seen with Apple—or when delicate negotiations are underway. For example, it would be unwise to let anybody other than the close circle of directors and the legal department know about a merger or acquisition with another company. The workforce may feel they have been kept in the dark when they hear about the takeover in the media as a result of leaks. This can be avoided by having an internal communication plan ready that can be implemented at short notice.

In short, transparency is not an absolute for all companies at all times. Let’s end this chapter with a few takeaways:

– Corporate transparency is a matter of degree. We must establish which groups in the company need to be more transparent and what the objectives are, which will mainly be to drive innovation, share knowledge about the company, or to promote best practices. It is always a good idea for the workforce to understand the company’s strategy and goals. The CEO’s involvement in this, through the channels and means that are appropriate to each company’s size and activities, in help employees feel more involved.

– It is important to establish a balance between transparency and privacy, both in relation to the workforce’s activities and individual and collective information. We live in a world where access to information about businesses and people, true and false, is universal and immediate. In such an environment, directors can feel that they are permanently onstage. We need to respect people’s personal space.

– Companies will benefit from implementing transparency practices that go beyond compliance, while at the same time respecting the confidentiality that provides its competitive advantages. A pro-active external communication policy, one that is ahead of the curve, will create a better perception of transparency by the company’s different stakeholders. At the same time, transparency generates trust and loyalty among customers.

– The acid test of transparency is authenticity. What counts in the final analysis is that when necessary the people running a company can reasonably justify their decisions, even when they are controversial, in the public arena.

To conclude, imperative transparency is excessive and counterproductive. As General De Gaulle famously said: “Mystery is the essence of prestige” (6), and in part, he was right.

Photo: Paper Pavilion at IE Business School, Madrid (Spain) designed by Architect Sigeru Ban (2013).

Notes

(1)Elaborated after

http://blog.experts-exchange.com/ee-tech-news/transparency-in-business-why-it-matters/.

(2) Adam Werbach, Strategy for Sustainability: A Business Manifesto (Boston, Mass: Harvard Business Publishing, 2009); p. 102.

(3) Cost of Poor Internal Communication

http://www.slideshare.net/ldickmeyer/cost-of-poor-internal-communications-912

(4) Ilya Pozin: How Transparent Is Too Transparent In Business?; Forbes 4 February14.

http://www.forbes.com/sites/ilyapozin/2014/04/02/how-transparent-is-too-transparent/

(5) Walter Isaacson, Steve Jobs (New York: Simon & Schuster, 2011); p.345

(6) Quoted by Anthony Sampson, El Toque de Midas (Madrid: Ariel, 1990); p.45

This article is published in collaboration with LinkedIn. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Santiago Iñiguez de Onzoño is the President of IE University and the Dean of IE Business School in Madrid, Spain.

Image: Employees talk at offices in downtown Madrid December 5, 2008. REUTERS/Susana Vera.