Transparency

System Fix or Fail?

Corporate employees often get a lot of company-wide emails: vegan nuggets now available, join the photo competition of cute kids, or the new walking club. Official Twitter and Instagram handles glorify your company’s new approach to recycling along with mentions of the same walking club to attract talent and generate good publicity. Sometimes it is the drip, drip, drip of policy decisions, both large and important, and small (now we buy our toilet paper from …). Is the constant pinging of internal emails driving your employees to distraction and essential info lost in the noise? Moreover, are your tweets and emails giving away secrets to your competition and making you vulnerable? How can corporations walk the tight rope between transparency and overload?

What is corporate transparency?

Corporate transparency measures the extent to which a corporation’s actions are subject to scrutiny by stakeholders and outsiders 1. This might include information about diversity and inclusion, growth and performance, pricing, revenue, internal processes and hiring practices and strategies 2. It reflects the transparency of corporate decision-makers to their employees, shareholders and the general public 1. Until the 20th century, the concept of corporate transparency was only theoretical and any meaningful implementation was rare, with most companies jealously guarding their information from both employees and the general public and avoiding public scrutiny of their decisions. However, over the last two decades or so, a deluge of corporate scandals (Enron in 2001, Lehmann Brothers in 2008, et al.) have brought issues of transparency into focus, not only for employees and critics but also for the general public 1. With popular opinion on the side of openness, transparency has become increasingly common among large corporations 3, but why is transparency important and what are the advantages of being transparent?

Why be transparent?

The word ‘transparent’ in the modern corporate world has become synonymous with ‘ethical’. As the Dalai Lama once said, “A lack of transparency results in distrust and a deep sense of insecurity”. According to a 2018 corporate survey, 87% employees want their employer to be transparent and 80% would like to learn more about their organization’s decision-making 4. In fact, transparency was found to be the top factor contributing to employee happiness 5, it plays a very important role in attracting top talent, and increases employee satisfaction.

Transparency about company revenues, hiring practices and workforce statistics also helps to make existing employees feel better protected against discrimination and lets them play their full role in the business mission.

And of course, as the Dalai Lama said, it helps build trust 4. This is not limited to just employees but customers and shareholders as well. Apple’s stocks plummeted in the aftermath of the “batterygate” scandal (when it was found that Apple was pushing users to upgrade their devices by deliberately slowing older devices with each software update.) CEO Tim Cook faced the press to provide an explanation, and the company also offered extra discounts on battery replacements, and as a result Apple stocks soon bounced back 6.

Big jewelry companies like Tiffany and Cartier are making efforts to be transparent about the sources of their diamonds 7. Both customers and employees demand reassurance that the diamonds are not “blood diamonds” mined in war-torn countries like Sierra Leone or Angola. Today, an increasing number of employees and customers want to deal with companies that they can trust. In fact, a 2016 survey showed that 94% of consumers said that they would be more likely to trust a brand that was 100% transparent 8. So, transparency can not only boost employee satisfaction but also customer satisfaction.

Improving company performance

Transparency helps break down an organization’s broad strategy into components that are meaningful for employees. Employees’ insights are critical to implementing that strategy. This also helps employees feel more engaged and in a better position to provide feedback on the company’s goals 9. For example, Whole Foods, one of the pioneers of corporate transparency, started to disclose all information on employee salaries and bonuses in 1986 as part of an effort to encourage dialogue on salaries and promote competition. John Mackey, the co-CEO of Whole Foods stated that:

“If you’re trying to create a high-trust organization, an organization where people are all-for-one and one-for-all, then you can’t have secrets.” 10

His transparency led to increased sense of employee ownership, and because employees had access to the company’s financial data, they felt that they had a greater stake in the company itself. In doing so, Whole Foods has been said to have “bridged the gap between soft-hearted values and logic-driven business acumen” 10.

Where to draw the line?

While transparency is an important way to create an atmosphere of security and trust for both customers and employees, it is important to maintain balance between transparency and confidentiality. For example, KFC being transparent about their use of bacon fat to fry chicken would show respect for people’s religious views. This is the right thing to do and identifying the issue can help you find an alternative. Don’t take the Volkswagen route of cheating the system, the effects of which are felt by the company even today. But KFC revealing their secret flavor recipe for the sake of transparency would not be prudent. Your USPs are your aces: keep them in the safety box!

When it comes to employees, it is also important that transparency doesn’t lead to them being overwhelmed with information they don’t want. If oversharing hinders an employee’s ability to function or leads to unnecessary confusion, then the information should be filtered. This goes hand in hand with breaking down the organizational strategy, sharpening the focus of employees while keeping them well-informed and engaged.

A good way to go about this would be to define a main goal for a company and break down the same for each department so that everyone is aware of both their own goal and how that plays into the larger goal. Of course, information about every department’s goal should be freely available, so as to foster an environment of mutual transparency and openness.

Any company willing to be transparent needs to be prepared for increased scrutiny from employees, stakeholders and the general public but the scrutiny is worth it! The Whole Foods CEO, for example, admitted to receiving numerous questions about salaries after implementing a transparent system. He explicitly stated that this was based purely on performance. If an employee improved their performance, he declared, then they had an equal opportunity to reach the same pay scale 10. Nevertheless, in cases where the employee was right, it helped him identify errors and fix them. Their commitment to transparency has resulted in a highly motivated and driven workforce with a deep sense of community who value productivity 11.

Transparency: A corporate norm

Uber had been criticized for several years about their lack of transparency 12 and had been hit by a series of scandals and accusations of discrimination 13 before, in December 2019, it released its first safety report, revealing its cabs’ involvement in 3,045 sexual assaults, 9 murders and 58 crash fatalities in the United States in 2017-18 14. The move was unprecedented for such a large company. Although the initial reaction was shock and Uber’s stocks dropped by nearly 3%, the management were lauded by activists, the media and public figures 15. Consequently, the management’s approach to transparency helped rehabilitate Uber’s image in America. This was further reflected by the fact that there was no noticeable increase in the number of “#deleteUber” mentions on Twitter 16. Uber has demonstrated that companies with a bad track record can regain some customer trust by adopting a transparent approach. In fact, 89% respondents of a recent survey say that a business can regain their trust if they admit to a mistake and are transparent about the steps taken to resolve the issue 17.

With increasing globalization and the age of social media, corporate transparency has become all the more important. Social media, in particular, has become a vital cog in a company’s culture of transparency. A recent survey found that 81% people believe businesses have a responsibility to be transparent while posting on social media and 85% say a business’ history of being transparent makes them more likely to give it a second chance after a bad experience 17.

Given the long-term rewards for both companies and their employees and the increasing clamor for transparency from governments, consumers and existing and potential employees alike, organizational transparency is increasingly set to become the corporate norm and business leaders best be prepared for it!

Picture of Pranay Parsuram

Pranay Parsuram

Pranay Parsuram completed his master’s in Book and Digital Media Studies from Leiden University, the Netherlands. He has worked as an Assistant Editor at Springer Nature and as an academic and research editor and copyediting quality analyst at an English language solutions provider based in Mumbai. He has also freelanced as a copyeditor, specializing in academic and scientific articles, and has trained a number of other academic copyeditors. He currently works on the editorial team of The Habtic Standard.

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