Why openness may be hurting your business

Yin and yang: The harmony of a company may be disturbed by radical initiatives like transparent pay

Informing workers of executive issues could cause panic

From compliance to corporation tax, transparency is increasingly expected of businesses. The advantages of openness are many, and it can lead to greater loyalty from both customers and colleagues. But there are also downsides to more radical forms of transparency, which may result in a fractured workforce and even more secrecy.

PANIC AND TENSION

Arguably, managers should keep their workforce insulated from corporate decisions, as being too open can cause employees to panic, says Jesse Miller, co-founder of Attachments.me. Speaking to the Inc, Miller recalled how he told staff about his company’s finances and conversations with investors while the firm was being acquired. “I had assumed that startup employees would have a high tolerance for risk and uncertainty. Instead, suddenly everyone was paralysed. There was obvious tension in the office. People wondered if they’d have jobs next week.”
Radical schemes like transparent pay may increase tension in the workplace. When Pimlico Plumbers chose to disclose employee salaries, chief executive Charlie Mullins received £150,000 of pay rise requests in the immediate aftermath. Tim Low, vice president of PayScale, a US firm which provides companies with compensation data, told Fast Company that it is more “important for executive management to be transparent about the methodology and technology used to arrive at compensation decisions” than to publish the figures themselves.

INNOVATION SUPPRESSANT

In business, openness can often be anathema to creativity. Innovation will involve failure, and this does not look good on a balance sheet. A study by Shai Bernstein, assistant finance professor at Stanford, found that post-IPO, when they are required to make more company information public, businesses “find that the quality of internal innovation declines”. This view is echoed by Harvard Business School’s Ethan Bernstein. “A long stream of research tells us that in the presence of others, people do better on repetitive, practised tasks, but worse on learning tasks that call for creative thinking,” he told the Harvard Business Review.
Google may have found an effective solution to the conflict between transparency and privacy. One fifth of its engineers’ working time is spent on developing projects of personal interest, during which they are accountable only to colleagues whom they have chosen to help them. These “free” periods have produced Gmail, AdSense and many other successes.

CLANDESTINE DECISION-MAKING

Enforcing transparency may serve to drive decision-making underground, particularly if workers feel like their failures are being recorded and monitored by their bosses. An analysis by LSE of transcripts from meetings of the Federal Open Market Committee indicated that “the knowledge of the expected publication of the transcripts drove the real deliberation out of the FOMC meetings and into unrecorded ‘pre-meetings’, with the FOMC becoming the place for reading of prepared texts”. If this is accurate, openness can be said to have eliminated the very kind of frank debate it was meant to uncover.

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