“Transparency promotes accountability and provides information for citizens about what their Government is doing.” This is the introductory sentence from the Transparency and Open Government Memorandum written by President Obama. Transparency was a key theme in Obama’s campaign and it’s become a buzzword in business. You can find thousands of examples of companies touting their transparency. There are even some companies experimenting with “radical transparency” including Namaste Solar mentioned in this article on Business Insider because they’ve chosen to publish the salaries of all their employees.
So, transparency is good, right? Well, not really. At the very least, the term is misleading. There are a lot of good reasons to withhold or control some information.
Here are some examples:
1) Surprise. To have an effective product launch you want to orchestrate the flow of information. You’re depending on the element of surprise. That’s “surprise” in the theatrical sense of the word — a build-up of excitement, an eagerness to learn, and finally culminating with a “ta-da” moment that is fun and informative. The master of the product launch was Steve Jobs. He’s admired as one of the greatest business leaders of all time, but he was the opposite of transparent. Even within Apple, employees didn’t know many details about new products under development. Job was a great showman and understood that the element of surprise would help build excitement around their products. And as the success of their product launches shows, the approach works.
2) Privacy. While it’s interesting to read about Namaste Solar experimenting with with radical transparency, if you stop and think about the broader implications of this approach it gets really sticky. Perhaps colleagues within a company knowing each other’s salary is OK, but do employees want their neighbors, friends, relatives, and kids to know how much they make? It’s true that the compensation of officers in public companies and government employees is publicly disclosed , but most people would prefer to keep this information confidential. And what about health-related issues? What if an officer in the company has a drinking problem? Would a policy of true transparency reveal this to all other employees — and probably the public? There are times when discretion and restricted disclosure are clearly warranted. This is a excerpt from an Employers Guide to Workplace Substance Abuse. The word “confidential” is the opposite of transparent.
Furthermore, it is essential that employers be aware of patient/employee substance abuse confidentiality rules. The Department of Health and Human Services has issued federal regulations regarding the confidentiality of alcohol and drug abuse patient records. Employers need to emphasize that employees can seek treatment in the assurance that their privacy and confidentiality will be protected.
3) Competition. Being fully transparent would mean sharing your product roadmap with everyone. This would make it much easier for competitors to plan ahead and create similar offerings or create some level of fear and confusion. Building a business isn’t easy. It’s difficult to maintain a competitive advantage over a long period of time. If you do something that works (i.e. generates a lot of revenue), you’re assured of attracting competition. The same way that football teams don’t reveal their plays to the other team, you’d be ill-advised to release information that enables your competitors to make preemptive moves. Most employees are asked to sign confidentiality and non-disclosure agreements. These restrictions have a place in business because information has competitive value. Release of this “non public” information can be very harmful to the company. Here’s a common clause from a non-disclosure agreement:
Each party acknowledges that the disclosure by the Recipient of Confidential Information in a manner not authorized by this Agreement would be likely to cause irreparable damage that could not be fully remedied by monetary damages.
The term “irreparable damage” makes it clear that transparent information disclosure could be quite serious.
4) Morale. Unfortunately it’s rare that businesses enjoy a steady upward climb to success. There are often bumps along the way. Sometimes new initiatives don’t work out. Acquisitions don’t deliver the synergy that everyone expected. Offices need to be closed. The organizational structure needs to change. Transparency advocates would claim this process should be out in the open. And there are times that it is helpful to involve people these major decisions. There are some situations, however, where it’s just not feasible. Sometimes a company needs to consider several what-if plans and assess their potential impact on the business. Involving everyone potentially affected could mean hundreds if not thousands of people. That can’t happen quickly enough. Once a company is bigger than a few hundred employees, a sub-group that needs to make this evaluation and then work with the broader teams to properly communicate the business rationale behind the changes.
5) Legal. Continuing with the example of hiring, firing and reorganizations, there are mandated procedures for how to handle the communication of these changes. If they’re not handled correctly it can result in lawsuits. Public companies have an even trickier legal minefield to navigate. If news that relates to the company’s overall financial status flows out under the heading of transparency, it could lead to insider trading or shareholder lawsuits. Like it or not, there are laws and procedures that need to be followed that don’t allow companies to be 100% transparent.
6) Profit. There are a lot of factors that affect pricing. As the end of the quarter approaches the company may be willing to accept deals at a lower price point. Over time some clients may end up paying higher fees for similar services because they simply haven’t called to renegotiate. If you’re goal is to be 100% transparent wouldn’t you call all of your other customers and offer then the new, lower terms? Probably not. In most cases, the reality is it would be very hard because revised pricing would affect forecasts, compensation, profitability and growth goals. The pricing and terms offered to each customer isn’t shared publicly.
7) Negotiation. Demand drives up the price. Complete transparency of the competitive dynamics will drive down price. For consumer products the open flow of information means that there is no longer information asymmetry. This is a good thing. The buyer often knows as much as the seller. There are still many situations, however, where the flow if information is controlled to help with negotiations. A good example is the “no shop” clauses that are included when one company offers to buy another. It takes time to conduct due diligence so the potential acquirer wants to make sure that their offer doesn’t become a bargaining chip used to to attract other suitors.
I’m sure many people reading this will be concerned that arguing that transparency isn’t possible will undermine the benefits that come with more open communication. There’s nothing wrong with striving for openness. The simple fact that everyone is empowered to communicate openly through Twitter, Facebook, internal networks and other social media means the days of ivory tower management are over. All employees expect and require rapid communication and ready access to information to do their jobs well. They need an honest assessment of how they’re performing and share in the successes and failures of the company. Given that full transparency isn’t possible, you should strive for what’s really achievable: translucency. Think of your policies as falling along a spectrum: from opaque to translucent, to transparent. The goal is really to be as translucent as possible. Within this perspective you can adjust your practices and policies to take advantage of openness without creating competitive, legal, or other risks.