Like many beautiful ideas, transparency is a little more complicated when it’s translated into reality. In an age when it’s normal for detailed information to be readily available to anyone who cares to look – through online customer reviews, public social media profiles, location-enabled apps – it’s easy to assume that sharing information can only be a good thing.
In organisations, transparency has seemingly obvious benefits: frontline employees with access to information will be empowered to make decisions quickly and more effectively, and they’ll be more engaged as a result.
Or will they? Our research suggests that very high levels of information-sharing may actually have the opposite effect. While it’s true that a few business leaders have successfully taken transparency to the extreme, many more have attempted to introduce it and then been shocked when their efforts have backfired.
Younger employees are likely to believe they are entitled to more information
The problem arises when the amount of information provided isn’t matched by the same level of accountability. Advances in IT mean that companies can now monitor people and productivity in real time but often they have not stopped to think about the purpose of doing so.
In today’s environment when the world is changing lightning-fast, the old command-and-control model of leadership isn’t robust. We don’t want our employees to wait around to be told what to do. We want them to create, innovate, dream, be proactive. That demands more information and that’s a good reason for firms to become more open.
Great firms change more quickly, hence they need more people willing and able to help, hence they need information. So transparency is good for firms, even if it’s uncomfortable for the leaders. Alongside this is the clear trend for granting autonomy to self-managed teams.
So technology - plus the need for people to be agile - has created this taste for openness – There’s a generational element, too, because younger employees re likely to believe they are entitled to more information. They question everything: Why are we even doing this? Which customer am I serving? I want a better line of sight.
So far, so good. But the problem with being transparent is that the people who work for you are human – full of foibles and flaws. The first psychological mechanism that works against you is social comparison. Let’s look at what happened when a Canadian engineering firm we were working with decided to make its bonus system more transparent.
Towards the end of each year, the founder and CEO would look at individual staff’s performance and then award them a bonus based on how much value he felt they had added. The bonus might be anything from $5000 to $30,000 and it was based purely on the founder’s judgement. As the company grew, however, the CEO requested that its leadership develop a reasoned, transparent process to work out what bonus each person deserved. He imagined this would enhance employee satisfaction.
Transparency is good for firms, even if it’s uncomfortable for the leaders
For the next year, the leaders worked on a fair system, communicated it to the staff and made sure everyone was clear about how it would work. We asked staff how they felt before and after this change to the bonus scheme. Based on 108 responses, the results were surprising. While employees agreed that there was increased transparency, their perceptions of how fair the bonuses were was worse, and they trusted their employer less. This applied even if they personally had received as much or more than they had the year before.
Here’s what we think went wrong. First, transparency makes people focus on the mechanics of determining the outcome: instead of just being pleased with their windfall, they put effort into evaluating the process by which it arose. Second, transparency invites people to make a social comparison between themselves and colleagues who receive larger bonuses than them.
Behavioural scientists have shown that we have a need to compare how much we contribute and how much we’re rewarded relative to other people. If we feel we’re worse off in this sense, negative thoughts and actions ensue: we feel envious, we stop putting in the effort at work or we simply quit. Or we game the system and put energy into looking good rather than being good – because that’s what’s going to bring the reward.
In 1992 the US passed a law demanding transparency on executive pay – a move that had huge popular appeal . The theory was that companies would be more accountable to the public. In practice, CEOs who discovered they were earning slightly less than the boss next door made sure that it didn’t stay that way. The end result was not more equitable pay but a huge jump in top executive pay. Too much transparency on pay and performance simply exacerbated the accountability gap. History is about to repeat itself here, with the BBC being forced to publish the salaries of its highest earners. It is a safe bet that this exercise in transparency will result in higher, not lower, salaries for the people listed.
What about information on the company itself, as opposed to the individuals who comprise it? The most famous example of transparency working fairly well at this level is the online shoe company Zappos. Employees are told they have “a duty of transparency” and a lot of them love it – but others call it “confusing and time-consuming”. Some people, it seems, are perfectly happy with a rough idea of how the company is doing and their place in that company. They don’t want to spend hours of their free time sifting through thousands of company accounts. Someone else can do that and give them the highlights.
We’ve found further well-intentioned transparency efforts that have unexpected consequences
Other illogical human tendencies get in the way when it comes to transparency. There are certain things about the way our brains work where logically we think one thing but emotionally we feel another and they’re not joined up. (An example of this is face time, Some bosses who insist “It’s all about productivity; people don’t need to be in the office,” But they also admit that secretly they like being able to look up and see their people being productive at the desk across from theirs.)
The head of a London-based communications agency told us that – again, counterintuitively – that too much transparency between agency and clients can limit a team’s creativity. Clients tend to shut down the most innovative ideas at an early stage and creatives find themselves second-guessing and going for safe creative options. In addition, clients may not understand how the creative process works: they focus on how much time it took the team to create a winning idea, not how much value that idea is generating. This means that if a genius idea is arrived at quickly, and clients know this, they can feel cheated.
Elsewhere in organisations, we’ve found further well-intentioned transparency efforts that have unexpected consequences. One company that started to film every meeting in the spirit of openness found that executives became careful not to say anything negative or damaging in meetings and instead held the important conversations when the camera was turned off. Transparency breeds complicit behaviour.
People need to operate in psychological safety, able to brainstorm and think crazy thoughts in a trusted environment. In short, you limit creativity and innovation by constantly looking over people’s shoulders. It’s more than just micromanagement: people who are always being evaluated are unlikely to step outside of what they know will work. They will curtail interesting discussions because they don’t want to look foolish.
So how can you move towards greater transparency without scaring your staff or your clients?
1. Have windows that are open at critical junctures. The pharmaceutical company GSK is doing this. In 2008 it created a new model for its drug discovery operation, creating 38 Discovery Performance Units, each of which was given three years of funding. GSK’s group head of R&D Moncef Slaoui told us, “We wanted to give them enough runway to be able to truly prospect a scientific hypothesis. Give them an investment and then three years later hold them accountable and assess.”
2. Give your people a voice. Don’t just throw information at them. Make sure they have the opportunity to tell you what they think about it or you’ll end up with frustrated, cynical staff.
3. Find a way to curate and moderate information. Large volumes of data are next to useless if a person is offered no sensible way of accessing what might actually be relevant to them.
4. Help your employees deal with the ramifications of what they are told. Not all the information you put on show will be welcome – especially if it concerns their own poor performance. The flip side of the transparency coin is accountability and this might be new for some people. So make sure there’s support in place when people find out something useful but harsh.
Finally, let’s look at how those few companies that are obsessed with radical transparency manage to do it successfully. American asset manager Bridgewater is one such company, which really emphasises transparency and thrives on it. The secret may be to do with the amount of power they hand out along with the information. Our hunch is that the more decision-making power is spread around, the more transparency people can handle.
The bottom line is this. If you’re using transparency to improve your reputation then you’re probably going to get yourself into trouble. If, however, you’re changing internal culture so the firm can handle more transparency, you’re heading in the right direction.
So think through what you’re trying to achieve. If you want people to have more of the right information so you can respond more quickly to changing conditions and make better decisions, then great. Create a culture around that and your company will be more agile and probably more productive. But if you’re pursuing transparency just to keep up with the zeitgeist (when what you really want is to rule your staff with a rod of iron), then you risk running into trouble. Transparency needs to be interwoven with democracy.
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