Leadership Transparency: Are there limits?

Episode #207 Leadership Transparency: Are there limits?

Transparency in leadership is a huge topic. The self-appointed experts who’ve never led at the most senior levels will tell you how important leadership transparency is. And they’d be right, but this isn’t black and white. There’s an incredible amount of nuance in this topic.

TRANSPARENCY IN ORGANIZATIONAL LIFE

They say that the best disinfectant is sunlight, and I’m a huge believer in that principle. If my direct reports in corporate heard it once they heard it a thousand times: transparency is everything. When there’s any bad behavior behind closed doors, bringing it into the light and dealing with it appropriately is critical to forming a culture of integrity. Without it, you can say whatever you want about integrity being important to you, but you’d be full of sh!t.

Do you think we’d have anywhere near the number of sexual harassment cases in the workplace if leaders were strong enough to investigate complaints independently and deal with them publicly? I’m not advocating a rush to judgment here. We’ve seen too many cases of vexatious complaints. What I am suggesting is fair, independent due process instead of coverups and star chambers.

Now during my corporate career, I witnessed countless examples of leaders above and beside me sweeping stuff under the carpet to contain it – I think they call it damage control. This was clearly a case of ‘better to cover it up and hope no one finds out,’ than to bear the consequences of dealing with it openly. What you have to realize though, is that people always find out–and the culture is formed accordingly – “Ah, so I guess that’s how we do things around here, is it?!” Now, I’m not saying these situations are simple, nor is it easy to balance the range of competing factors. But it’s really important to bring transparency into the forefront of your culture.

CORPORATE TRANSPARENCY

For many years, all over the world, corporate regulators have been chipping away at trying to get greater transparency into the information that’s publicly available on the companies that they govern. For any company whose shares are traded on a public exchange, there are strict rules around keeping the market informed. These aren’t always black and white, but in principle, at least, any event that may affect a company’s stock price valuation has to be formally disclosed to the market… immediately.

The corporate legislation in many countries dictates that all shareholders get this information at the same time, theoretically, so that they can make informed decisions. Enter insider trading. There are always people in the inner circle who have access to information earlier than the public disclosure of said information. And even though there are laws in place to stop this, I suspect the practice of insider trading is a lot more widespread than any public enforcement measures might suggest.

But things have been moving in the right direction with corporate transparency. Strict accounting standards have reduced the incidents of dodgy financial statements, and this enables investors to make better informed decisions. They can do their homework by calculating key financial ratios and looking at performance trends over time. Disclosure of compensation and benefits for key management personnel (KMP) also brings transparency to the market, which is incredibly important.

Shareholders can actually see what they’re paying the team for the results the company posts. They can form a perception as to whether or not they’re worth what they’re paid. In some countries like Australia, the shareholders even get to vote at the annual general meeting as to whether or not they accept the remuneration report. The vote doesn’t have a lot of teeth yet, but it certainly has curbed some of the worst excesses of executive remuneration. In the corporate world a lot’s been done over the last 10 or 20 years to increase transparency and reduce corruption.

TRANSPARENCY IN FOREIGN MARKETS

Companies aren’t just being pushed to increase transparency in their home markets, but they’re also being regulated in foreign markets. As businesses become more global, new problems in transparency have arisen. So how about a situation where your company’s doing business in say the Philippines? or Mozambique? or Mexico? What can you expect?

Well, I’ve been a long time follower of the Global Corruption Index, which is released each year by Transparency International. This annual assessment ranks 180 countries based on the perceived corruption of the public sector. So it’s based on criteria like bribery, using the power of office for personal gain, nepotism – the usual grab bag of nasties. They thrive in the darkness, which is why bringing transparency to these situations is so important.

Scandinavian countries do particularly well on the Index. Finland, Sweden, Norway and Denmark are all in the top six in the 2021 Index, with only New Zealand and Singapore joining them. African countries are a little more challenged – 18 of the bottom 30 countries are in Africa. It’s worth checking out the index to see where your country ranks.

Laws on business corruption in foreign countries are pretty common. For example, in both Australia and the US, it’s illegal to bribe an official in a foreign country. And this was previously common practice for many companies. It was largely seen as a case of “when in Rome” – a cost of doing business, if you will – but that’s been massively reduced over the years.

Spare a thought for global mining companies trying to compete for the right to mine assets. Imagine you’re in a country in Western Africa with a rich source of rare earth minerals. You know that the country is highly corrupt and being granted the mining rights may depend on greasing the right palms. It’s almost a given that the royalties and other benefits that remain in the country won’t make it as far as the people. They’re more likely to be misappropriated by a corrupt regime. And you know that you have competitors who are prepared to play the game and pay the bribes, putting it down to the cost of doing business. So what do you do?

Well, you do what most of the reputable companies have done: you hold firm and you don’t pay the bribes. There are some places where the risk of doing business is too high. It’s just not worth it. Taking any other path is a slippery slope, and the company will eventually suffer.

The fight for transparency in business is going to go on for a long time to come. As long as self-interest dominates our political leaders – and I’m not just talking about developing countries here – achieving transparency will be a constant struggle.

HOW MUCH TRANSPARENCY SHOULD YOU BRING TO YOUR PEOPLE?

There are two very important relationships to consider:

1. The relationship between transparency and accountability 

If you want people to take accountability for their deliverables, they need to be fully informed and they need to be able to access all the information that’s relevant to what they’re being asked to do. I often see issues where people are held to account for the success or failure of their deliverables, and then they’re kept in the dark about certain aspects that would greatly affect their context. On the other hand, sometimes too much information is spread too widely, and that can undermine an accountable person’s mandate. That’s just dumb, so don’t do it to your people.

2. The relationship between transparency and trust 

This one’s even more important. If you want people to trust you, you can’t hide critical information from them. If they feel as though you aren’t open and transparent, there’s going to be a barrier of suspicion between you and them. You’ll never get the most out of them, and leading them is going to be really difficult. So always think about how much transparency is appropriate in order to win the trust of your people.

There are some trickier aspects of transparency, areas that aren’t quite so obvious. I mentioned public company disclosures earlier, but how about private companies? In a private company, you are under no obligation whatsoever to disclose any financial details.

As a KMP in corporate, I was used to having my remuneration details splashed all over the annual report for the whole world to see. But in a private company, do I want my people to have access to the numbers? I know many really successful business owners who are secretive, almost to the point of paranoia, about their financials. I know others who are quite happy for people to see everything.

Let’s face it, if you own a company, it’s your capital at risk and it’s no one’s business, but yours, how much you make. But there’s also the issue of motivating your people. Now, if they know your company’s doing really well, will they feel hard done by because they feel as though they’re not being paid enough? Is it actually better to let them see the reality of the company’s performance? Not just the revenue, but the cost of running the business and the investment required to grow it successfully? Well, sometimes P&L transparency can be pretty useful.

WHEN SHOULDN’T YOU SHARE?

Think about the general transparency of information in your team. On face value, you think that the more transparency the better, right? As I said, I’m a firm believer in total transparency, but there are nuances around all of this. Let’s take a look at a few of them:

Confidential information 

Some pieces of information are simply confidential. If one of your people confides in you, for example, that confidence has to be respected. Even if it is somehow relevant to the team. Let me give you an example:

Peter comes to you and says, “Look, Marty, I don’t want the team to know, but my wife just left me, and I’m looking after the kids by myself. I’ll have to work reduced hours for the next few months until I can get more stable arrangements in place.” 

Now, when one of the other team members makes a comment about Peter’s seeming lack of commitment to the work, what do you do? Do you jump in and say, “Oh, look, Peter’s wife left him and he’s managing the kids all on his own. So you’ll have to cut him a break”? Well, no, as much as you’d like to defend Peter, that’s not something you are at liberty to divulge.

If you’re completely transparent about someone’s personal information, others won’t trust you because they’re afraid you’ll be transparent with their information. There are some confidences you need to hold.

Information Sharing

Should everyone have access to the same information? Well, no. The information isn’t necessarily for everyone. With too much transparency, everyone thinks they have the right to buy into a problem.

For a start, information has to be appropriate for the level and role that each person operates at. For example, you don’t want a frontline supervisor having access to information on the revenue sharing terms and conditions with a joint venture partner. It’s not relevant to their job and they don’t have the experience, knowledge or context to do anything useful with that information. The second principle is even more important. If you give people information about anything, you are effectively inviting them to participate in the conversation.

One of the best pieces of advice I ever got about managing boards was from Wayne Patterson, the CEO I worked for at NTI. He said, “Never give the board information that you aren’t happy to open up a conversation on. You set the level of detail that the conversation’s held at, based on the information you give them. If the information’s too detailed, you’re inviting them into that detail.” 

Think about this in the context of decision-making. If you make information widely available to everyone, then they will feel as though they have a right to buy into the outcome of the decision. This is disastrous for decision-making and accountability. It slows the process down to glacial speed. People with no vested interest or expertise can provide an opinion, and as human nature tends to go, they’ll expect that their opinion is considered and acted upon.

It dilutes the accountable person’s authority, and pushes the culture towards an “all care, no responsibility” model where every decision is made based on broad consensus. That’s the worst outcome you can have! You’re always going to end up with a poor decision, after endless rounds of compromise suck the life out of the decision-maker. You end up with the lowest common denominator: a decision that everyone can live with, but no one is truly happy with.

TIPS TO KNOW HOW TRANSPARENT YOU SHOULD BE

Okay, let me finish by giving you some tips for knowing how much transparency is appropriate:

1. Ethics 

When it comes to ethics, corruption, and mischievous behavior, I am all in. A hundred percent transparency is the name of the game. This is such a strong determinant of culture that you can’t afford to compromise here. But it’s not all beer and Skittles – there are always side effects and unintended consequences.

Whenever I went into a new role, I wanted to get all the ‘dead cats’ on the table as quickly as I could. I wanted to expose any poor behaviors, bad habits, and dodgy practices so that I could shine a light on the things that were broken. Sometimes we’d expose small pockets of petty rorting, but often this would just push the behaviors further underground. Some of the bad behaviors were so entrenched that they’d become normalized. Some activities that were bordering on fraudulent were seen as legitimate entitlements… and I was threatening people’s livelihoods.

Even getting transparency around financial performance was difficult, until we broke that culture of ‘shooting the messenger’. But it was a long road to bring accountability for performance and to instill the culture of transparency when things weren’t going to plan: bad news by rocket, good news by rickshaw.

2. Timing of information

Sometimes the timing of an information release is critical. Just because you know something, doesn’t mean that information should be released immediately. For example, how do you make decisions about disclosures to the share market when your earnings guidance changes? Now, the principle at play is that any material changes to expected financial results have to be disclosed immediately, but it’s not as straightforward as it sounds.

Let’s say, just hypothetically, that I had to make a decision on market disclosure of earnings guidance when the company experienced operating issues through a natural disaster. Now I might know that the existing market guidance isn’t going to be met, but I might also have no idea what the new guidance should be. Are we going to see a $10 million hit to our expected earnings or will we see a $50 million hit? Without better information there is no point in making a formal statement to update the guidance. So it might be entirely appropriate to wait until you have better information. This isn’t being dishonest, and it’s not withholding information. Sometimes offering inaccurate information too early can be more misleading than not saying anything at all (at least until the accuracy improves).

3. Personal Information

When it comes to other people’s personal information, confidentiality should trump transparency for the most part every time. It’s not always the case, but that’s the rule of thumb. When it comes to transparency of your own personal information, this takes some pretty good judgment.

You have to be open and transparent to a certain extent, otherwise there’s no way you win the trust of your team. But you have to be a little judicious here. You don’t want to cross the line of professional distance, and we speak about being friendly, not friends. Let’s face it, no one wants to hear about your trip to the doctor for your annual colonoscopy. So use your judgment about what information is appropriate, and isn’t appropriate, to share with your team.

Learn more about professional distance and why you need it with Episode #197: Why Can’t We Be Friends

4. The practical nature of transparency 

It’s just not viable to be transparent with everyone about everything. Some information:

• Isn’t appropriate for some people

• Isn’t useful without the necessary context

• Would serve only to confuse rather than enlighten

• Is commercial-in-confidence

• Isn’t relevant to certain people’s jobs

• Isn’t fit-for-purpose in particular circumstances

• Lacks the accuracy to be presented in certain forums, or

• Isn’t appropriate for the level of conversation you need to have.

Think carefully about these contextual imperatives. Being practical about information flows doesn’t mean you’re not being transparent. It means you are being smart. 

SOCRATES’ THREE FILTER TEST

Now to finish off, let me give you Socrates’ three filtered tests for sharing information – you may have come across this before. This will help to guide you on how transparent you should be with the sharing of information, particularly in a one-on-one setting. Before telling anyone anything, ask yourself these three questions:

1. Is the information I’m about to share true? And you have to know that for a fact.

2. Is it kind? So will it somehow benefit the person I’m going to tell?

3. Is it useful? Can the information be acted upon in a way that improves the position the person is currently in?

A lot of information we share doesn’t pass this fundamental test. But it’s a really good guide to help calibrate your internal barometer on transparency of information.

Hopefully you now see that the case for transparency is a hell of a lot trickier than it might first appear. In situations where your integrity, and the integrity of your team, is at stake, that’s when you need to step up as a leader and do the right thing. But in the day-to-day rough and tumble of leading others, there are lots of considerations that govern how much transparency is appropriate.

If you’re aware of all the issues and you consider them when deciding how much transparency is warranted in any given situation, your expertise in this will develop over time. Are great leaders transparent? Sure – but they also know where not to be, and they know why.