Transparency is at the heart of good corporate governance — it implies open, honest and accountable communications. Executed well, it builds confidence in management’s decision-making capabilities and the reliability of an organization’s performance reporting.
For public companies, stronger corporate governance, better internal controls and increased financial transparency are standard agenda items, from the executive boardroom to the employee water cooler. For external stakeholders, particularly investors, transparency standards and practices are established and carefully monitored by regulators and other third-party authorities.
However, where employees are concerned, it is left to management to determine the “what, when and how” of performance communications. Practices vary widely and outcomes are mixed. And in an uncertain economy, where organizations and jobs have slipped away in record numbers, transparency has become an important and controversial issue.
Correlation between communications and increased employee satisfaction
The questions to ask and answer are: How does transparency impact corporate performance? Does it help grow a business or build value? How do we measure this intangible? What are the risks?
Some of the answers can be found in 2005 research published by the S.I. Newhouse School of Public Communications at Syracuse University in Syracuse, N.Y. In looking at the relationship between internal communications, employee satisfaction and organization performance, the research team identified a 40-per-cent correlation between communications and increased employee satisfaction.
They also found satisfied employees are more likely to have satisfied customers. For example, communications that increase employee satisfaction also increase employee commitment to customer service and foster good customer relationships, according to a study of cause and effect links carried out by technology giant Lucent.
The same communications practices that foster satisfaction and relationship-building also have an impact on the bottom line. Both employee and customer satisfaction influence stock price, increase customer retention, reduce employee turnover and, ultimately, increase annual revenue per customer, found a study by the benchmarking agency CATCSE (Competitive Advantage Through Superior Customer Experience).
Transparency is just good business — strong employee communications programs that include timely access to relevant performance information have a direct impact on organizational performance.
New paradigm of openness with technology
There is also ample evidence of a new paradigm of openness in society. Smart, powerful technology has flattened the playing field when it comes to access to information. With assistance from search engines such as Google and Wikipedia, people have access to information on a scale and scope that would have been impossible 10 years ago.
For employees in public companies, the System for Electronic Document Analysis and Retrieval (SEDAR) from the Canadian Securities Administrators provides open access to all financial information pertaining to firms listed on the Canadian exchanges. Similarly, the Electronic Data Gathering, Analysis and Retrieval system (EDGAR) from the United States Securities and Exchange Commission captures information for all American listings as well as information on Canadian firms listed south of the border.
No longer dependent on top-down communications, employees can turn to these and a myriad of online business news, analyst commentaries and market data sources for information on the companies they work for.
In addition, the news channels and rumour mills are constantly buzzing through emails, messages, tweets, blogs and networking groups (such as Facebook) that disseminate information unfiltered and without restriction. These social news networks are often more efficient at putting information into the hands of employees than internal resources.
However, management who leaves distribution and discussion of corporate information to others is passing up a valuable opportunity to control the messages that stimulate morale, commitment and performance.
Employers that make employee communications a priority — building it into the annual plan complete with benchmarks — are investing in trust-based labour management relations, increased employee satisfaction and return on investment. Engaging employees in the creation of their communications plan and involving them — in some form — in the development of the annual corporate plan will engender a sense of ownership in performance outcomes.
Understanding of financials can motivate workers
Going one step further, employers that take the time to help employees understand how the business makes money — its revenue and cost models — and how their roles and functions contribute to the model will increase their feelings of ownership and motivate better work behaviours.
Asking for employee input into performance improvement will automatically open the door to collaborative problem-solving and create an environment where innovation can come alive. This is where transparency really begins. It is much more than sharing quarterly or annual results — it starts with engaging staff in establishing shared goals and values, so they feel valued in assuming accountability and responsibility for performance outcomes they impact.
Sharing the financials and other performance metrics just brings closure to the process. These present a snapshot of an organization’s and team’s performance. Often misunderstood as a form of compliance, financial transparency makes good business sense as a way to maximize the potential of employees.
An inclusive communications philosophy can also play a role in recruiting the “best and brightest.” Many top employer lists rank organizations by revenue growth, recruitment and retention programs and employee communications practices. Often the employees themselves rate their employers on the effectiveness of these programs and how they keep them informed, motivated and make them feel valued. Considering the importance employees place on communications relative to satisfaction, employers that score well in this category earn reputations as “great places to work.”
Potential risks of transparency
Despite the advantages, everything comes with risk. A transparent management style and comprehensive financial communications program can increase an employer’s vulnerability when it comes to corporate espionage, lawsuits, disgruntled employees and activist boards.
However, prudently bundling and presenting information so it serves transparency purposes and is relevant and informative, but does not expose detailed information out of context to public scrutiny, can diminish these risks.
But managed properly, an open and inclusive approach to reporting to employees has the potential to improve performance across an organization.
Jocelyn Brodie is a principal at Brodie-Danis Consulting in Toronto. She can be reached at email@example.com.