We won’t be able to rebuild trust in institutions until leaders learn how to communicate honestly—and create organizations where that’s the norm.
Until recently, the yardstick used to evaluate the performance of American corporate leaders was relatively simple: the extent to which they created wealth for investors. But that was then. Now the forces of globalization and technology have conspired to complicate the competitive arena, creating a need for leaders who can manage rapid innovation. Expectations about the corporation’s role in social issues such as environmental degradation, domestic job creation, and even poverty in the developing world have risen sharply as well. And the expedient, short-term thinking that Wall Street rewarded only yesterday has fallen out of fashion in the wake of the latest round of business busts and scandals.
It’s clear we need a better way to evaluate business leaders. Moving forward, it appears that the new metric of corporate leadership will be closer to this: the extent to which executives create organizations that are economically, ethically, and socially sustainable.
How can leaders accomplish such an ambitious task? Their action plans will vary, of course, depending on the nature of their industries, the peculiarities of their companies, and the unique challenges they face. But whatever their strategies and tactics, we believe prudent leaders will see that increased transparency is a fundamental first step.
When we speak of “transparency,” we mean much more than the standard business definition of the term—full disclosure of financial information to investors. While such honesty is obviously necessary, that narrow interpretation produces an unhealthy focus on legal compliance to the exclusion of equally important ethical concerns, and on the needs of shareholders to the exclusion of the needs of other constituencies. Worse, it’s predicated on the blinkered assumption that a company can be transparent to shareholders without first being transparent to the people who work inside it. Because no organization can be honest with the public if it’s not honest with itself, we define transparency broadly, as the degree to which information flows freely within an organization, among managers and employees, and outward to stakeholders.
Companies can’t innovate, respond to changing stakeholder needs, or function efficiently unless people have access to relevant, timely, and valid information. It’s thus the leader’s job to create systems and norms that lead to a culture of candor.
How Candor Improves Performance
Admittedly, the relationship between organizational candor and performance is complex, but it’s worth examining from a number of angles: whether people who need to communicate upward are able to do so honestly; whether teams are able to challenge their own assumptions openly; and whether boards of directors are able to communicate important messages to the company’s leadership.
We’ll tackle upward communication first. Consider the results of an intriguing, relatively obscure study from the 1980s, in which organizational theorists Robert Blake and Jane Mouton examined NASA’s findings on the human factors involved in airline accidents. NASA researchers had placed existing cockpit crews—pilot, copilot, navigator—in flight simulators and tested them to see how they would respond during the crucial 30 to 45 seconds between the first sign of a potential accident and the moment it would occur. The stereotypical take-charge “flyboy” pilots, who acted immediately on their gut instincts, made the wrong decisions far more often than the more open, inclusive pilots who said to their crews, in effect, “We’ve got a problem. How do you read it?” before choosing a course of action.
At one level, the lesson of the NASA findings is simple: Leaders are far likelier to make mistakes when they act on too little information than when they wait to learn more. But Blake and Mouton went deeper, demonstrating that the pilots’ habitual style of interacting with their crews determined whether crew members would provide them with essential information during an in-air crisis. The pilots who’d made the right choices routinely had open exchanges with their crew members. The study also showed that crew members who had regularly worked with the “decisive” pilots were unwilling to intervene—even when they had information that might save the plane.
That kind of silence has a tremendous price. In his recent book Outliers, Malcolm Gladwell reviewed data from numerous airline accidents. “The kinds of errors that cause plane crashes are invariably errors of teamwork and communication,” he concluded. “One pilot knows something important and somehow doesn’t tell the other pilot.” Hence, in an emergency pilots need to “communicate not just in the sense of issuing commands but also in the sense of...sharing information in the clearest and most transparent manner possible.”
Transparency problems don’t always involve a leader who won’t listen to followers (or followers who won’t speak up). They also arise when members of a team suffer from groupthink—they don’t know how to disagree with one another. This second type of problem has been written about a lot, but we’re sorry to report that from what we’ve observed, it’s very much alive in the executive meeting rooms of large corporations. Shared values and assumptions play a positive and necessary role in holding any group together. But when a team of senior managers suffer from collective denial and self-deception—when they can’t unearth and question their shared assumptions—they can’t innovate or make course corrections effectively. That often leads to business and ethical disasters.
Why Good People Do Bad Things (Located at the end of this article)
We’ve argued for more transparency for a long time—but the truth is, we haven’t seen much progress. In the combined fourscore and 10 years we’ve been studying organizations, the most common metaphor we’ve heard managers use to describe their own cultures is “a mushroom farm”—as in, “People around here are kept in the dark and fed manure.” When we recently polled 154 executives, 63% of them described their own company culture as opaque. And the remaining 37% were more likely to choose clouds over bright sunshine to describe the communication practices at their firms.
Organizational transparency makes sense rationally and ethically, and it makes businesses run more efficiently and effectively. But leaders resist it even so, because it goes against the grain of group behavior and, in some ways, even against human nature. In all groups leaders try to hoard and control information because they believe it’s a source of power. Managers sometimes believe that access to information is a perquisite of power, a benefit that separates their privileged caste from the unwashed hoi polloi. Such leaders apparently feel that they’re smarter than their followers, and thus only they need, or would know how to use, sensitive and complex information. Some even like opacity because it allows them to hide embarrassing mistakes.
A third type of transparency problem occurs when the board of directors abdicates its responsibility to provide genuine oversight. An alarming number of board members today seem to succumb to the “shimmer effect”—they let charismatic CEOs get away with murder (or outrageous greed, at any rate). Witness the behavior of Hollinger International’s former CEO Conrad Black, who spent some $8 million of his shareholders’ funds to treat himself to a private collection of Franklin D. Roosevelt memorabilia. Worse, Black was found guilty of taking millions in illegal payments for agreeing not to compete with Hollinger’s own subsidiaries. The company’s board, which included Henry Kissinger, held Black in such awe that it simply did not provide prudent oversight. What Black and his board failed to factor into their pact of silence is that truth has a way of ultimately surfacing.
Why Transparency Is Inevitable Today
What executives are learning, often the hard way, is that their ability to keep secrets is vanishing—in large part because of the internet. This is true not just in open democracies but in authoritarian states as well. For example, in 2007 blogger Lian Yue warned residents of Xiamen, China, of plans to build a chemical plant in their beautiful coastal city. Even a decade earlier, the factory would have been built before local citizens were the wiser. But urged on by Lian, opposition spread quickly in Xiamen, via e-mail, blogs, and text messages. Protesters organized a march on the town’s city hall to demand the cancellation of the project. Although government censors promptly shut down their websites, the protesters took photos of the demonstration with their cell phones and sent them to journalists. A million messages opposing the plant reportedly were circulated. The government ultimately agreed to do an environmental impact study, and the plant was moved 30 miles out of town.
