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Natalia Rossingol

The Power of Transparency in Business

Modern organizations embrace transparency in business, knowing that it's a vital way to earn the respect of customers, win over investors, and satisfy employees.

Publicly declaring your company's purpose, disclosing information about your financial status and employees' salaries, providing workload visibility... doesn't sound very traditional, does it?

For years, organizations have tried to keep their secrets of business success. This has often been for perfectly good reasons; no one likes when their ideas get stolen, for instance. But secrecy makes it easier to hide when something has gone wrong - either by accident, or through some intentional, malicious action. Unfortunately, there's no shortage of cases where opaque practices were used to cover up seriously fraudulent activity!

But times change, and the contemporary world - dominated by information - requires us to open the curtain. Customers, investors, and employees want to know why things happen the way they do. This is why we're witnessing a shift to business transparency.

In this article, we will explain what makes business transparency important, discuss its risks, and talk about how to become more transparent as a company.

What is transparency in business?

Business transparency can be defined as the principle of openness and honesty in relationships between participants of the business process, such as employers, employees, customers, and investors, applied in various company operations and at all levels of the hierarchy.

It concerns sharing information about prices, revenues, diversity, business values, internal changes, and any other information that can be relevant for people related to the company.

In transparent companies, information is shared consistently, on a regular basis. This means that even in times of crisis, nothing gets hidden – on the contrary, everybody is immediately informed about the issue.     

Why transparency in business is crucial

Whether you’re updating your employees on new systems, revealing financial information to investors, or raising your prices, get to the point. People prefer a business that doesn’t hesitate to share information.- Mike Kappel, Forbes

The most obvious advantage of business transparency is probably its ethical side. By letting people know about things going on, you show that you trust them. This is a huge motivating factor that increases employee satisfaction, which helps build a healthier work environment and leads to employee and customer loyalty. 

And this can create a positive chain reaction:

  • You attract talent and retain the best employees, because in a highly competitive business world, people prefer working with someone who actually respects them.
  • Your employees perform better as they develop a sense of belonging to the company. They also get to work more efficiently, as their roles and expectations are clear, the purpose and mechanisms of projects are documented and explained, and budget and expenses are transparent. 
  • You develop more accountability and can track problems to their initial source without extra drama.      

Consequently, your company gets to grow faster, as transparency drives individual and organizational well-being.

In addition to that, business transparency helps build a positive reputation in the eyes of customers: according to the survey conducted by Label Insight, 94% of customers will stay loyal to a transparent brand.

How to promote transparency in your organization

There are several ways of increasing transparency in the workplace. Let’s mention some of them:

Create open communication channels

You may have heard it many times that in business, communication is the key. Active two-way communication (the one that flows from employees to employers and vice versa) ensures honest feedback and well-informed decisions based on multiple perspectives, which has a beneficial effect on the final result.

This is why you should intentionally nourish the culture of open communication and create specific communication channels, like regular meetings, email letters, or media resources – basically, anything you can use to provide updates and keep your staff, suppliers, stakeholders, and customers informed about the latest changes.

Good internal communication can also help break down team silos, which is a typical problem in many organizations. By improving communication, you make cross-team connections, this way sharing knowledge and engaging members of different teams into working towards the shared goal, getting them on the same page.

Finally, open communication involves keeping staff informed about strategic decisions. Whether it’s a merger or an acquisition, market expansion by adding new products to the existing ones, or introducing your business to a new location, informing employees about the upcoming changes is crucial. This way, you will both let people emotionally prepare for the change, and get to hear valuable insights.    

Promote a culture of accountability

Our attitude to coworkers and employers can be affected by various factors – personal preferences, opinions of others, and shared past experiences, which can be either pleasant or unpleasant. This way, we may succumb to the temptation of judging people by things that, in fact, have nothing to do with their actual work.

However, in the business context, people should be judged by their work decisions and actions, which come from those decisions. That’s why it’s important to build a culture where everyone takes responsibility, and the only criterion of professionalism is the result of their actions.

Accountability makes work transparent – you know who did what, and if suddenly there is a problem, it’s easy to find the root cause and the person in charge.

At the same time, when promoting a culture of accountability, it’s important to not let it transform into blame culture – the one where people focus on who’s made a mistake rather than on trying to solve it. Such a culture provokes unhealthy situations when employees are scared to speak up and take a risk, which stifles progress.   

Support quality reporting

The purpose of quality reports is to ensure the project meets the standards by tracking progress and measuring it, both quantitatively and qualitatively. By making these reports open and available for employees to access, you let them see their own progress, reinforcing the strengths and paying specific attention to weaknesses. Naturally, this contributes to quality improvement.

Statistical data can be disseminated, and then accessed, in paper and electronic publications or online databases. The information should be presented in a clear and understandable form.

Promote financial transparency

This refers to the access to financial information that allows employees to get an understanding of how the company is run, and how they personally contribute to its growth. Clear financial records and reports help consumers and investors see an objective picture of the financial situation. Disclosure of fees and interest rates lets investors make the best decisions. 

In most organizations, only a select few understand the company finances. However, financial transparency can strengthen the culture and improve financial behavior. When employees understand the correlation between financial income and outcome, they’re more encouraged to think like owners and make wise decisions. At the same time, it makes the leadership more vulnerable, as they’re obliged to answer tough questions about finances. 

Another aspect of financial transparency, along with open records and reports, is transparent salary levels. For example, one of the organizations with an “open salaries” philosophy is Buffer, a social media start-up. Since it disclosed salaries, the company received 2.886 job applications as compared to 1.263 in the 30 days before the disclosure. Potential employees could portray the environment they were going to work in, and the employer was able to attract much talent.

In Runn, the pay is standardized and visible, too - everybody knows what they and others will get paid.

Build trust

You cannot become a truly transparent company if you don’t build a culture of trust. Trust is the foundation, the fertile soil where you can grow healthy work relationships, professional staff, and outstanding results.

When you know you can rely on others; when you can openly ask for support without being judged; when you can share ideas, concerns, and information, delegate assignments, and just be yourself – then your productivity will drastically increase, you will be inspired and willing to take risks because you know someone has got your back.

Trust has many levels. In the workplace, we can talk about 6 levels of trust, as determined by Carol Kinsey Goman, an authority on leadership presence and body language:

  1. Trust in yourself.
  2. Trust between team members
  3. Trust in team leader.
  4. Trust in the importance of the project.
  5. Trust of leadership in employees.
  6. Trust in the collective genius.

Put together, these different types of trust can build a very positive work environment, based on the principles of psychological safety and respect. And naturally, trust will reinforce transparency.

Employees won’t have to be afraid to say a word because a boss may not like it – and this way, they can share problems and come up with interesting ideas.

Leaders will feel safer, too, as they will not have to closely control each step of the workers, trusting their professionalism and good intent.

Additionally, trust will be particularly appreciated by investors. Openly sharing information on the financial state of your organization, you may feel vulnerable – however, you will show that you’re honest and are not going to hide anything, and people will be more likely to invest into your business. After all, no one likes bad surprises.

Overcoming challenges in promoting transparency

Business transparency is a whole new strategy that can naturally face obstacles and be difficult to introduce. It involves risks, like disclosure of information that has been considered sensitive so far, and requires implementing new cultural codes. Yet, there are some approaches that can help practice transparency in the workplace with more ease.

Balancing transparency and competitive advantage

The first thing to remember while making your business more transparent is to not be too transparent. Yes, it sounds like an oxymoron. But think about this: there is something that makes your company special, something you created and nourished and put your soul into. Isn’t it just logical to keep that to yourself?

Protecting your secrets from competitors is okay. You worked hard, and you deserve to have the competitive advantage gained by your own know-hows. 

Yet, keeping your special formulas safe and staying transparent are not incompatible. There is no single answer – you will have to create your own formula to find the balance between transparency and confidentiality. Here’s some tips:  

  1. Set a level of disclosure, which can vary from sharing the code of conduct to sharing traceability of the supply chain starting from the raw materials, like Patagonia Footprint Chronicles.
  2. Communicate and overcommmunicate the criteria of information withholding and disclosure.
  3. Encourage feedback from various stakeholders.

According to some researchers, transparency is a new advantage. Reuven Gorsht, Forbes, mentions that nowadays customers prefer “humanized” companies that openly talk about their cultures and the values they stand for, this way letting customers become a part of the brand through buying their products or services. These companies send a signal: what we do is more than just making money, we’ve got a purpose.

This builds a strong trusting company-customer relationship. Studies show that consumers are willing to pay 2% to 10% more for products made by companies that practice transparency.     

Countering resistance to change

The simple and obvious truth is that people do not take change that easily. We are slaves of our own habits and resist change because this is an unfamiliar terrain. And when it comes to transparency, the fear of change is actually justified.

After researching empirical evidence of the impact of transparency on performance in an organization, Ethan Bernstein, Harvard Business Review, came to the conclusion that more transparent environments do not always guarantee success: 

Here’s the paradox: For all that transparency does to drive out wasteful practices and promote collaboration and shared learning, too much of it can trigger distortions of fact and counterproductive inhibitions.

Too much transparency is dangerous. It might create tension within an organization, stifle experimentation, and expose you to competitors. That's why it's important to maintain some privacy while incorporating transparency into your culture - for example, set boundaries around individual teams not to expose their every little action, allow experimentation without interruptions, and be careful with feedback and evaluation to avoid manipulations.

Transparency can also become a powerful instrument of change management. Of course, shifting to transparency sounds counterintuitive in times when your company faces hardships. You already don’t feel solid ground under your feet, and it doesn’t seem smart to move to a totally different paradigm.

Yet, Mark Zuckerberg believes that during challenging financial times, transparency is the best leadership strategy, as it allows you to see benefits where you don’t normally see them:

I recognize that sharing plans for restructuring and layoffs months in advance creates a challenging period. But … we heard feedback that you wanted more transparency sooner into any restructuring plans.   

Transparency might seem unusual to the majority of organizations. Yet, it can cause positive changes for your business, promoting openness and trust and driving performance. All it takes is maintaining the balance between confidentiality and visibility.

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