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How Radical Transparency Improves Business

Ahead of COP26, New Zealand became the first country to require the financial sector to make climate-related disclosures. The mandatory reporting will force financial institutions to make business decisions based on their climate crisis impact.

This adds to the momentum that the Stakeholder Capitalism metrics have had since they were announced in 2020. Over fifty companies have reported on the metrics. These non-financial metrics related to companies’ performance against ESG (environmental, social, and governance) indicators are meant to bring greater comparability and consistency to business disclosures.

The acceleration towards a global solution for non-financial reporting may be unwelcomed to some. “You can’t improve what you don’t measure”, said Peter Drucker, an influential management thinker. The obligation to report on areas such as the number of hours of training provided to employees and the amount invested in local economics may bring an unwanted level of transparency to some companies.

But we want trust and transparency in our workplace. The digital era shifted our expectations and we want to know what is real and true. We want leaders who are vulnerable and human, not hidden behind a veneer of perfection.

Radical Transparency

Ray Dalio in “Principles: Life and Work” believes that radical transparency or creating systems of open communication was critical to the success of Bridgewater Associates, the hedge fund that he founded. Radical transparency enables relevant information to surface and the right decisions to be made. The culture that Dalio built to prioritize the truth meant that others in his organization felt comfortable, and even welcomed, to challenge his ideas and perspectives.

Increased transparency could expose a company’s problems, like washing your dirty laundry in public. But for Unilever, radical transparency has increased the trust consumers have for their brands. It has disclosed its list of suppliers and tax policies, published ingredient information more than they were required to do, and reported on their progress towards their Sustainable Living Plan.

In 2012, Unilever partnered with non-profit organization Oxfam to conduct a gap analysis of their labor rights policies and the reality on the ground with their workers. Unilever provided Oxfam with unequaled access. The results were less than flattering for Unilever. Still, Paul Polman the CEO of the company at the time chose to publish the report. The report set in motion a series of initiatives that strengthened their supply chain sustainability practices, including a Fair Compensation Framework. A subsequent audit by Oxfam showed progress and closing of the gap from the first report.

From this perspective, the decision to publish the audit results exposed the issues in Unilever’s supply chain. It showed the team areas for growth and improvement. When Unilever announced their plan to remedy the issues, they gained the trust and respect of their consumers. There is no shame in being honest with your weakness. Doing so creates an opportunity to ask others for their help and support to improve. Indeed, Unilever’s high standard of transparency has incentivized their suppliers to collaborate with Unilever to achieve sustainable certification and increase supply chain innovation.

Goal Alignment

Heightened transparency means the company’s goals and strategies are public. There is no ambiguity about what people should focus on and what the priorities are for the business. Alignment is seamless and efficient and the appropriate people are made accountable because all the necessary information is public.

When GitLab started, it was two individuals in Ukraine. Today, it has over 1,400 employees spread across the world. Their product started as an open-source project. So, transparency –in the form of documenting and sharing information — has also been part of the company’s DNA. GitLab publishes its team handbook, strategy, direction, and metrics. Every quarter anyone with access to the internet can track how the team has progressed against their projects. The team believes that this level of transparency is required to achieve their mission of empowering everyone to contribute. “When everyone can contribute, users become contributors and we greatly increase the rate of innovation”.

Allbirds, a designer and retailer of footwear, uses an online tool to help employees track how their objectives contribute towards the company’s goal of creating carbon-neutral products. Employees' objectives are drilled down from and connected to overarching company priorities, which helps the team focus their efforts in the right areas. When goals are transparent and teams are working in the same direction, employees can track their performance and feel more connected with the final outcome.

Trust in the Workplace

Transparent work cultures are more attractive to employees. Transparency is the foundation of trust and better work relationships. However less than half of employees trust their managers or coworkers. Some cited gaps in compensation, unequal access to growth opportunities, and lack of respect as reasons for the absence of trust. The lack of trust directly correlates with lower levels of happiness, lower employee retention, lower engagement, less productivity, and fewer innovations. In the long term, leaders who are not focused on increasing transparency will experience a negative impact on their business.

But before we make public every detail of the business, there is also the danger of extreme transparency. The constant exposure could lead some employees to feel overly scrutinized and to experience performance anxiety. Some may feel they have to be “turned on” all the time, and feel overwhelmed with the level of transparency. With radical transparency, employees are encouraged to give feedback and challenge opinions. Employees who are unprepared for this may internalize the feedback which could foster resentment and lead to passive-aggressive behavior.

First Steps

If the team is not familiar with radical transparency, take baby steps. Start with individuals and slowly develop a practice of giving candid feedback, if the end goal is open communication on the organization’s performance. Before exchanging feedback, it is important to ask, “Would you be open to telling me what you really think?” and “Would you be open to feedback from me?”

Second, organize town halls where financial results and other key information about the business are shared with every employee. This fosters the feeling of inclusion and moves away from the secrecy of data that only senior management has access to. It signals respect and acknowledgment of the team’s contribution towards the business’ progress. The town hall can act as a forum for the celebration of successes and collaboration on existing issues.

Finally, discourage closed-door conversations. Reduce the opportunities for speculation to circulate within the teams. Workplaces that are rife with rumors have low levels of trust and employees feel insecure. Information that is important to be shared should be made known to employees as soon as possible.

Increased transparency promotes trust, better relationships, and accountability.

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