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Is Your Company Ready for Total Transparency?

Cornerstone Editors

More companies these days are opening their books -- and databases and other records traditionally kept confidential -- to employees in the hopes of empowering workers, holding them accountable and, more importantly, boosting morale and productivity. From public and searchable emails to fully disclosed employee salaries and benefits, companies large and small are venturing into the practice of "open-book management," a concept that dates to the 1980s.

The idea is that giving workers access to financials will help them feel like stakeholders in the company's success. Doing so not only holds employees accountable for their work, but also helps them understand why, if times are tough, the Friday morning bagel delivery has been cut.

Open-book management got its start a generation ago when Jack Stack, CEO of Springfield Remanufacturing Corp. in Missouri, acquired a struggling division of another company that was loaded down with debt. "The first thing Stack needed to do was pay down debt," says Wayne Baker, a professor at the University of Michigan's Ross School of Business. "So, he put the company's debt-to-equity ratio on the wall." It was, Baker adds, "the formula for success."

Open-book management isn't for everyone, but it has shaped how many U.S. companies do business today. Baker, who has studied the practice at an Ann Arbor, Mich.-based specialty foods company, Zingerman's Community of Business, believes most companies could benefit by embracing new forms of transparency – both online and offline.

The Goal

In practice, open-book management centers on weekly meetings -- called huddles -- where everything about a company's health is put on the table, including financial goals met, shortcomings, and forecasts, for any employee to see. Numbers are jotted down on a large whiteboard, and little is left out: everything from the coffee quality to sales goals to turnover is openly disclosed and discussed. "If (an employee) has a problem with something, (she) puts it on the board" for discussion, says Baker.

Behind every number or shortcoming reflected on the board, problems that need further investigation are identified. By calling out shortcomings in public, problems are looked into, procedures are tweaked, and productivity ultimately rises.

The Payoff

More productive and positive cultures, a greater stake in the company and a greater sense of community are just a few of the outcomes of open-book management, Baker says. "Open-book opens up the whole organization so that everyone knows what's going on," he said. "It's empowering for people, sparking creativity and new ideas." According to a study conducted by the William Davidson Institute at the University of Michigan, open-book companies "know and teach the rules of business, follow the action and keep score and provide a stake in the outcome."

The Challenges

Deciding how much information to disclose and where to get started is often a barricade to embracing this practice. Making all emails public and disclosing salary figures might be an extreme example, but companies are experimenting with versions of these options by posting salary ranges – rather than exact figures – and bringing internal communications out into the open.

"This is not for every company," Baker said. "Some companies have leaders who want to hold all the power and play their cards very close to the chest. Open-book would never work there."

Communicating bad news to employees can be a struggle for managers operating under the terms of open-book management. When Kindermusik International Inc., a Greensboro, N.C., music-education publisher that had adopted the open model, downsized a few years back, it had difficulty breaking the news and maintaining employee morale, CEO Michael Dougherty explained at the time. Still, the company positioned its performance in the wider context of the industry to help explain the situation.

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