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Why transparency could be your company’s downfall

Should you be discussing the big picture with your staff? A new research paper shows strategic transparency should be handled with care.

Concerned people in a boardroom
“Increasing transparency is trendy,” says Cambridge Judge PhD student Nina Andreeva, “but organisations need to be very careful about the promises they make, especially in turbulent times. They may not even be aware they are making promises, but they must carefully consider the issues they are prepared to be transparent about, the language they use, the context they are operating in and the length of the commitments they are making.”

Nina Andreeva

Nina Andreeva

Andreeva’s research has focused on what she considers to be a prime example of over-promising, the handling of a bank merger during the financial crisis of 2008. Her paper – “Unintended consequences of increased transparency: risks and rewards of publicly announcing strategic decisions” – shows how, while increasing transparency early on had an extremely beneficial effect on employee commitment, later it led to reputation-damaging court cases and payouts for a large, international, commercial and investment bank.

The court cases generated quite a bit of press coverage: “The court transcripts offered fascinating insights into a typically hidden activity – things like emails and minutes of board meetings.” What she discovered was a takeover announcement, set against the context of the collapse of US investment bank Lehman Brothers and the ensuing widespread financial uncertainty, that caused widespread insecurity throughout all levels of the bank’s employees.

But the most damaging aspect of the case revolved around the promise of bonus payments, promises that were made and then effectively withdrawn once the takeover was complete. “Employees were incredulous,” says Andreeva, “and saw the backtrack as an injustice and a betrayal, while the bank’s management admitted they had an ’employee relations disaster on their hands’.”

In total 104 bankers in the UK sued and, four years later, they won their case, as the judge found the initial announcement “gave rise to contractual obligations to pay discretionary bonuses.” The judge also said that the bank had sacrificed employee interests on the ‘altar of public perception’.

“What’s clear is that increasing transparency may not be appropriate for expressing particularly sensitive or long-term (beyond the immediate future) commitments under conditions of extreme uncertainty,” says Andreeva. “Organisations need to be particularly careful when making announcements about issues that directly impact employees’ wellbeing, such as personnel issues, for example. Less public forms of employee retention, such as bilateral agreements, can provide an alternative solution.

“Further, other research shows that despite indications of a high level of intentions to leave, the actual number of departures could be small.” And, she says, when making public announcements, management should think about inserting proper disclaimers. “Disclaimers have to be specific about the type of obligation the organisation would like to prevent and, importantly, have to be part of the original announcement.”

Language used is also extremely important. “The public nature of the announcement committed the organisation to a certain course of action,” she says, “but there were also consistent confirmations of the promise in the following few months. Had they dialed down the rhetoric things could have been different.” The management’s use of “stability narratives” made it impossible for them to later use ‘renegotiation narratives’, she adds.

“Temporality” is another key factor. “The bank being taken over committed very early in the financial year to bonuses to be paid several months later. It’s important to remember that increasing transparency may not be appropriate during certain times in the organisational lifecycle, such as during organisational transformations when it may be unclear who will have to deliver on the promises made.”

It’s sure, suggests Andreeva, that increased transparency can have a positive effect on employee commitment, but she also strikes a note of caution. “The very transparency that may generate a level of goodwill inevitably creates organisational change reference points and increases expectations about change outcomes. The danger is that this may well lead to unintended consequences in some turbulent times.”