Transparency: How it Impacts Credibility
When an organization faces a challenging situation, instinct may kick in to be very tight-lipped about what’s happening. While this would seem a reasonable action to protect reputation, it can create the perception of guilt or wrong-doing and cause mistrust and uncertainty.
Transparency, however, can send a positive message in the midst of difficulties. First, it demonstrates ownership and acknowledgement of the situation – good leadership recognizes the elephant in the room and addresses it head on. Second, transparency indicates a command of the situation and provides an opportunity to say, “We acknowledge what’s happening. We are looking into it. We are going to make this right.” Third, it keeps stakeholders informed. When change or challenges impact an organization, stakeholders want to know what is going on. They want to know “How does this impact me?” Transparency is a signal that the organization understands that stakeholders may have concerns and will keep them informed.
Organizations do well to carefully consider the value of being transparent about a problem, crisis or other challenging issue.
Take the recent Best Buy situation. When CEO Brian Dunn resigned, Best Buy’s initial public statement did not mention an investigation into Dunn’s personal conduct and cited only “mutual agreement.” Upon further questioning, however, Best Buy ultimately did acknowledge a probe. Best Buy has taken it a step further and promised to make public the results of its investigation, citing “a commitment to transparency.” At some point along the way, Best Buy leadership likely concluded the costs (to its reputation, the trust of its shareholders and employees, its credibility within the community) of trying to keep secret the details of what led to Dunn’s resigation would be much higher than if they disclosed all or part of what they learned.
Strategy development and planning are essential for achieving effective and beneficial transparency. Disclosures should be based on strategic considerations, such as to satisfy regulatory objectives, inform key stakeholders, keep employees engaged, etc. Other considerations include whether the information is likely to become known some other way—such as through the employee grapevine, a 10-K disclosure, or a government investigation. How much and when disclosure is made will also guide decisions affecting transparency. Finally, transparency must always be analyzed along with other legal, regulatory or ethical obligations that guide an organization’s duties regarding information disclosure.