Transparency is key to the future of our organizations

The word trust is on everyone’s lips in these times of financial uncertainty. If we have learned anything since the current currency crisis began, it is that trust is fundamental to the functioning of our highly complex and globalized financial system, and to the very health of the institutions that sustain it.

The government and the country’s main banks assure us, day after day, that the Spanish banking system is one of the most solvent in the world. They insist that our bank deposits are safe despite the shocks of the current financial crisis, which originated in the United States from the collapse of subprime mortgages last year. But the reality is that the solution to the problem, or at least the ability to contain the magnitude of its negative effects, depends to a large extent on the credibility that citizens give to these statements. Because the crisis – originally financial – has been transformed into a global crisis of confidence in our institutions. The key question is the following: will we Spaniards trust our institutions at such a critical time for our society? The future of our economy and social welfare as we understand it today will very possibly depend on the collective answer we give to this question.

In this context, we should not be surprised by the refined statements of the head of the European Central Bank, made in an interview with The Banker:

“If there is one lesson we must draw from the current crisis, it is that transparency is key to the future of our organizations. In all the domains that are at stake, transparency will be one of the most important principles for one simple reason: opacity is a recipe for herd behavior and the contagion of bad practices.” Jean-Claude Trichet, Governor of the European Central Bank.

Transparency, trust and credibility. These must be the pillars of the new leadership we need to build 2.0 organizations; organizations prepared to attract the unique talent of the new generations, and capable of responding to the challenges we face. Therefore, in today’s conversation we are going to address some of the keys to creating culturally transparent organizations and achieving the trust of their stakeholders.

Organizational transparency

Organisational transparency can be defined as a deliberate attempt by the organisation to create an environment of trust in which to promote free access to information, open communication, and the participation of all professionals in decision-making. The objective is, therefore, to communicate the reality of the organisation to all stakeholders within a climate of trust.

Transparency plays a fundamental role in the commitment of the workers of any organization, and has a direct and significant impact on the profit and loss account, in which everyone participates. A very graphic way of defining transparency is to resort to its opposite: organizational transparency is that which is radically opposed to opacity within organizations.

The term “transparency” has rarely been used in the context of organizations, and has not received particular attention from business schools and management scholars. Perhaps this has been so because it is a difficult concept to measure, and whose mere definition is not simple.

However, as a result of the Enron, WorldCom and Tyco corporate scandals – uncovered at the beginning of this century – interest in transparency has been growing significantly. The acute crisis of confidence that these scandals caused in the markets led us to pay more attention to issues such as good corporate governance, transparency of information, and conflicts of interest arising in relations with auditing firms. The Sarbanes-Oxley Act of 2002 was undoubtedly a first step in the right direction: increasing transparency and good governance in listed companies. But, strictly speaking, the Sarbanes-Oxley Act only promotes a very limited form of transparency, based not on the rise of new corporate values, but on the forced compliance with accounting regulations aimed at protecting shareholders of listed companies.

Transparency and trust

We have always found that transparency and trust are intimately linked. In fact, transparency is not an end in itself, but a means to achieve an environment of trust within organizations. Why is trust so important? Because, in a way, trust is the social lubricant that fosters and facilitates relationships of interdependence. It is the real key to teamwork, and it is the natural formula that human beings use to overcome the uncertainty that is always present in our relationships with others.

Trust is not easy to describe, perhaps because it is located in the field of feelings. Jack Welch, former CEO of General Electric, explained it very simply: “you know what it is when you feel it”. What is clear to us is that trust has a very high component of reciprocity: the trust we place in others directly influences the trust that others place in us. That is why trust is key in our organizations. It is necessary for cooperation and communication, and forms the basis on which we build productive relationships.

Transparency in the Age of Collaboration

In the Age of Collaboration, transparency is no longer an abstract concept. It has found its physical embodiment in all the new forms of mass expression and collaboration that today make up Web 2.0. Beyond the countless newspapers in “.com” versions, blogs and wikis that comment on our social reality every day with total transparency, social networks have become authentic transparent virtual countries, populated by hundreds of millions of inhabitants. This is the case of Facebook or MySpace. With their mobile phones, their digital cameras, their email messages and their comments on blogs, these new countries have generated a veritable wave of transparency that is enormously useful. Much to their detractors, these social networks are accelerating the changes that our organizations need to meet the challenges of the Age of Collaboration.

We live in a world where traumas and triumphs are instantly visible. In the words of Jonathan Schwartz: “Sunlight is not only a great disinfectant, but it is a wonderful safety net, because we cannot solve problems that we do not know about or that are hidden from us.” Analogous to what has happened with the Internet and markets – we have seen that the Internet has created more efficient markets – transparency in organizations is helping to create more flexible and efficient networked organizations.

The resistance is still many. The organizations we have built – both in the public and private spheres – are largely based on the opacity of their structures and the ignorance, on the part of their members, of the reality of the organization. Hence the pressing need to innovating in management, and to move towards more transparent and open organizations. To achieve this, we must design specific strategies that promote transparency and trust.

In his book “The Naked Corporation”, Don Tapscott and David Ticoll argue that, in the Age of Crowdsourcing, companies have to accept the fact that partners, workers, customers, the government, and the general public will have free access to all kinds of information about their organizations. It is clear that people are going to have much more information than in the past, and organizations must be prepared to take on this new situation, behaving and acting accordingly. Companies that try to limit access to information or ignore the forces of transparency are in danger of disappearing, unable to survive the new demands.

A quote from the book sums up the situation well: “In an age when networks put unprecedented amounts of information at everyone’s fingertips, companies have no choice but to reconsider their values and behaviors, and rethink the way they manage their information flows.”

Of course, there are still many obstacles in our organizations to achieve full transparency. It is true that some of them are valid, such as trade secrets or sensitive information about our customers. But the current crisis has shown that a large part of the financial services provided by entities that we thought were solvent were based on opacity and the lack of knowledge of customers regarding the real risks of the products offered. In the short term, it may be possible to survive by maintaining a certain degree of opacity that makes our product or business model seem viable; but in the long term, the truth ends up prevailing, and customers can always find a better alternative.

The digital revolution and the Internet are shredding at accelerated speed, and forever, the curtain that has always hidden the reality of organizations from public view. However, there are still few companies willing to accept and handle this new scrutiny. For most, transparency is a costly and disruptive element that threatens their survival.

In this new environment, it is useless for us to remain in our “comfort zone”, sitting quietly, acting as if nothing has changed in recent years. Transparency is a new force that is unleashing, right now, profound changes in all areas; changes that will definitively affect the future viability of all organizations. This small revolution has revealed a crucial aspect: the validity of our value proposition as a company is “just one click away”. As never before, users now have all the information, and can issue their verdict instantly, with a single click. Blind trust and loyalty, as we have known them, no longer exist. Therefore, we have no choice but to reinforce and renew our company’s value proposition on a daily basis, almost at every moment.

How we can contribute

We can all contribute to making transparency a differential value in our organizations. In fact, we will be doing so every time we improve the three basic components of cultural transparency in organizations in our field:

• Active participation. Make transparency simply part of the organization’s culture, a value practiced at all levels. Transparency cannot succeed unless stakeholders know what they need to know and care about knowing it.

• Relevant information. Transparency requires making relevant information available to stakeholders – whether of a positive or negative nature – in an open and transparent manner, within legal bounds and in a truthful, accurate and balanced manner.

• Responsible transparency. We must deliver on our commitments to transparency by taking into account the interests of all affected parties, being upfront about deficiencies and challenges, and ensuring the integrity of the company’s operations.

Reasons for optimism

Despite the uncertainty created, I am optimistic about the final effects of the crisis. I believe that, in the same way that transparency in markets has generated more efficient markets, transparency in organizations and institutions will lead us to more efficient societies and fairer and more sustainable development models. Precisely, what the current crisis is showing is that we have not yet created a single organization or institution capable of surviving the new demands for transparency imposed by the Age of Collaboration. Hence the fiasco. Nor have we managed to meet the levels of interaction and participation demanded by the new generations of digital natives. Unfortunately, the organizations we have created – both in the public and private spheres – continue to be based, to a large extent, on the opacity of their structures and the ignorance, on the part of their members, of the reality of the organization.

We must read it positively: transparency is a force that companies can actively use to build and reinforce the trust of their customers, and to show their value in an increasingly global market. The current financial crisis has sent us a very clear message: in order to rebuild investor confidence and ensure success in a more transparent economy, an increasing number of companies around the world will have to behave more responsibly, and will need to communicate their reality more openly, cultivating transparency and openness as ethical values.

*You can see the content of this post summarized in the following presentation: