You Get What You Give

Radically transparent firms exude the definition of transparency. To do so, they extend vast, unrestricted amounts of company information to their employees while simultaneously encouraging effective and candid communication. All corporate knowledge is deemed to be “public” to the internal workforce—ranging from the rationale for decisions made in any and every meeting that takes place, to the compensation of everyone on the payroll. Employees are inspired and empowered to speak and act in a straightforward, readily understandable manner—free from any pretense or deceit. Essentially, these organizations embolden and enable their employees to wake up each day as Nicole Richie, whereby they know everything about everything!

Leadership via radical transparency originated at hedge fund management firm Bridgewater Associates in 1993. With the intent to improve company performance, Bridgewater founder Ray Dalio urged employees to speak their minds to challenge the norm. By doing so, he created a culture of openness and directness.

Dalio said: “The most important things I want are meaningful work and meaningful relationships. And I believe that the way to get those is through radical truth and radical transparency. In order to be successful, we have to have independent thinkers … you have to put your honest thoughts on the table.” His ultimate goal was to inspire “thoughtful disagreement” without characterizing individuals as being right or wrong.

Radically Transparent Psychology

As people are innately social beings, management transparency resonates on a psychological level. A 2017 study found that “transparent leadership” boosts employee creativity due to the sense of psychological safety it provides.¹ This occurs when managers are forthcoming in sharing information—specifically their thoughts or feelings on a particular topic, regardless if they are positive or negative.

The NeuroLeadership Institute—an organization focused on taking a science-based approach to growing soft skills—developed the SCARF model to identify the domains that drive human behavior. The SCARF model encapsulates five dimensions of social threat and social reward:

1. Status
2. Certainty
3. Autonomy
4. Relatedness
5. Fairness

When the brain registers a social threat related to one of these five categories, it reacts in the same way as it would respond to physical pain. Alternatively, when a social reward is perceived, it leads to inspiration, motivation and overall engagement.

Two of these SCARF domains—certainty and fairness—are specifically relevant to radical transparency:

• Certainty in SCARF is the inherent ability to assess and comprehend the current environment, then predict what will occur in the future. (This sounds like every actuary’s dream come true!) With radical transparency, information-sharing enables individuals to be fully aware of the present state and possible future scenario(s)—no one is left feeling unaware or uninformed. Employees who feel “in the know” typically have a greater sense of trust in their colleagues and feel more loyal to their employers. A 2011 study on the impact of information exclusion in groups found that when individuals are “out of the loop,” they exhibit “thwarted fundamental needs, decreased mood, reduced competence, less liking of group members [and] participated less.”²
• Fairness in SCARF signifies equitable, justifiable and unbiased treatment. One leading example of fairness in radical transparency is via the performance measurement process. When a manager articulates feedback during the review process that is fueled by reasoning, it provides individuals with clarity on why a promotion was (or wasn’t) given and exactly how individuals are assessed against their objectives.

Radical transparency can be viewed as a means to promote pay equality and to thwart wage discrimination, as employees know one another’s compensation. Should an organization adopt radical transparency, the pay structure must be able to withstand scrutiny. Through complete disclosure, wage dislocation across roles is evident, along with any existing earnings inequities across factors such as gender, age, race and ethnicity.

Additionally, compensation awareness via transparency can encourage mid-to-high-wage earners to put additional effort toward reaching the next salary band. However, this compensation knowledge leads to the opposite result in lower-paid employees. A 2015 Massachusetts Institute of Technology (MIT) study found that when lesser earners were aware of the salaries of their coworkers, they experienced a 52 percent drop in productivity and a 13.5 percent rise in absenteeism.³ This is due to these individuals overrating their own qualities and abilities over others (illusory superiority bias).

Trusting in Transparency

Transparency has been cited as a key factor that influences an employee’s job satisfaction. In a 2016 Glassdoor survey, 96 percent of those searching for jobs stated that it was important to work for a company that embraces transparency.⁴ However, according to an American Psychological Association survey on workplace and well-being, only 52 percent of employees think their employer is open and upfront with them.⁵

Some behaviors that are indicative of workplace transparency and building rapport include:

• Conducting regular meetings within departments, across broader functional areas and the entire workforce to ensure everyone is clear on expectations, objectives and key company developments.
• Establishing individual connections with employees by holding one-on-one and small-group meetings.
• Sharing information on recent company announcements related to business updates and personnel changes.
• Encouraging feedback from employees on the company’s direction, corporate policies and culture.

Authentic communication is the foundation of establishing both transparency and trust, as illustrated in each of these examples. An authentic communicator talks with you—rather than at you—and is consistent with their messaging and delivery regardless of their audience. Transparent speakers use body language, such as facial expressions and hand gestures, to emphasize key points in their dialogue. Authenticity shines through when your delivery is consistent no matter who you’re addressing: external investors, the entire firm at a town hall meeting, a small focus group or the most recent class of summer interns. Particularly in the age of remote work, video conferencing can further enable authenticity in comparison to audio-only communication due to its more personal nature and ability to engage more senses.

In 2017, the first “Quantified Communications Index” that ranked the top authentic Fortune 100 CEOs based on an assessment of their publicly available communication—specifically their content and delivery style—was released.⁶ Jamie Dimon, CEO of JPMorgan Chase, was cited as the most authentic CEO in the Fortune 100. “Love him or hate him, Dimon comes across consistently,” said Noah Zandan, CEO of Quantified Communications. “Authentic communication is a key skill for all CEOs, but it is especially valuable in times of stress or crisis.”

Benefits of Transparency

There are many benefits for companies looking to adopt a radically transparent culture—or an even-tempered but perhaps not-so-radically transparent approach. In addition to some of the psychological benefits related to feelings of inclusion, willingness to trust and company loyalty, other advantages to radical transparency include:

• Job awareness. Individuals recognize the roles and responsibilities of everyone across the company. This can lead to better collaboration and solutioning due to widespread awareness of areas of expertise, skill sets and experiences. Also, as an employee, the fact that others understand the role you play and why your organization relies on what you do each day may provide a sense of legitimacy to your work.
• Corporate intelligence. Employees are informed on all issues facing the organization as well as the firm’s financial state. This includes understanding the impact of successes, setbacks, goals or competitive threats, and their resulting impact to the bottom line. This level of knowledge can be leveraged to improve decision-making as well as speed up the time it takes to make a decision. All individuals and functional areas are fully informed so they can drive positive impacts to the company’s earnings.
• Workplace humanization. When managers are transparent about their own mistakes and misplays, it humanizes the leadership team. In turn, this establishes a safe environment for others to be innovative and experimental—without the fear of failure. The ability to revolutionize, transform and test new approaches, processes or products can be inspirational and yield benefits in the long term.

Challenges

Despite the benefits, transparency—specifically radical transparency—can have negative repercussions for organizations that choose to adopt its regime. The possible cons of radical transparency include:

• Cultural shift. If existing employees are not used to an open company culture, they may be stunned and unable to adapt to a radically transparent work environment. Radical transparency is a way of life. The shift in the ecosystem could lead to attrition as individuals become overly self-conscious (rather than inspired) due to the perception that they are continuously being judged on their day-to-day work effort. Irish politician Gerry Adams articulated that what is transparency to one is regarded as humiliation by another.
• Feedback loop. All employees must be willing to receive and give feedback within a radically transparent company. It can be challenging to receive negative feedback, respond to it in an appreciative way and then work on improving your weaknesses to address it. And sometimes it can be even more difficult to constructively deliver negative feedback to others.
• Information overload. Individuals in the workforce have vast amounts of corporate intelligence at their disposal. Is it truly worthwhile for everyone to be current and able to take a stand on each and every issue facing the organization? Like in the Dr. Suess tale of Yertle the Turtle, does it become overly ambitious whereby the dissemination of so much information results in the stacked turtles toppling over and the collapse of productivity? Employees must determine where to best allocate their time to ensure continued organizational efficiency.

Adopting Transparency

A business that has adopted a culture of transparency is American outdoor clothing company Patagonia—it is open about how its products are made, where they come from and the conditions surrounding the employees who create them. It established the Footprint Chronicles website in 2007, so its customers could see videos of the clothing’s origins—from where the cotton was grown to the people behind the manufacturing of the garments.⁷ Then in 2012, Patagonia revamped its website to include even more details on the supply chain to provide customers with a richer view into their products’ social and environmental footprints. Patagonia’s CEO Casey Sheahan stated, “Today, I believe that transparency is an expectation.”

In researching this article, I came across consistent advice for individuals and companies considering adopting a culture of transparency: Ease into it! Transparency is an evolutionary progression. Reflect on the level of transparency that is appropriate for you, your team or your firm, and incorporate certain aspects of transparency in your daily interactions. For example, this could result in being more communicative on a particular topic, such as departmental objectives, the annual performance review process or the organization’s financial status. It could take the form of initiating anonymous surveys on issues affecting the company to get employees accustomed to providing feedback in a safe, unidentifiable way. Or, like Patagonia, it could occur via how your firm represents itself to the public through its website, social media channels or other points of outreach with your customers, clients and investors.

Initially, transparency can start small and exist between two individuals before expanding to a broader team, the entire organization or externally. Dalio stated that the two key questions to inspire mutual transparency are: “Should I tell you what I really think?” and “Can you be free to tell me what you really think?” You may want to consider boundaries as to what topics are “eligible” for transparency—contrary to Nicole Richie, you may not want to know everything about everything! By initiating a conversation to build trust and defining limits, a foundation for transparency is created. Ultimately, exemplifying and embracing a transparent approach will influence and encourage transparency in others.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

Copyright © 2021 by the Society of Actuaries, Chicago, Illinois.