How Much Financial Transparency Is Too Much?
In 2000, my former company, 101 communications, made about six acquisitions, and in every case, top management met with the employees of the acquired company to answer their questions. After explaining the strategy of the acquisition, the compelling reasons why bringing together the product portfolio made sense, and the style with which we would run the combined entity, we then asked for questions.
Usually, there was deafening silence.
Often, no one had the temerity to ask the new bosses hard questions. But in one case I recall, there were two questions;one was about a rumor that we were going to close an office, and the other was about whether medical benefits would change.
There is a lesson in those questions. Whenever there is a big change, the first question in anyone’s mind will be “How does it affect me?” Indeed, that may be the first question all the time.
That’s a lesson worth remembering when trying to decide how “open” to be with employees.
How Much Is Enough?
Most private companies have to decide how much information to share. At the Los Angeles Times, my old stomping grounds, we generally held quarterly meetings with the top 100 managers and provided incredibly detailed updates, lasting sometimes as long as three hours.
When Curt Hessler and I first launched 101, we decided we wanted to be an “open” and “transparent” company; we had both come from public companies where under SEC rules much financial information is publicly available, even the compensation of the top five executives.
So we posted our detailed monthly profit and loss statements on our intranet site, with full access for all employees, from the top editor to the receptionist. You could check out the balance sheet, the cash flows, just about anything any Wall Street analyst would care to see;warts and all. And I sent out almost monthly memos to employees trying to explain all the financial information.
Was it worth the effort? From my perspective, the answer is mixed. In 2001, 101 ran into severe financial setbacks, and some of the financial reports probably caused more angst among employees than necessary, since it is often easy to misinterpret the reports, unless management takes the time to provide adequate explanations. And our time was being spent responding to the crisis. Some employees may have quit out of an unfounded fear;as it turned out;that we wouldn’t survive the financial crisis. And I’m sure the reports caused a fair share of unfounded rumors.
We eventually stopped posting the monthly financials on our Web site, and not one employee asked me or any of top management about it. Instead, I sent a detailed e-mail to all employees a couple times a year explaining how the company was doing financially;our successes, our disappointments and our new objectives. I received much more positive response to this type of communication.
Thanks but No Thanks
The sad truth is that most people don’t want to take the time to understand the numbers. I happen to think that employees should take an interest in the financial performance of their company, but I am always surprised at how few people actually pay attention when given the chance. I was reminded of that recently when I approached two different journalism schools about teaching a “business of journalism” class because I think journalists should be educated about the economics of the business they will enter. One has not responded to my inquiry, and another administrator told me that students aren’t that interested, that maybe I should approach the business school.
I continue to believe that sharing some level of information is a sound business practice. Those companies that don’t share any financial information;often those owned by single entrepreneurs who don’t want anyone to know how much they actually make;are hurt by the lack of openness. No information at all is the basis for even more wild rumors.
The information just doesn’t have to be as complete as a serious financial analyst might desire. Nor take as much time to put together. What is important is to provide perspective and insight into the financial performance. Some top-level results, what products are driving the profitability, where the weak areas are, and some perspective on the entire enterprise are probably worth a whole lot more than page after page of balance sheets, cash flows, and profit statements. And easier on the eyes, too.
Jeffrey S. Klein is chairman of 1105 Media, a b-to-b publisher.