Opaque transparency

"Transparency" is the new buzzword in business ethics. But now organizations are playing the game of how little you can actually disclose while meeting the legal requirements.

Like any other field, Business Ethics has catchphrases. A few years ago, it was "tone at the top." The theory was that employees couldn't be expected to behave ethically unless senior leadership modelled that behaviour and talked about its importance to the whole organization.

That is true, but what happened in many companies was that it was deemed sufficient to have the CEO talk about ethics, without providing any ethical policies. Nothing was aligned with the message: compensation structures, celebrations of success, and watercooler chatter about fooling clients, getting government officials on side and winning at the expense of colleagues. Bonuses were paid for bringing in revenue, regardless of the methods used. Employees are not stupid — if they see who is rewarded and for what, they get the message about what is really valued by the organization. The result, of course, was many of the scandals that have come to light.

Today the buzzword is "transparency." Organizations promise to operate in an open and transparent way. The theory this time is that if stakeholders have a window into how organizations operate, and can see how and why decisions are made and the results of those decisions, organizations will be pressured into operating more ethically. Corporations, charities and governments will work toward the long-term interests of their shareholders, recipients and citizens rather than focusing on the next quarterly results, fundraising campaign or election.

The reality is different. The goal of transparency has been hijacked by legal considerations and transformed into a weapon. Transparency has been interpreted to mean "dump as much information as possible on the stakeholders, using vocabulary that only experts can understand.

"We have all clicked "I agree" when buying or accessing something online, just to get rid of that screen and move on. The extensive disclosure of what we are agreeing to does not increase our understanding or cause the company to respect our privacy or rights to any greater degree. But the company can congratulate itself that it has been "transparent."

Financial disclosure has had much the same result. A few years ago I attended the AGM of a public tech company, which was in the pre-revenue stage. Its income statement was comprised largely of R&D expenses. Its balance sheet was made up of some cash and fixed assets, share capital and deficit. But the financial statements included 42 pages of notes, which no one read. People just wanted to know how long the cash would last.

Shareholders get enormous amounts of information from companies. The content has been meticulously pored over by lawyers, accountants, PR people and others. Countless dollars and hours have been spent — probably more hours than are spent reading the material. All this has been done with good intentions: give shareholders the information they need to make informed decisions.

The problem is that all organizations want to put the best spin on things. Charities do not want to tell their donors how much they spend on administration. Corporations would rather not report a decline in revenue (which will of course reverse next quarter). And governments — well, enough said.

The result is that organizations are playing the game of how little you can actually disclose while meeting the legal requirements. If they were really concerned about transparency, they would ask themselves, "If I were in their shoes, what would my stakeholders want to know?" There are lots of reasons why you can't tell people everything — confidential information, legal constraints, complex issues that are difficult to simplify. But just asking what shareholders might want to understand, instead of what the company wants them to hear, might result in real transparency.