The Transparency Traps You Need to Avoid

Firms that make transparency a cornerstone of their culture should plan for unintended consequences
Silhouette people on glass staircase in an upscale office.

By Alan Morantz

We come not to bury transparency but merely to knock it off its pedestal.

Yes, transparency can be the basis of trust, a splash of cold water against our confirmation biases, a light upon corruption. But too much transparency is not good for organizations. Poorly conceived or managed initiatives — from pay transparency to unbridled social media posting —  can boomerang and deepen problems that transparency is designed to solve. Here’s what management evidence says about the limits to openness.

Transparency can encourage timidity and defensiveness

Intuitively, you would expect people to feel empowered and emboldened in open environments. That’s not necessarily what happens in real life.  

People change their behaviour when they feel they’re being observed, which is how transparency can feel to many people. This goes for leaders and the led alike. Multiple studies show that when people know their decisions and performance are being scrutinized, they have a heightened fear of losing. Therefore, they are more likely to avoid risk. In one lab-based study, it was shown that “contestants” in a Deal or No Deal simulation who had to make decisions in public consistently played it safer than those who were anonymous. 

Other studies show that too much openness can result in employees hiding good ideas. They exhibit a lot of the knowledge hiding behaviours that Jane Webster of Smith School of Business and her colleagues documented, such as being evasive when information is requested, playing dumb or rationalizing why ideas must be kept under wraps. Observability makes some people want to hide their good ideas out of concern they could get in trouble or that their ideas won’t pan out.

Transparency can make it hard to hear the signal in all the noise

Savvy communications experts know how to sow confusion and ambiguity by strategically releasing a flood of information. A similar confusion can result from an overly liberal approach to corporate transparency.

Making information visible is not the same as making it transparent. Seeing the what without understanding the why can be more destructive than not seeing anything at all. Leaders who share too much information about business operations without context or structure can slow down the decision-making process. And they can inadvertently stress employees concerned for their own jobs. Neuroscientists have found that as information load increases, so does activity in the brain responsible for both decision-making and emotional control. 

Transparency can breed distrust and cynicism

Transparency is often thought to engender trust within organizations. In fact, there isn’t much hard evidence to support this. We know very little about how organizations actually define and manage transparency. But we do know that different stakeholder groups base their trust on different factors. Some people may interpret greater transparency as suspicious.

A research team, for example, found that distrust was significantly higher in organizations where email cc’ing was the norm compared to organizations in which employees rarely cc’d colleagues or supervisors. Organizations where people almost never cc’d others were the least distrustful.

The power dynamics intrinsic to transparency can also undermine trust. Steve Salterio and Teri Shearer of Smith School of Business, with Mitchell Stein of Ivey Business School, have written about the “invisible fields of transparency” that can lead to the preservation of the status quo that serves the interests of senior management. If information from greater transparency only flows to those in power, what is the message to employees? When senior executives use transparency as an impression management tool as they engage in “openwashing,” trust in that organization’s stated commitment to transparency is undermined.

Transparency can be downright depressing

People have a need to compare themselves to others. At work, we expect fairness in how our contributions and compensation stack up against co-workers. In many cases, the only thing standing in the way of full-on resentment is the absence of data: We rarely know how much colleagues are paid.

In a macroeconomic sense, greater transparency can be an effective weapon against pay inequities. That’s what Norway thought when, in 2001, its leaders posted all tax records of citizens online. At a firm level, pay transparency may be a motivational tool. But it can also be de-motivating. A field-based study at a large U.S. bank displayed this double effect. The study documented large misperceptions among the employees about the salaries of their managers (generally off by 14 per cent)  and significant misperceptions of the salaries of their peers (11 per cent). These perceptions shaped employees’ behaviour. When they found out their managers earned more than they thought, employees put in more hours of work. But when they discovered their peers earned more, they put in less effort.

A Canadian engineering firm experienced a similar reaction when it offered greater transparency around bonuses. The result: employee trust plummeted. 

The Norway experience is noteworthy. Researchers looked at what happened to the well-being of Norwegians who could see what everyone else earned. They found that greater transparency increased the gap in happiness between the rich and poor by 29 per cent; it increased the gap in life satisfaction by 21 per cent. In 2014, Norway banned anonymous searching of its tax database.

How to make transparency work

There are ways leaders can reap the full benefits of transparency without the unpleasant side effects.

Watch how transparency is positioned. Open initiatives are often launched without being connected explicitly with the organization’s strategy or a specific business goal. Leaders would be wise to clearly communicate what they are trying to accomplish with a new transparency policy.

Establish a disciplined process. Transparency guidelines should spell out what information is restricted and unrestricted and a decision path to ensure that the appropriate amount of information is made available. This is particularly important regarding employee posts on corporate social networks.

Create “zones of privacy.” Harvard researcher Ethan Bernstein has written about the need to establish places where employees are free to think imaginatively in anonymity within open environments. These zones of privacy are less about physical locations and more about boundaries around teams, between feedback and evaluation, and within time periods. 

Link pay transparency with performance metrics. If you are committed to pay transparency, it should be in tandem with performance transparency. At least then, people can (theoretically) understand how factors such as experience and track record play in determining compensation.

Be mindful of how power dynamics can undermine transparency. Instead of focusing only on what information should be shared to whom, consider how transparency can change boundaries within the organization or be seen differently by those lower on the management rung. Ask yourself: How risky is it for others to speak up to you? 

 

Alan Morantz is senior editor of Smith Business Insight.

                                        

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