By: Thomas Fink
Leadership Transparency is a hot topic in business management discussions these days. If you are in leadership today, and if you started your career when I did, you’ve probably noticed a generational shift toward increased openness. Who knows where this trend will take us, but for now it is important to have sound strategies for creating and implementing it into company culture.
Leadership transparency can be a great thing for business in that it can unlock tremendous potential for your company by increasing and transforming the engagement of your team. While being more transparent may be an adjustment for some in terms of their level of communication and style, a strategic Chief Financial Officer (CFO) can help you incorporate this important core value and achieve it in your business with great success.
Generational Shift
When I began my career, information was hard to come by. Computer systems were not very accessible. Physical reports had limited distributions. Important financial and operating data needed to be physically assembled, totaled, and analyzed. While there was the “water cooler” gossip to some extent, for the most part, we kept our heads down and did our jobs. In the workforce and as line managers, we really didn’t know much except what we were told and what was immediately in front of us.
Accordingly, unproductive activities and even bad behaviors had an easy time taking root. When employees don’t know, they would fill in the gaps themselves -- often incorrectly. It was easy for possessing information to be conflated with power in some companies, too, and it wasn’t unusual to find some leaders feel that information was on a “need to know” basis. Perhaps they felt others could not be trusted or that sharing information somehow reduced their own power. Regardless, the situation has now changed.
People today expect to have more information. They expect to see it and to know it. They expect to be part of the conversation. Past practices of controlling information and sharing only selectively is “old school” thinking now. Today, we have easy access to internet searches with vast amounts of information, ubiquitous social media where many share loads of information, and a greater prevalence of powerful ERP systems where operating and financial data are readily available. Employees know this information is easily accessible, and their expectations for transparency have similarly risen.
Why be Transparent?
“How you do anything is how you do everything.” It’s true for people and it’s true for businesses. In a company, organizational leadership sets the tone and creates the culture by how and what they do; good, bad, or ugly. CFOs know this as the “tone at the top”, often referred to by auditors.
It wasn’t so long ago that protecting an image was paramount. Honesty sometimes took a back seat. Leadership teams privately focused on “damage control” while saying they promoted integrity, but integrity cannot exist in a culture of cover ups (disguised as damage control). Now we have entered the age of Leadership Transparency, where sweeping anything under the rug in business has ended. CFOs have been deeply involved in this journey to establish transparency. Some hard lessons had to be learned through recent decades of ethical conflicts, fraud, litigation, bad press, poor morale, and, finally, a dynamic shift in employee expectations.
Leadership transparency is the practice of clearly communicating with employees, customers, and other stakeholders, and creating an environment of trust and open dialogue. Transparency in leadership is now essential for a company to build trust, loyalty, promote innovation, and, ultimately, maintain a competitive edge.
Leadership Transparency has topped the list of workplace trends for the past several years, with employees now expecting transparency and honesty from leaders in acknowledging strengths, challenges, market/business conditions, and what the organization is doing to address these. According to Slack’s Future of Work Study, 80% of workers want to know more about how decisions are made in their organization and 87% want their future company to be transparent. The same study showed that 55% of business owners described their organization as “very transparent”, while only 18% of their employees would agree.
Lack of transparency can lead to employee disengagement, whereas transparency in leadership helps to create an environment where employees feel comfortable voicing their opinions and ideas. Creating this transparency can be especially important in large companies, where employees may feel somewhat removed from their leaders and unable to influence decision-making. By making sure employees feel heard and involved in the decision-making process, companies can ensure that their employees are motivated, engaged, and productive.
Leadership’s Role in Transparency
If you are in leadership today, perhaps you, too, started your career in the “old school”. Perhaps this new culture of sharing information more broadly with greater inclusiveness seems a bit foreign. If this is you, consider this fact, you already share information to some degree… it’s just a matter of where you draw the line.
Where do you draw the line of what to share and what not? Perhaps it is uncomfortable for you to draw that line. Perhaps you are uncertain about what to share and what not. If this is true for you, a good CFO is well-equipped to help with this transition.
In recent years, Financial Transparency kicked off a worldwide movement, with regulators obtaining greater access than what was previously publicly available about companies. CFOs have been at the forefront of responding to the external requirements of increased transparency. Strict rules were promulgated requiring public companies to keep the market informed, with immediate formal disclosure rules for any event or issue that might affect stock price valuation (varying by country, of course). Full compensation and benefit disclosures followed, along with exacting accounting standards developed to open previously withheld data and better enable investors to make informed decisions. Even private companies must adhere to stricter accounting and reporting guidelines and regulations than in years past. Yes, there’s been a lot done in the corporate world to promote transparency and reduce corruption over the past couple of decades and CFOs were the first to implement these changes.
In addition, CFOs have experienced an expanding role in recent years, one that now covers not only all aspects of finance, but also includes strategy, technology, operations, talent acquisition, employee retention, and more. As a result, CFOs have taken on more strategic responsibilities and have gained a broader and unique perspective that, combined with their vast experience within the dynamic topic of transparency, makes the CFO a critical asset to growing a culture of transparency. Oversight from CFOs can help give better purpose to the employees at the organization by building a framework for transparency to be understood, cultivated, managed, and prosper.
A CFO’s role also traditionally includes the handling of bank, shareholder, and other public relations. Here, communicating complex information accurately but within proper context is key; and a CFO must be seen as a credible expert to be successful. As a result, CFOs have become experienced with building trust through transparency with numerous audiences. CFOs are resourceful in pulling information from disparate sources and adept at adding sufficient detail behind broader concepts or general statements to tailor messaging appropriately for the varied audiences. These competencies required for effective external communications are also essential for success in creating greater Leadership Transparency.
As a leader, if you do not show trust, you cannot be trusted; and trust is a big motivator. Employees feel truly valued and invested when they are trusted, and transparency is a sign of trust. Transparency in leadership promotes innovation by creating an environment where employees feel comfortable and empowered to share their ideas and opinions, fostering a culture of innovation and creativity. This can lead to new products, services, and processes that will help a company stay ahead of its competition.
Making the Transition
Before diving headfirst into Leadership Transparency simply because it is a hot topic, it is important to sketch out what, when, and how to do it. Without a thorough understanding of all that is involved, a hasty implementation can lead to disarray, and potentially give rise to dilemmas that could be easily avoided with planning and getting the right people involved. With the direction of transparency heading toward releasing even more information, like pay transparency, it is more important than ever to look to a CFO for creating the right balance for leaders.
If full Leadership Transparency seems like a big step. Start small… what would you want to know? If you don’t know everything… just say “This is what I know today.” Leadership Transparency is a 2-way street. It leads to openness and honesty. Use Transparency to both give them the information they expect, but also to get the pulse of the organization. With this, you can truly respond to their needs, wants, and fears.
What if the information you have is bad? Well, I’ve got news for you. People are perceptive and they probably already know. If you don’t tell them, you will lose trust. Plus, you are not making anything better by not sharing and you are probably making things worse. Numerous studies have proven stress rises when people are told “everything is ok” when it is not.
If you share what your problems are, perhaps your employees can help. The team will rally around what you share with them. If you start from the position that people are generally good and want to do the right thing, they will respond and want to help. People have a predisposition to help and the only way you can tap into it is to give them the facts, so they know what’s happening. As a leader, you’ve got to go first and lead by example. It’s an engagement and trust builder. A strategic CFO, with their keen insight into what drives business performance, can be a great sounding board in helping figure this out.
Transparency is not just sharing sometimes, but always and openly sharing. It is seeking out input. And, importantly, Transparency is consistently behaving in a way that is predictable. Consistency includes the timing and frequency of communication. With their focus on overseeing the regular reporting of financial information, CFOs can also help in setting and maintaining the cadence of communication for other information, too.
Knowing Where the Line Is
Despite the benefits that come from transparency in leadership, there are some potential concerns. If leaders are too open in their communication, they may overwhelm their employees and stakeholders with unnecessary information. This can lead to confusion, frustration, and a lack of trust. Here, too, your CFO can help. Determining what information will foster trust and motivate employees needs to be coordinated by someone who understands the business and what should be kept confidential, and that is the CFO.
Some information is simply meant to be confidential. An employee telling a leader something in confidence, health/medical information, personal details, etc. are all examples of confidential information. Even if the personal information could impact the team, like a health situation requiring reduced work time, it is up to the employee, not leadership, to share that with the team. This seems obvious, but there needs to be planning and oversight to avoid potential issues. A CFO will understand the nuances of over sharing and can work in conjunction with Human Resources and leadership to determine what is and is not appropriate in these types of cases.
Also, while we know some information (like salary data) is confidential, we also must understand that employees themselves may share this information even if we do not or cannot for confidentiality reasons. Google salary-sharing worksheets are all the rage within some workforces, so to some extent, your employees may already know more about some things than you feel comfortable telling. Rather than put your head in the sand about this, your CFO can help you come to a better position such as sharing policy information and articulating why compensation decisions are made a certain way. Perhaps your firm values certain skillsets or performance thresholds and compensates based on those criteria. Explaining this much will go a long way toward establishing transparency and acknowledging employee’s concerns and interests while still preserving individual confidentiality.
If your company is small to mid-sized, you might have an accounting team, but not necessarily someone with the broad expertise and experience of a Chief Financial Officer. Fortunately, there are ways to get help without hiring and investing in someone of this caliber in a traditional manner. Interim, fractional, and project-based CFOs, like those that SeatonHill Partners provide, are available to contribute to operational decisions, mitigate risk and achieve results. Seeking professional CFO direction for Leadership Transparency and other organizational issues will help guide your company in the right direction, ultimately saving time, money, and the pitfalls of problems that could be created without it.
The Bottom Line
The bottom line is that people appreciate transparency today. Employees want a boss that they can respect. Customers want a company worth their loyalty.
Great companies and great leaders are willing to be remarkably transparent. Revenue, Profit, Margins are just a start. Transparency into compensation is a good next step. Sharing and giving feedback frequently during the year also is a great move compared to waiting for the annual review session. Showing your willingness to “have the conversation” will let employees know how you feel about their work and that you care about it. Most importantly, be consistent with effective communication and seeking ongoing feedback.
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Tom Fink is a Partner with SeatonHill. His career spans over 30 years in executive level positions within a broad array of industries including transportation, financial services, professional services, real estate, and investment banking. Tom has led large and small companies, both private and public, through important strategic and transformative stages. He has expertise in international businesses, SaaS business management, managed services, defense contracting, architecture and design, and consulting.
SeatonHill Partners provides organizations financial leadership with a strategic and operational focus by placing elite CFO talent to challenge the business and contribute to operational decisions to achieve results. With curated talent, SeatonHill financial leaders guide small and medium-sized businesses through complex financial problems to mitigate risk and achieve organizational goals nationwide.