|The Truth About Transparency
EXECUTIVE UPDATE, August 2003
Despite its desire for stakeholders' trust, every association has information, stories, or history it doesn't want accessed by competitors or perhaps publicized to all members. But in the digital age, it's no secret that greater organizational transparency is rapidly becoming a requirement for associations.
By: Paul D. Meyer, CAE
As scandals rock both nonprofit and for-profit organizations, the case for developing transparent business practice grows.
Like most children, my five-year old son is extremely transparent. For example, he enjoys playing card games, especially Uno, but requires all players to keep their cards exposed. You might say we play a transparent game. From my son's perspective, he cannot see playing the game any other way. If we attempt to hide our cards and play the game correctly, he assumes that we are cheating and holding back information. On the other hand, since all cards are exposed, he has learned how to manipulate the plays and direct the players' activities. Playing this way takes a bit longer, but in the end someone wins, often my son.
Transparency has its advantages — and challenges. Organizational transparency helps create trust among stakeholders, encourages more informed decision making, and supports greater participation. However, it does not guarantee that the right decisions will be made or that information will not be manipulated or misconstrued. Despite the challenges associated with transparency, current conditions and future assumptions are driving organizations to respond to the question, "How do we create a more transparent organization?"
Historically, the term "transparency" rarely has been used in the context of organizations. In other disciplines, such as architecture, engineering, and technology, transparency is commonly understood as used. In current management literature, various definitions exist for organizational transparency, one of which really makes the point — a condition opposite of secrecy. "Secrecy means deliberately hiding your actions; transparency means deliberately revealing them," explains Ann Florini in The End of Secrecy. It is the deliberate attempt to move from a secretive or opaque organization to one that encourages open access to information, participation, and decision making, which ultimately creates a higher level of trust among stakeholders.
The users of goods and services are provoking the transparency question, thanks to recent societal dynamics: shareholder demand for increased financial accountability in the corporate world, calls by the media for increased access to information within institutions, pressure from vocal special interest groups to divulge corporate social and environmental track records, publicized financial scandals within highly visible nonprofit organizations, and other factors. Combined, these dynamics create a tension that is felt by all organizations today.
On a deeper level, the expectation for increased transparency is a consequence of the digital age and subsequent "digital generations." Those generations immersed in the digital age reject representative democracy and secretive competitive advantages. Consequently, as individuals from this generation rise into leadership positions, they will no longer tolerate the excuse, "Unfortunately, we cannot access that information" as a reason for withholding financial data, not knowing competitors' prices, or not allowing a broader constituency to be involved in decision making.
Technology has both created the expectation and also produced the tools to deliver greater organizational transparency. Access to information through the Internet has shifted the balance of power toward the customer rather than the supplier. Technology has allowed political systems to make demands on others to share once-confidential information. The public has accepted increased intrusions in the name of safety.
Transparency is being hailed as the new competitive advantage, and "trustworthiness" is the new mantra for leadership. Indeed, improved financial transparency within publicly held corporations could increase stock price by as much as 25 percent, says Eric Ooi Lip Aun, executive director of the consulting firm PricewaterhouseCoopers Malaysia. One has to wonder if increased organizational transparency might spark similarly impressive numbers in association membership recruitment, volunteer involvement, and fundraising dollars.
The Focal Point for Associations
Research conducted for a book I coauthored with partners Glenn Tecker and Jean Frankel — The Will to Govern Well: Knowledge, Trust, and Nimbleness (Foundation of the American Society of Association Executives, 2002) — uncovered several themes regarding how associations were responding to the demand for greater transparency.
We found that transparency and trust are inextricably connected. Transparency is a means to another end: a trusting environment. Increased transparency helps develop a culture in which trust abounds, an environment that eventually creates an association that is satisfying and enjoyable to join and participate in. We concluded that a culture of trust requires three prerequisites:
- Clarity and consensus about what constitutes success;
- Open access to common information;
- Confidence in the competence of the partners involved.
Within these prerequisites, several focal areas emerged.
Create a compelling definition of success. Associations that articulate and constantly communicate a persuasive answer to the question, "What constitutes our success?" create a more compelling reason for individuals and entities to join. Research suggests that people are more likely to join and participate in associations that have a compelling reason to exist and that focus on its pursuit.
Practice less manipulative leadership. Members and prospects expect leaders, both volunteer and staff, to practice less manipulative leadership (i.e., leadership that is characterized by leaders not withholding information). Today, stakeholders have access to more resources about associations and their operations. This results in more experienced, informed stakeholders of association operations with a higher demand for open leadership practices. As transparency and honesty increase in value, stakeholders will be less tolerant of secretive or manipulative behavior by staff and volunteer leaders.
Communicate repeatedly. More members are expecting multiple communication opportunities and multidimensional communication channels. They also expect to simultaneously communicate with each other, the association's leadership, the staff, and other stakeholder groups.
As such communication loops become more available, members will expect to be asked continuously for their opinions. Despite the frustration staff feels when surveyed members do not respond, asking and providing opportunities for feedback will facilitate transparency in organizations and will increase the level of trust between members and associations.
One of the associations we studied provides an ongoing feedback mechanism on its Web site and in its weekly electronic newsletter. It asks several open-ended questions on current trends and association services, which provides a constant flow of member-generated ideas and opinions.
Open up access to decision-making documents. Members will increasingly expect open access to governing documents and, in particular, financial statements (including those that go beyond the one- or two-page summaries in typical annual reports). Posting this information on your Web site behind a firewall that can only be accessed with a password is not enough. A deliberate attempt should be made to provide this information to members and prospects to help them better judge the value of the association.
Share background information about important decisions. Stakeholders expect open access to governing documents and other information, but they also want to understand why decisions were made. They will increasingly demand access to background dialogue and choices considered before final decisions were made.
In addition to providing the final motion, board minutes should reflect (in short, bulleted statements) key issues that were considered before the final decision. This additional information could include research data, options considered, and advantages and disadvantages of proposed alternatives. Our research has revealed a profound shift in the quality and acceptance of decisions when organizations pay attention to discussing choices and consciously communicating the bases for related decisions.
Provide clearer financial reporting. Experts agree that, with the exception of those deliberately practicing fraudulent acts, most corporate leaders make bad financial decisions because they lack understanding and a true picture of the organization's financial health. We also found this true in our research on associations. Recent legislation and new statutory regulations will require increased transparency and accountability for financial information, but this is not enough. A complete understanding of the financial information and its impact on the association by leaders and other stakeholder groups will separate those organizations that are focusing on a culture of trust from those that are just meeting statutory requirements.
Maintain a nimble product and program portfolio. As communication and the expectation of trustworthy relationships increases, members and prospects will expect associations to provide a portfolio of products and services that can evolve to meet changing needs. Stakeholders will judge whether an organization is responding to identified expectations, needs, challenges, and opportunities. Associations must continue to review their menu of products and programs to test for member relevancy and to willingly make changes.
Hire and appoint trustworthy people. The bottom line is that no amount of newly accessible information, creatively designed spreadsheets, legal wrangling, or regulatory pronouncements will replace the importance of involving the right people. Our research revealed that successful associations that were practicing transparency and were committed to a culture of trust and mutual respect were organizations that used their core values as a test for involving the right people. For example, as part of the interviewing process for board leadership, one association asks nominees to respond to a set of scenarios directly related to the organization's core values as articulated in its strategic plan.
Challenges of Increased Transparency
Just as increased transparency brings about opportunities, challenges also exist. Increased access to information risks a potential distortion of the truth and its intent. A more open method of decision making may slow the process, and most associations cannot afford that. Transparency creates organizational vulnerabilities and may invite the formation of special factions that feel underrepresented by the association. Finally, transparency does not guarantee that the right decisions will be made. Plenty of bad decisions are being made in transparent organizations. More practically, increased transparency may require additional time and resources at all organizational levels.
Additionally, there may be a point where transparency may have diminishing returns. The association may not want to give away those elements that make it truly unique and competitive — the organization's "secret soft drink formula," so to speak. Increased organizational transparency is risky, but with a realistic understanding of the challenges and a leadership commitment to move forward, risks can be minimized.
Most important is that the association earns a reputation for being a place where individuals and entities find value. Reputation is often an organization's most valuable asset. It is built over time through a focused commitment and response to members' wants, needs, and expectations. A commitment to transparency will increasingly become a litmus test used to define an association's reputation and will be used as a value judgment for participation. By gaining a reputation for value through the disclosure of information, extensive communications with stakeholders, and a solid track record of truth and high disclosure of information, associations will win the respect and involvement of current and future members.
I may not expend my limited resources on an association that I perceive as secretive, but I know for sure that my son — and his generation — never will.
Author Link: Paul D. Meyer, CAE, is a principal partner with Tecker Consultants, LLC, and is coauthor of The Will to Govern Well: Knowledge, Trust, and Nimbleness (ASAE, 2002) He can be reached at 703-449-9019 or firstname.lastname@example.org
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