The New Look of Transparency

"The more transparent an organization is, the healthier and more productive it's going to be and the less trouble it's going to get into," says leadership expert Warren Bennis. Learn why greater transparency has its risks and benefits, and steps associations and nonprofits have taken toward openness. (Titled "Clear: The New Look of Transparency" in print version.)

A board member calls for a meeting to move into executive session. Under what circumstances do you, as CEO, voice opposition?

The membership department receives several inquiries about the percentage gap between your CEO's compensation and that of your lowest-paid employee. Do you share that information?

A potential donor asks your organization to provide a copy of its whistleblower policy. Do you have one?

These examples are real. Members, donors, media, regulators, the public, and volunteers are just some of the stakeholders whose demand for greater transparency and its close cousin, accountability, has grown in the past decade.

Finances, of course, top the list for scrutiny, followed closely by governance and communication. The corporate world has been coping with a new era of regulated transparency and accountability ever since passage of the Sarbanes-Oxley Act (SOX) in 2002. Some nonprofits and associations, concerned that the law would expand to their sector as well, directed their auditors, investment committees, and boards to voluntarily adopt similar governance and accounting principles.

According to SOX coauthor and former senator Mike Oxley, airing the inner workings of nonprofits was never part of any discussions by lawmakers. He applauds such initiative, though, and urges other associations to follow suit. Speaking at the 2010 Council for Non-Profit Accountability Summit, Oxley stated that such activities "will improve the fiscal condition of nonprofits and strengthen donor confidence."

And Congress may yet change its mind about the scope of SOX. In a later interview, Oxley warned, "A bit of caution on the part of the nonprofits and some planning hopefully will mean that down the road they won't have to face this kind of problem, because once you have that breach of reputation risk, boy, it can go downhill very, very fast."

Says Ron Noden, chair of the Council for Non-Profit Accountability, "[Transparency] is an issue that will continue to get attention in the nation's capital and in state houses around the country. We need to be proactive, so nonprofits can continue to be mission focused."

What Does Transparency Look Like?

A major hurdle, though, is the cloudy definition of a "transparent organization." Warren Bennis, founder of The Leadership Institute at the University of Southern California, wrote an entire book on the subject, Transparency: How Leaders Create a Culture of Candor, and still acknowledges that the term "has many different meanings" and has evolved in the past 10 years.

"One of those meanings is the transparency of transactions ... [N]ot having enough of that led to the recent [financial] crash," Bennis says, adding, "The word 'transparency' in the business lexicon and in the vernacular I'm familiar with has everything to do with how open, how visible, organizations are in dealing with various stakeholders and also within the organization—how transparent our people are with each other, how candid they are."

Bennis and his coauthors emphasize that the burden and opportunities around greater transparency are here to stay because of the multiple information outlets now available to consumers, especially online.

"We can find out who the best practitioners are in almost any particular branch of medicine or profession [just by visiting a few websites], so to the extent that people are educated and can distinguish new sources, it's going to be very hard to keep things secret unless there is some kind of federal provision or patent law that would [do so]," he says.

Bennis recalls a 2005 speech he gave at Harvard University called "Transparency Is Inevitable." At the time, he estimates, only 20 percent of the audience had ever heard of the word "blogosphere." Now, thousands of blogs, not to mention microblogs via Twitter, are born daily.

"Almost every company is going to be under the gun about the problems of not being transparent enough," Bennis warns. He adds, "Look at what happened with Toyota by trying to keep [safety issues] quiet, or Merck [whose antiarthritis medication Vioxx was pulled over safety concerns]—billions of dollars of penalties and losses of customer support."

Because of the high stakes, Bennis urges leaders to work harder to better understand the issue and ask tough questions. "They need to know about the whole revolution in social networking and networking media because of what is going on there," he says. "That's the key thing. It behooves organizations to be as transparent as [possible] without giving away trade secrets."

What if they aren't comfortable lifting the cloak? What if they don't even see the cloak? "Just look at Enron," Bennis says. "Look at any recent story on whistleblowers. The risks are enormous and are increasing every day given the number of sources we have and the changing nature of how we get information right now. The … risks of not having some kind of transparency policy are very—well, I don't think it's worth it."

The Communication Conundrum

One of the highest-profile moves toward greater openness in the association and nonprofit world has been the recently revised IRS Form 990. Calling the updated form "a major step in transparency," charity tracker GuideStar cautioned association leaders in June 2009: "The impact that the increased transparency will have on nonprofit organizations has been severely underestimated. It is not sufficient for nonprofit staff and board members simply to be made aware of these changes. They must also be alert to the changes' strategic implications and have tools to manage them successfully."

That requires good governance, agree GuideStar and others, including public clarity about how board nominations occur, are vetted, and are executed; how the board and CEO make decisions; how money is allocated; and how the mission is progressing.

Association finance committees appear to be drawing special scrutiny. Who are these people? How were they chosen? How do they make decisions about association investments? One association professional recalls serving on a board that refused to even second her motion to discuss, much less act on, moving investments from companies with major Clean Water Act violations—even though the organization's mission includes clean water advocacy. Those companies were providing good returns, the board responded. Would most members have agreed to set aside mission in favor of profit?

Some additional concerns of transparency proponents are weak communication access, content, and delivery, as well as perceptions around stakeholder inclusiveness. Associations are now experimenting with new ways to meet member transparency expectations, whether by adopting virtual tools for collaborative note taking and all-access post-meeting discussions, tweeting live from events, or uploading recorded meetings to free or paid-access archives.

Jeffrey Solomon, executive director of Andrea and Charles Bronfman Philanthropies Inc. and author of the book The Art of Giving, even suggests live streaming your board meetings on the internet.

"Why not?" he asks.

Maybe because of the sensitivity of some issues up for debate or worries about directors posturing for cameras? When several nonprofit CEOs heard that suggestion, reactions ranged from snorts to sighs to grimaces. "That could be ugly, but I do wonder if it would help keep everyone more focused on the job at hand," says one longtime leader, who asked to remain anonymous out of concern for how his comments might be perceived by his board.

Less ticklish are engagement tactics such as adding reader ratings to online articles a la Amazon or reorganizing web content for easier access.

But public evaluations of association speakers, education sessions, or even attendees' overall conference experiences? That could cause some squirms. What about website usage stats such as those provided by the "Green" Hotels Association, which wanted members to see the growth in visitorship to its site? Would an organization take those stats down if the numbers start dropping?

And considering how little time members claim they have, when does it all become too much information anyway? There are costs involved in sharing, complain leaders. Staff time, for instance, or the expense of building new web systems or sites.

But there the benefits of transparency can also add up. In his book, Straight A Leadership: Alignment, Action, Accountability, healthcare leader Quint Studer discusses the vital role of transparency in creating a successful workplace culture.

"Leaders have talked about transparency for a long time, but it's never been more important than it is now," says Studer. "Remember, we share information with employees for a couple of reasons: One, it's the right thing to do, and two, it's good for business. And most companies can use every possible edge these days."

He cites the benefits of a work culture of free-flowing information: a greater connection by staff to the financial big picture, reduced complacency, more creative solutions, and "organizational consistency and stability and faster, more-efficient execution." All of that helps organizations compete, especially in a weak economy, he says.

Bennis agrees that a workplace that recognizes the sound business case for transparency is essential for leaders to surmount the challenges of crafting a relevant strategy. "In the long run it would be an enormous advantage for an organization," he says. "The difficulties are that [a transparency policy] would have to be adjusted to each organization [because it] has enormous implications for their ethics and values, and how those are enforced. … Given the fact that inside of organizations are things going on that the public should know about, [stakeholders] are not shutting up." 

Kristin Clarke is a writer and researcher for ASAE. Email: [email protected]

Sidebar: Associations Open Up

Some associations have looked to transparency as a way to push their mission, build donor trust, boost engagement and dialogue with members, address regulator concerns, and modernize their risk-management strategies.

  • The Washington State Hospital Association and its member hospitals launched a webpage called "Hospital Transparency" to help consumers make healthcare decisions, learn about costs and quality measurements of hospital care, and identify nearby facilities and financial assistance options.
  • The Oregon Association of Hospitals and Health Systems partnered with the Office of Health Policy and Research to release a report in May 2010 that makes public the hospital-acquired infection rates of health facilities in the state.  According to Steve Gordon, Ph.D., of the association's quality committee in The Lund Report, "the intent is to be transparent" and "to use [the report] as a foundation for continued prevention."
  • The National Association of Corporate Directors used transparency to promote the value of its programs, publicly reaffirming the importance of and its commitment to director education: "At a time when new SEC disclosure rules call for greater transparency of board member qualifications … [we] will continue to provide the industry's leading certificate-based director education and in-boardroom services for the largest and most complex companies around the world, as well as all publicly traded, private, and nonprofit companies."
  • ASCD (formerly the Association for Supervision and Curriculum Development) has turned to the virtual platform Skype to support more inclusive, open meetings of its Scholars Team, whose 25 members reside on six continents. The free tool can record meetings, so ASCD can offer them archived online later.
  • International relief nonprofit World Vision and others issued frequent updates to donors and media about the exact uses and on-the-ground impacts of the millions of dollars donated after the Haiti earthquake in January 2010.

Online Extra: Seven Steps to a More Transparent Organization

When times get tough, the tough get transparent. "Leaders have talked about transparency for a long time, but it's never been more important than it is now," says Quint Studer, author of Straight A Leadership: Alignment, Action, Accountability. "Remember, we share information with employees for a couple of reasons: It's the right thing to do, and it's good for business. And most [organizations] can use every possible edge these days."

Here's how you can create a more transparent organization:

1. Make sure senior leadership is aligned. Does everyone see the external environment the same way? Does everyone understand organizational goals and plans? Does everyone agree on what success looks like? If not, it's time to remedy the situation.

"Alignment is most important at the senior level because all information cascades downward from it," says Studer. "If one senior leader is out of sync with the others, then everyone under her is going to be out of sync."

2. Close the perception gap between senior leadership and middle managers. Senior leaders generally have a clear grasp of the issues facing the organization. They are steeped in these issues every day. Mid-level managers don't always see things the same way. The only solution is for senior leaders to relentlessly communicate the issues to them.

"You can address these issues in supervisory sessions," suggests Studer. "You can hold regular meetings with mid-level managers. You can send out email alerts that link to news items driving high-level decisions. If you're a senior leader, it's critical to make sure the people under you understand the big-picture issues and their implications. It's one of the most important parts of your job."

3. Help people understand the true financial impact of decisions. Get comfortable framing all major decisions in economic terms. If a manager wants to spend money on something—a new program, a new position—she needs to be prepared to explain in financial terms how it will pay off for the company. Staff, too, need to understand the real cost of mistakes or lapses in productivity as well as the potential positive impact of doing things in a new way.

"Many of the healthcare leaders I work with use a financial impact grid to educate employees on how certain issues translate to dollars," says Studer. "The idea is to teach everyone to think like the CFO. Educating people in this way can be very powerful in changing their behavior."

4. Put mechanisms in place for communicating vital issues to frontline employees. People aren't going to pick up on what leaders want them to know by osmosis. You need to tell them clearly, succinctly, and often. That means putting in place a system, or a series of systems, to ensure that transparency gets translated into action.

5. Prepare managers to answer tough questions. If managers tell staff the organization is instituting a hiring or salary freeze, they'll almost certainly hear questions like, "If money's so tight, how can the company afford the new database?" The manager needs to know ahead of time exactly how to answer, so he won't blurt out a we/they perpetuator like, "Sorry, that's the orders from the top."

"In a transparent [organization], there's no reason to hide financial realities from anyone—but that doesn't mean managers naturally know the best way to phrase their answers," says Studer. "Some are just better communicators than others. Anticipating tough questions, formulating the right key words, and sharing them with leaders at all levels allows everyone to answer them consistently."

6. When you have bad news, treat employees like adults. Once a tough decision has been made, share it with everyone immediately. "Knowing what's happening and what it means is always better than not knowing," says Studer. "And often, what people are imagining is worse than what's really happening."

7. Keep people posted. When something changes, let employees know. This builds trust between leaders and staff and keeps them connected to the big picture.

"Be sure to share any good news you get," says Studer. "Transparency doesn't mean all bad news, all the time. When you disseminate positive developments as quickly as you do negative ones, you boost employee morale and reinforce any progress that's being made."

Online Only: Q&A With Quint Studer

Author and former healthcare executive Quint Studer says transparency is the first step toward a successful organization. Going a step further and sharing the information you gather from a data-driven organzation is the next. Read "Using Transparency to Drive Organizational Success," an online-exclusive Q&A with Studer.

Video Extra: Transparency in Practice

Deborah Chin, CAE, with the ERISA Industry Committee, explains how one nonprofit she volunteers for changed its practices to become more transparent and meaningful to its constituencies.