Transparency with employees is often trumpeted as a practice that should be adopted by business leaders and owners. However, small business owners may wonder if and where the boundaries on transparency should be drawn, and whether honesty is indeed always the best policy.
Openness can apply to any part of the business, from finances to remuneration to strategies and growth plans. Sharing the business’ finances (open book management) can be useful in educating employees about the link between their job performance and profitability.
This can lead to better cost management, and incentivise employees to work harder so that they can influence their remuneration and contribute to the stability and success of the business.
Open communication is particularly important in tough times when the survival of the business is in question and there are employee concerns about job security. Speculation and rumours can not only damage employee morale and lead to early or unnecessary exits, but can also damage relationships with customers and suppliers as employees transmit incorrect information and foster negative perceptions and distrust.
In setting boundaries on how much information to share with employees, small business owners should take into account the sensitivity of the information in question and the consequences if leaked to the wrong external parties by disgruntled or ambitious employees.
Disclosure of profit margins, proprietary information that is patented or copyrighted, and key sources of competitive advantage (e.g. strategic partnerships or suppliers, market-leading innovations) can prove to be disastrous.
Other ways in which transparency can backfire include employees becoming resentful about their salaries when they know how well the business is doing or what other employees are earning (even if their salaries are already in line with industry trends); and misconceptions of equality between employees and the small business owner due to blurred lines of authority and power.
Perhaps the best and simplest guiding principle for small business owners is ‘not all employees need to know everything.’