Will Sampson talks about business transparency and sharing financial information with your employees. His guest is Ted Hall, founder of the innovative CNC manufacturer ShopBot, a company that just recently converted to an Employee Ownership Trust.
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Intro music courtesy of Anthony Monson.
Open books in business
Historically, business management has been a lot like poker. If you are in charge, you never reveal the cards you are holding until the deal is done. You don’t share the numbers with employees, just like you don’t share the numbers with competitors. But there has recently been a shift in some circles to revisit that secrecy at least in relation to sharing financial information with employees.
This is not a new idea, but it seems to be gaining ground. Proponents argue that opening the books to employees gives them a fuller understanding of the business and helps make them a more productive part of the team. Opponents counter that most employees don’t understand business and will draw false conclusions from their own analysis of the financials. Also, opening the books to employees runs the risk of confidential data escaping outside the company and perhaps winding up in the hands of competitors.
At the recent Executive Briefing Conference, I was fascinated by how many attendees brought up in conversation the book “The Great Game of Business,” which advocates for sharing your financials with your team. Subtitled “the only sensible way to run a company,” the book was written by Jack Stack and Bo Burlingham and was first published more than eight years ago. It tells the story of how Stack turned around a company that was facing bankruptcy. The book and other tales of Stack’s success have spawned an army of consultants and countless business advocates sold on the business transparency model.
I confess I haven’t read the book yet. It’s on a long list I have to get to. But I’m intrigued by what is giving the open-book model more traction in today’s business climate. Most of the open-book companies I’ve encountered find transparency a great way to get employees actively invested in the future success of the company. But, of course, there are a lot more companies operating the old-fashioned way in tight secrecy and doing just as well. And lots of companies operate somewhere in the middle, revealing some financial data and keeping other numbers secret.
But with the near universal problem of trying to find good employees, is business transparency a draw? Does it attract better candidates? I don’t know. In my experience, typical new employees and particularly younger employees are woefully ignorant of the most basic business principles. To make an open-book system work, it would seem to require a lot of education so all members of the team can understand what’s going on. And there needs to be a direct connection to their financial success and the company’s improving position.
I’m reminded of a sole proprietor who came to one of my pricing talks once and was confused about the difference between labor and profit in a one-person operation. If you don’t understand the fundamental of profit, it’s pretty difficult to be in business.
Still, I’m intrigued by the business transparency trend, its success stories, and the related trends involving profit sharing and employee ownership strategies. I’ve always felt that anything that encourages employees to be more invested in the company and take a less adversarial stand opposed to management has to be an improvement. Are you ready to open your books?