Thieves recently stole 143 million consumer records from credit reporting company Equifax.
Claimed to be the worst data breach ever, the company’s response met widespread disdain. Regarded as dishonest, and lacking in transparency in business , one critic labels it
“Full of vague cover-your-ass statements at the exact moment when consumers most need accurate information.”
The company’s reaction to the breach has been disorderly and under-resourced.
For example, although the attack occurred in July, it took five weeks before the firm admitted it to the public. A hotline for worried clients proved ineffective. It took a long time to get through and randomly disconnected or put them on hold indefinitely.
Suck lack of clarity and weak response has garnered many calls for Equifax to explain what data was compromised.
“This is a big deal, but the response has been underwhelming. I see no reason why the CEO shouldn’t step down,”
John Peterson, a management consultant from Boston affected by the breach
Leaders face tougher scrutiny
There is far more scrutiny today about what a company’s top leader delivers in the way of results. Once it was easy to reach a conclusion. You just asked “does the CEO create wealth for stakeholders?” The more wealth the better the performance.
Now though leaders face judgments about transparency in business and how they handle crises, technology, the rise of big data, employee expectations and company performance.
The demands placed on leaders for transparency in business keep ramping up. A once comfortable corporate perch has become a hot seat. And this is most true should a CEO cross ethical red lines.
For example, this year’s CEO Success study by PWC shows senior leaders facing expectations of higher levels of personal accountability. These stem from many sources, including boards, institutional investors, governments, and the media.
“CEOs have to be responsible for something more than their own profitability. You have to serve a broader group of stakeholders–from employees to the environment –and when politicians don’t get things right, corporate leaders have to act. That’s a big shift.”
Marc Benioff, CEO Salesforce
Corporate fraud and ethical lapses, such as those seen at VW, or Wells Fargo also place the CEO in the spotlight as never before.
So far, the number forced from office for ethical lapses remains tiny–only 18 such cases at the world’s 2,500 largest public companies in 2016. But firings for ethical lapses keep rising as a percentage of all CEO successions.
Enforced transparency in business keeps causing leadership headaches. Recent research from Accenture Strategy found high levels of employees (60%) sharing sensitive information on social sites. This includes data about their rewards and salaries and opinions on managers’ performances.
Such unasked for transparency in business places additional demands on business leaders. It puts a premium on their ability to “walk the talk” and build collective trust throughout their organizations.
If you’re a business leader wanting to survive, two life saving tips are:
- Give far more attention to affecting your company’s ethical culture
- Show a strong interest in the issue of transparency
The demand for business transparency keeps rising. Some organisational experts talk of “radical transparency” to describe the present situation. Once result is the emergence of the Chief Data Officer. The new role lies beyond the remit of a conventional compliance team. The role helps corporate leaders make sense of the growing impact from vast new amounts of data, and how to manage transparency with care.
In Europe at least, waiting in the wings lies tough new regulations on privacy. This places yet more obligations on companies to do a better job at protecting it:
“For business leaders, the stakes could not be higher as their individual and institutional conduct is exposed to unparalleled levels of transparency. With 83 percent of surveyed executives saying trust is the cornerstone of the digital economy, business leaders need to demonstrate a dynamic, ethical approach toward their employees, their customers and society at large.”
AccentureStrategy: The digital emperor has no clothes, 2016
Impact of behavioural science
New evidence about what triggers ethical problems in companies undermines the the value of the large sums spent on seeking compliance. For instance, social psychologists dismiss the idea that “a few bad apples” in the barrel cause ethical scandals.
Instead, it’s company leaders–the “barrel makers”–who emerge as the most potent source of ethical scandals.
How they pursue transparency, the way they affect corporate culture and how they structure the company to deal with ethical concerns all influence the ethical climate.
In particular leaders must learn to take into account three important behavioural findings:
- The power and importance of peer pressure
- The human desire to conform
- Reluctance of people to speak truth to power
Leaders who choose to tackle them increase transparency in business and promote the free flow of information.
For example, when the CEO of a major car firm held his first staff meeting, he invited his team members to assess their respective businesses. How would each judge its current performance? Would they give it a “green,” “yellow,” or “red” light?
First reaction was everyone signaled a green light. The CEO recognised the lack of transparency was proving unhelpful in problem solving. He ordered: “Everyone come back next week with a more realistic assessment.” When the team met again, the first executive to stand up and say “I have a red light” received a standing ovation from the CEO. With the problem now out in the open everyone settled down to tackle it as a team.
This new CEO set out to create a new culture–one in which people could admit when something was going wrong, where executives for instance could more readily admit mistakes. This needed to happen early enough to still have an impact on the outcome. Creating such a culture had to come from the top.
Seven ways to promote transparency:
- Tell the truth—people are more willing to stick their necks out and tell their truths when they see their leaders being candid and trustworthy
- Encourage people to speak truth to power—build ethical muscle by helping people to be open to negative feedback; in contrast, over-praised Jack Welch ex CEO of GEC would criticise, demean, ridicule and humiliate people in meetings. Hardly an inducement to speak up.
- Reward mavericks—contrarians challenge the culture and seldom support the status quo. They need to be nurtured; only if they attack core values should they be given short shrift; for example when Google dismissed an employee for “violating the company’s code of conduct and crossed the line by advancing harmful gender stereotypes”.
- Practice having tough conversations—it helps to have practice at learning how to deliver negative messages constructively; this includes admitting mistakes—See separate panel on CEOs who admitted they got things wrong.
- Expand your information sources—a leader can become isolated in the comfort of the C suite; so make time to regularly meet with a wide variety of sources of feedback, including employees, stakeholders and even annoying critics.
- Tackle the culture—create norms and structures that encourage truth telling; these include protection of whistle-blowers, “town hall meetings”, internal blogs, ethics training, and financial reward systems
- Share information freely—maximise information sharing across the organisation and create your own “freedom of information act” in which people have a right to ask to see any information; trust people to only ask for what they need.
Learning to love transparency
It’s goes far beyond simple honesty. Its contemporary purpose is not just to appease regulators, to increase profits, or to please shareholders.
The more relevant aim of transparency must be to create a business atmosphere in which there are: few secrets, minimal silos, and sound inter personal relationships.
Any business delivering a product or service of value to customers and society has little difficulty in being truly transparent.
Like Tone at the Top, transparency depends for its impact on the commitment and love of the leadership.
The weaselly Equifax apology for exposing 143 million customer records due to “application vulnerability”, Without Bullshit, September 8 2017
A.Ahuja, Root behaviour demands AI transparency FT 3rd August 2017
Transparency, Tax Insight for Business Leaders, No 12
Lyon-Boggs, Riding the Wave, Ephisphere.com, June 2017
O’Toole and Warren Bennis, A Culture of Candor, HBR June 2009
Ethical Leadership and Transparency, Leadership Magazine, May 24th 2017
Gabriel, Ethical Leadership: Transparency and Trust, dianagabriel.com, March 3rd 2011
Llopis, 5 Powerful thinks happen when a leader is transparent, Forbes, Sept 10th 2012
C. Li, The Art of Admitting Failure, HBR, March, 2011
P. Lacy et al, The digital emperor has no clothes Are business leaders ready for a world of radical transparency? Accenture Strategy, 2016
R.Foroohar, Business can fill the leadership vacuum, FT 21st August 2017