13 Apr Financial transparency is good; performance transparency is better
It’s barely spring but the temperature is already getting hot in CEO suites throughout the corporate world. Thanks to the creative accounting shenanigans cooked up by the End Runs and World Cons (a.k.a. Enron and Worldcom) of the world, companies are now required to be far more transparent in their financial reporting and operating processes than ever before. Sarbanes-Oxley (in the U.S.) and Basel II (in Europe) are at the head of a cavalcade of legal and regulatory requirements enacted to protect shareholders, employees and customers from financial fraud and accounting sleight of hand.
Some executives, academics and consultants feel these measures are too draconian, particularly those that they believe place top executives and board members in jeopardy of going to jail if the financial statements on which they sign off are the slightest bit inaccurate, let alone intentionally fraudulent.
While the typical CEO is only too happy to pocket the lucrative financial rewards that come with the mantle of leadership, some seem reluctant to accept this degree of accountability – especially if it means personally taking the rap for non-compliance with the law. I guess not many corporate heads are convinced that a minimum-security sabbatical in an orange jumpsuit will be as good for their careers as it seems to have been for Martha Stewart’s.
While many might argue that passing laws like Sarbox is overkill, few would disagree that the principle of financial transparency is a good thing for all corporate stakeholders.
But there is another kind of transparency that is also enormously important for organizations. I call it ‘performance transparency’. Companies with performance transparency know explicitly what they must do to excel with customers and to outperform their competitors. Most importantly, everyone in the organization knows this as well. Indeed, individual employees can connect what they do in their jobs to the bigger picture of how the organization performs overall and how their customers are affected.
Want to know how performance transparent your organization is? Below are some questions to help you make this determination. Be forewarned – these questions are devilishly difficult to answer precisely. They are also likely to generate heated debate if addressed in a group context. So much the better in my view – stimulating a passionate debate about what drives your organization’s performance should be the first order of business in the quest to discover what really matters.
1. How do we make money? This may sound like a dumb question to be asking but I’ll bet in the majority of organizations surprisingly few people can answer it accurately. In the performance transparent organization no one has to guess how the company makes money or how what they individually do in their jobs affects bottom line performance.
2. Why do our customers do business with us? What are the reasons customers buy from your company and not your competitors? Price? Convenience? Quality? Fit to need? Aesthetics? Habit? Lack of choice? In the performance transparent company customer traits and behaviors are deeply understood and the value proposition to them is continuously assessed and improved, not merely to keep pace with customer expectations but to stay ahead of them.
3. What determines the best performance of our employees? What factors inside your organization have the greatest impact on the individual performance of workers? In the performance transparent corporation the specific skills, attitudes and behaviors needed to produce excellence are visible and well understood and the organization and people management practices of the company are explicitly designed to create, nurture and sustain these drivers of performance.
4. What characteristics and experiences make the best leaders of our organization? Do we know who the best leaders are and why they are best? Performance transparent companies do and they go out of their way to encourage, develop, assess and reward leaders at all levels of the organization based on the qualities of their most successful leaders.
5. What are the keys to getting promoted? What factors drive promotions within your company? Is the process fair, objective and merit-based? Does everyone understand how it works? Do the most qualified and deserving people advance? In the performance-transparent organization, no one is left wondering how or why people are promoted or terminated. These decisions are based on well known and well understood performance parameters and metrics.
6. What makes our organization truly different from others? What’s in your organizational DNA that makes your company unique? Is it a source of pride and advantage? If it isn’t, why not? These differences should matter positively and if they do, they should be the focal point of resource investment and management attention.
7. What is the one thing about our organization that we must protect at all costs? This may be the hardest question of all to answer. Is it something your organization possesses? Something it knows? The way in which people think and act? A combination of all three? Indeed if it’s more than one thing – so much the better. It will be that much more difficult to copy.
One possible downside of the increasing trend toward regulatory-driven financial transparency is that CEO’s may be even less inclined to share important information about financial and operating performance with employees. That would be a shame. Organizations that are intent on achieving marketplace excellence are far more likely to succeed if they practice performance transparency.
The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.