By Richard M. Segal
Oct. 21, 2010
“On a need to know basis,” “Behind closed doors,“ “None of your business,” or “That’s confidential “ are lightning rods for further investigation. Secrets bring with them questions about the need to be secretive, and the assumptions are never positive. If there is something you don’t want me to know, then there is probably a very good reason I should want to know it.
Why would you hide something that doesn’t need to be hidden? Well, you wouldn’t. So, why would you hesitate to disclose information unless there is potential for a negative outcome if it were to be shared?
Family Transparency
Naturally, where family is involved it is even more critical. Can you imagine a daughter learning the business’ ropes asking her mother, “How much do you make a year,” and the mother responding with, “None of your business!” What’s next? The daughter feels reprimanded and disenfranchised while she only thought she was trying to understand the future – a task with which she has been challenged. Now she is told to work for the prize, but I won’t tell you what the prize is – or, at least not yet.
Wouldn’t a better answer have been, “How I take my income and what I do with it is very complicated. It may seem like a simple question, but it’s not. Sometimes it looks like I make lots of money, but I wind up putting much of it back into the business to fund growth, or improve our real estate. So the answer isn’t simple. I will be glad to give you the long answer after you have reached a level of business acumen that would allow you to understand my answer. Until then be patient.” This may seem like a vague and very incomplete response, but it is a honest and proper answer to what may have been an inappropriate question. Nonetheless, the communication was not burned at the stake, but rather postponed for a better time.
I once worked with two sets of cousins who had developed severe trust issues to the point of sneaking into the office on off hours to look at each other’s expense accounts. There were huge accusations of inappropriate spending on everything from the kid’s gas to private school tuition. Naturally, there were always explanations, but the trust had gotten to such a low point that even the explanations were considered untruths.
We decided to cancel all the current credit cards and get new ones for each of the four cousins. When the monthly statements came in they were passed around and each of the four had to initial all four statements before it got paid. Perhaps the spending habits changed, but the transparency led to the realization that while they all interpreted their expense accounts “loosely” no one was spending in the excesses of which they were accused. They were able to slowly rebuild their lost trust.
Non-Family and Family Alike
Being transparent doesn’t mean that you have to share everything, but it does mean that you need to offer an open enough forum so that your family and your other key players feel the right to question and receive reasonable responses. Otherwise, your relationships will be built on a shaky foundation.
Bonuses are particularly sticky. I can’t tell you how many times I have seen bonus checks passed out without any explanation. It only leads to the question of, “How did you come up with that.” And you thought a thank you was in order. Let me suggest that there is a better way.
“We’ve had a very good year and everyone will receive a bonus based on their percentage of compensation against the total company-wide compensation package” should be enough transparency for most of your employees. It would be inappropriate for your rank and file to ask for the numbers, but you should share them with your executive team. If you fail to share them with your top managers, you can expect them to believe you’re hiding something. They will probably think that your bonus didn’t fit into the formula so you don’t want to share it.
Wouldn’t you be better off defining the amount you took off the top like, “After ownership took a fair return on their investment of 11 percent (the Dow Jones average return over years), we set aside a pool of the profits for bonuses that will be distributed to everyone on a percentage of the aggregate basis. Performance merit bonuses will be distributed based on management discretion.” In this way a very touchy issue has been handled transparently enough to satisfy most of the work force. Yet, you didn’t need to tell anyone how much you made or what your bonus was. Naturally, there are always those who are never satisfied and there is little that can be done about that.
I had one client who believed in being totally transparent to the point of sharing line item P & L financial data. He thought he was doing the right thing in an effort to boost company morale and get his work force to trust him. The outcome was that there really wasn’t full disclosure and they wondered what they weren’t being told. And like the daughter above, the rank and file lacked the financial sophistication to understand much of the information being shared. While the client thought he was investing in his work force with information that would make them feel like a part of the big picture and improve company morale, he found the opposite occurred. Imagine the drama that unfolded the following year when he decided not to share the same information.
Being transparent doesn’t mean that the emperor should wear no clothes. Rather it means that you need to understand that how you share what you share is vital. You have every right to say, “None of your business,” but you would be wise to soften your tone and explain your reasoning. If you do that, maybe your family and your key managers won’t go looking for your hiding places.
Richard Segal is the chair of the Family Business Council, a membership organization of family owned businesses. He can be reached at rmsegal@segalconsulting.biz or visit www.segalconsulting.biz