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BW Businessworld

Book Extract: Being Honest

For organizations, engaging in such battles of perception is unavoidable. To address them, companies have built up substantial departments focused on managing external communications.

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When a wellhead on BP’s Deepwater Horizon drilling rig exploded off the coast of Louisiana in April 2010, it killed eleven workers and triggered an oil spill that gushed into the Gulf of Mexico for eighty-seven days. By the time the wellhead was capped, about 200 million gallons of oil had been released into the ocean, killing generations of fish and wildlife and damaging the ecosystem. Meantime, BP was widely criticized for not responding swiftly enough or, in some views, adequately acknowledging the extent of the disaster.

For example, according to one report, “CEO Tony Hayward called the amount of oil and dispersant ‘relatively tiny’ in comparison with the ‘very big ocean.’”
…And in a leaked e-mail sent to BP’s more than eighty thousand employees, Hayward attempted to deal with the plummeting morale and attrition post-disaster. Yet “the e-mail had at least one major misstep,” according to one report. “Hayward trie[d] to reassure employees that they work in a safe environment and [took] aim at media reports that [said] otherwise.” But with the rig explosion fresh in everyone’s minds, the CEO was “fighting a losing perception battle.”

For organizations, engaging in such battles of perception is unavoidable. To address them, companies have built up substantial departments focused on managing external communications.

But as the BP example demonstrates, managing internal communications is just as crucial, and in some companies this aspect of organizational life is indeed moving up the corporate agenda. Building authentic organizations requires nothing less than sophisticated, honest internal communications processes…

What Makes Honesty “Radical”?
Our definition of radical honesty takes us a little deeper than the modern injunction for organizational transparency. We characterize it as follows: it is proactive rather than reactive; it is speedy; it surprises people with its candor; it encourages dissent; and finally, it engages with employees and with a wide group of stakeholders—shareholders, customers, suppliers, regulators, and the wider society. All of this requires hard work and consistent action, but also free-flowing communication. Because we live in a world where we are deluged with data, leaders and organizations need to be compelling communicators; otherwise their messages get lost in the general noise. That is why authentic organizations find ways to unleash the flow of information, loud and clear and above the background noise. They tell it as it is, respecting employees’ need to know what’s really going on so that they can do their jobs. This is important for all organizations—large and small, public and private, complex and fast moving as well as more stable and traditional.

All are now in the communications business. Increasingly, there is a shared imperative: tell the truth before someone else tells it for you!

A case in point is Google’s transparency in sharing with all employees its quarterly executive team report to the board. According to Eric Schmidt, former Google CEO and now chairman: Your default mode should be to share everything . . . Fortunately the people running this process understand that “share everything” doesn’t mean “share everything that wouldn’t look bad if it leaked and that doesn’t hurt anyone’s feelings,” it means “share everything except for the very few things that are prohibited by law or regulation.”

Big difference! This is why we make everyone who wants something to be removed justify exactly why it needs to come out, and the reason better be very good.
The organizations we most admire, then, don’t do “spin.” As we were told by the many people we talked to about authentic organizations, the old world of corporate secrets is over, and organizations are still trying to catch up to this reality. There are complex social, political, and technological reasons for this dramatic change. At the social level, two phenomena coincide: first, the decline of public trust in organizations, and second, the marked decline in levels of deference to authority. Politically, legislators have responded to these social changes by instituting wide-reaching “freedom of information acts” which, for all their inadequacies, have dramatically changed the information landscape.

At the technological level, the explosion of social media has been transformational and means that organizations in both the public and private spheres are being forced to face new information-sharing challenges.

In any event, the old practice of “covering up” no longer works. Spin backfires. The breadth and depth of information available today has created a more knowledgeable public, less easily swayed by public relations efforts. Consider the following examples. The day after the dreadful events of 9/11, a UK government spokeswoman was revealed to have advised her colleagues that “today is a good day to bury bad news” (in nonprominent places in UK bulletins and newspapers), given the overwhelming media focus on unfolding events in Manhattan. She lost her job. Her minister lost his reputation. And the story was widely used by critics of the Tony Blair government as a damning illustration of its apparently pathological addiction to news manipulation.

More recently, the news emerged that UK retailer Tesco had sold beef burgers that contained horsemeat. The company swiftly published a public apology and promised customers that it would investigate and take any necessary action. But Tesco’s public statements also carried the claim that this was a problem “for the whole food industry.” Other retailers—in particular, small family butchers with direct knowledge of where their meat was locally sourced—complained. A subsequent investigation by the UK’s Advertising Standards Agency led to yet more bad publicity: Tesco was publicly admonished for making a claim that, in effect, would allow it to imply this was “a problem for all retailers and suppliers.” Even well-intentioned apologies can backfire.The best companies of the future, then, will practice honesty and openness as a matter of course, providing a foundation of integrity to the other five organizational qualities we explore in this book—companies where people can be themselves (which we examined in the last chapter); where people’s value and strengths are magnified; where a sincere company identity pervades, rooted in authenticity; where the work feels meaningful; and where there are no stupid rules to get in the way.

Let’s look now at exactly why organizations sometimes fall short of keeping information channels open.

What Blocks Radical Honesty?
This question is more complex than it looks. One illuminating theoretical take on this issue comes from the work of the German sociologist Jürgen Habermas. He has developed a theory that connects power relationships in society and, indeed, in interpersonal relationships with patterns of communication. He describes how power distorts communication. For the powerful, communication becomes increasingly significant in legitimizing existing power relationships. In other words, communication becomes increasingly ideological. He also explains why power relationships at work also distort communication, to the point that honest performance-management discussions are difficult because of the power relationship among the participants. This perspective also explains why much of the information that reaches senior executives is sanitized. Power has again gotten in the way of optimal outcomes.

It would seem almost a cliché to say that organizations should be honest. So why aren’t all companies more open in their communication?

The barriers to candid, complete, clear, and timely communication are legion. We already mentioned how some executives (such as, perhaps, BP’s former CEO Tony Hayward) feel an obligation to put a positive spin on negative events out of loyalty to the organization. Other managers see parceling out information on a need-to-know basis as important to maintaining efficiency. Still others practice a seemingly benign type of paternalism, reluctant to “worry” staff with certain information or to identify a problem before having a solution. It is of course worth noting that all organizations are political—from families to large global corporations. The issue is really whether the politics help you get things done or prevent it. At BP, the reluctance to be the bearer of bad news, especially after employee lives were lost, seems particularly poignant and deeply human. As one former BP executive told us, “There was this incredulity . . . how could this have happened?” And once the facts and extent of the damage came to light, he told us, some employees didn’t want to publicly admit to working for the company.

Even so, many top executives well know that this tendency to stifle or delay news can strangle the flow of critical information.

That is what happened at drug maker Novo Nordisk in the 1990s, when violations of FDA regulations at the company’s Danish insulin-production facilities became so serious that US regulators nearly banned the insulin from the US market. Because of a company culture in which the executive management board was never supposed to receive bad news, CEO Mads Øvlisen learned about the situation only when it was almost too late to do anything about it. Later in this chapter we’ll look at the formal steps that Novo Nordisk took to rectify the situation, but for now suffice it to say that the company had to take a long, hard look at its culture and quality-management processes.

Sometimes even “progressive” organizations have resisted openness about their workings, claiming that social and political attempts to regulate and open up companies quickly descend into a mere “tick box” farce. Our response is twofold. On the one hand, it is correct to say that crude interventions often have unintended consequences. The reforms in the Sarbanes-Oxley Act of 2002, a US regulatory attempt to make organizations more transparent to their stakeholders via the audit process, can be seen with hindsight not to have improved the process but to have deskilled it. Auditors can too easily disclaim responsibility by arguing that the question was asked and a response achieved. On the other hand, people’s desire to have timely and adequate information about the organizations that greatly affect their lives and livelihoods is undeniable and certainly hard to argue with.

Why Be Honest?
Our research has revealed a number of key reasons for companies to take seriously the call to honesty and openness in the way they conduct themselves. Perhaps not surprisingly, all of these reasons play right across the global activities of organizations, because one major consequence of globalization is that there are increasingly international standards of transparency to stakeholders.

For example, the more large Asian companies are drawn into conventional capital markets rather than sovereign state funds, the more they find themselves open to global demands for information. This is not to say that there are no cross-cultural variations in patterns of communication and expectations of transparency.
But the major drivers for change are increasingly global, and are embedded in our three main reasons for companies to take seriously the call to honesty in how they conduct themselves: technological realities, human psychological needs, and organizational and regulatory changes.

(This story was published in BW | Businessworld Issue Dated 28-12-2015)