Corporate transparency can be a contentious issue, particularly in the UK. It is a word that makes many Brits uncomfortable. Though happy to share the minutiae of our daily lives with people we have never met via social media, we are often “too British” to share the details of our salaries with our peers, or even our family and friends.
But this awkwardness is misplaced. It stems from a misunderstanding of the purpose of transparency. In the corporate sense, transparency refers to all financial activities being carried out openly. The goal is not to embarrass, but to reassure everyone and anyone concerned that all financial activities are honest and correct.
The motive behind corporate transparency is to build trust between employees and to ensure that investors, clients and customers alike are aware of where they stand in regards to the company.
And for startups, the need to build trust is amplified.
Transparency and recruitment
In 2014, the social sharing start-up Buffer made headlines by releasing employee salary information, the template used to determine salaries, company revenue, user numbers and progress reports to the public. The goal was to seed Buffer’s values as the company grew, enforce fairness and to encourage job applicants to self-select.
For most startups, attracting high-calibre and enthusiastic employees is paramount. During the recruitment process, total transparency allows businesses to trust that only interested and appropriate applicants will apply.
A culture of transparency
A culture of transparency between a startup’s managers and its employees is an essential ingredient for success. Employees are loyal to employers whom they trust to include them in the vision and goals of the company, to share the KPIs, to allow them to contribute directly to the performance of the company.
Startups are often run by one or two individuals. These individuals can be inundated by work; transparency allows employees to make decisions in a similar way to management. This increases the productivity of the startup.
Transparency encourages brand loyalty
Transparency allows an organisation to demonstrate it has overcome challenges and that there are no hidden skeletons, which may impact on the reputations of those associated with that organisation. The views of a startup on issues such as best practice, transparency in the supply chain and equal pay will be deciding factors for prospective clients and customers.
For consumer companies to succeed, they must encourage brand loyalty. There has never been more choice available to the consumer. For consumers to select one product over another, they must first be informed about the company and product.
The more successful a startup becomes, the more it relies on investors.
For investors to trust the management team there needs to be total transparency in the workings and finances of a startup. Investors must be provided with regular financial updates and have access to the company data they require so as to make informed investment decisions.
By running the business transparently, there is the additional benefit that, by keeping investors informed about your progress or needs, investors may be encouraged to invest additional sums.
The level of transparency a startup chooses to operate under will be dependent on company culture and perhaps the industry in which it operates. But with organisations such as Transparency International – which has over 100 chapters globally - pointing the finger at cagey multi-nationals, the pressure on companies to disclose financial and operating information is only going to mount.
Startups have the advantage of a clean slate. By opting for transparency from the beginning, startup businesses avoid ever being in this situation.
Take the 2014 Sony Pictures Entertainment hack, for example. Having hidden salary details, the release of this information opened a hefty can of worms for Sony. Not only were Sony publically humiliated but their employees could not have been pleased to discover the $1m salaries of the management.
Trust and honesty is important in any relationship, but especially when money is at stake. Businesses operating in a transparent manner develop a relationship of trust between themselves and their employees, their stakeholders, their clients and customers. By being honest from the beginning, startups avoid the problems that come with secrecy.
About Tej Kohli
Tej Kohli is Founder and group chairman of Kohli Ventures, CEO of Grafix Softech and founder of the Tej Kohli Foundation.