Editor’s note (26 September): Volkswagen chief executive Martin Winterkorn resigned after it was revealed that the company had manipulated car emissions tests. But is it enough? Here’s how other CEOs have handled crises, from our archives.
Car giant General Motors launched a major recall after a faulty ignition switch was linked to 12 deaths. The firm’s embattled chief executive officer, Mary Barra, who was not CEO when the vehicles were manufactured, was unusually transparent, taking the unorthodox step among industry executives of issuing a public apology and going beyond her predecessors in issuing recalls and launching internal reviews.
Some say her actions illustrate an increasingly popular model for company leadership and corporate culture: transparency. To establish (or re-establish) customer trust, companies are adopting as open and honest a stance as possible, even about their biggest challenges. Consider Barclay's Antony Jenkins, who made headlines by speaking frankly about his company's struggles to lower its bankers' compensation.
The openness is in sharp contrast to companies such as energy giant, BP after its handling of the 2010 oil spill in the Gulf of Mexico was widely criticised.
It’s still too early to say whether the change is more than skin-deep or whether more transparency actually brings more honesty, but observers say change is afoot.
"This is something that has bubbled up (in corporate culture)," said John Wood, vice chairman of Heidrick & Struggles, an executive search firm with 53 offices on six continents. Many are “wearing their candour now as a badge of honour," he said.
Candour and transparency are becoming buzzwords for more than just crisis management. Some companies are taking an “any-question goes” approach to their town hall meetings with employees (the new CEO of Heidrick & Struggles, Tracy Wolstencroft, held one), while California-based clothing company, Patagonia, details all of its tricky supply chain decisions in its Footprint Chronicles.
The question of trust is connected to transparency
Two significant, driving forces have likely driven the corporate emphasis on more transparency, said Peter Stringham, the CEO of global advertising agency, Young & Rubicam Group.
First, there’s a loss of trust. Some of the world’s biggest companies, from banks to retailers, are struggling to regain customer faith after the 2008 credit crisis sent trust in big brands plummeting. Research by New York City-based BAV Consulting found trust in the world's 3,500 brands dropped pre-and-post-financial crisis to 25% from 50%, with only one company in five among the top global brands deemed as trustworthy in 2013.
"The question of trust is connected to transparency," said Stringham, noting that they are correlated in BAV's data. Only 7% of financial services brands were found trustworthy by global consumers in 2012.
Second, technological advances have both enabled greater transparency and enforced it. The ubiquity of business news and social media have pushed through greater honesty since the instant feedback holds companies accountable.
"You really can't sweep something under the rug,” said Wood. “Maybe you're going to act in a more principled way."
Too good to be true?
It's hard to tell if the shift toward greater transparency signals that the business world is actually placing more value on honesty. But there are scraps of evidence the big business mindset is changing.
"An increase in honesty is becoming apparent as a result of increasing transparency in business," said Roger Steare, who runs an eponymous London-based consultancy, is on faculty at London’s Cass Business School and goes by the moniker The Corporate Philosopher, by email.
More than 100,000 people from around the globe have taken Steare’s assessment of their values, including honesty. A total of 1,886 senior bankers who answered this MoralDNA psychometric assessment in 2010 were 5% below the average of all professions. Yet by 2013, the bankers as a group were scoring 25% more than the average in terms of their value of honesty.
Lasting cultural change comes when executives hire people who make decisions that weigh short-term gain against the long-term, but hazier, value that comes from being transparent and honest. Cases like the British Petroleum oil spill offer evidence of the damage that comes when the public perceives a company culture that isn't transparent and honest.
"It's the culture of individuals making good decisions day after day that really manages the risk," said Neil Neveras, Deloitte Consulting LLP’s global practice leader for leadership development and succession. Neveras works with financial services companies on balancing risk management and growth.
Psychologist Marisa Paterson, vice president of London-based Kaisen Consulting US Inc, teaches leaders how to build a mental map of the traits they want to bring to the workplace, such as broadmindedness and transparency.
Some technology companies have to build
transparency into their business model. In London, almost £500m has been lent
on peer-to-peer web site Zopa. It matches high-quality lenders and borrowers
based on their reputations. Trust is developed over time, enabling people on
the site to bypass traditional banks and save on fees (Zopa charges 1% to
lenders annually and a fee to borrowers.)
"Then, through a series of exercises (we work on) getting leaders to apply the expert schema to their own experience," said Paterson.
The strongest case for transparency may come from the success of new brands that build transparency into much of their business dealings. Online shoe retailer Zappos is one such company. The US based company makes all its employees available to the media and holds quarterly free-for-all meetings (customers can attend, too). BAV Consulting's data named Zappos among the 20 brands that built trust fastest in the past five years.
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