I recently had a long talk about transparency with an internal communications professional at a 2000 person tech company. The talk centered along how much financials, funding and compensation should be shared with employees.

My own experiences varied from a hardline Apple “need to know” policy and the extremely open universal access to information at Coursera. My friend stated that people “only need to know the information relevant to do their best job”. Meanwhile I feel that 100% transparency should be required since employees at startups are exposed to significant risk.

A Hypothetical

I think the conversation cleared up around this real-world hypothetical:

Is it in the best interest of the employees to communicate the company has one month of remaining runway? What if the company was able to find last minute funding and later became a success like FedEx?

The implicit thought is that if the company said it had one month left, then all the employees would leave or not work as hard. Making it more likely the company would fail. While if you didn’t tell them, then they would stay focused, work and then come out much, much further ahead financially when the company succeeds. I find this an easy anecdotal story to tell. One that old-school office culture proponents will easily believe.

However, it wrong for several reasons:

• If a company is constantly communicating financials then there will not be a sudden shock and mass exodus.

  • I admit there may be a draining of talent over time as runway decreases

• People get an insight into company risk when they are hired so they should have the ability to consistently reassess whether the company risk meets their own tolerances.

• When things are transparent, you have to convince your employees that your company will succeed. Which is much healthier than tricking them into thinking everything is okay. This is flat-organization in practice not prose.

• Most startups fail. Most companies are not going to end with a stock-deal that is beneficial for employees. Employees always get paid out last. So really, keeping people working hard until the last moment will most benefit the minority 1%: founders and investors. Not employees who suddenly find themselves jobless..

My friend had these counter-points:

• Most people they interviewed didn’t want a firehose of information, they just wanted to feel secure.

• Sharing financial and funding information could jeopardize a company’s ability to close funding or make deals by sharing this information with competitors

• If you share this information it will leak

How Does Company Size Affect Transparency?

I do think some of these points are valid at a large company. Certainly there is some strategic advantage at Apple to not share all this information. However, Apple is a successful, secure, public company that isn’t fighting to survive every 1-2 years. However, we both agreed that it would be weird if not all people on a five-person team were aware there was one month left of runway at the company. So, does company size dictate a level of transparency?

It seems at some point information reporting becomes too onerous/risky and transparency is traded for information efficiency. After all, we do not all want several company-wide emails a day and not all parts of a large business are relevant to us. My friends argument from her years of experience was that clear communication about why information cannot be shared is enough and sometimes people choose transparency as a cure to a toxic work environment that doesn’t have trust. i.e. clear communication is the solution not necessarily transparency.

This I can agree with. Honestly, the more transparent a company is, the more I trust it and the less I need to see the information shared. She had a culture of trust at her company, but this is not common place that people are sure that leadership is making beneficial decisions for employees or the right decisions for each employee. The only one who can surely answer that is individuals which is why I think sharing financials, funding and salary information is so important.

It opens up those difficult conversations where employees can ask why person X is paid more, what the company is doing about its runway and why it is spending so much on external contractors. Afterall, in private companies employees ARE investors. We have to purchase our stock options just like investors but at less favorable terms. Therefore, I think we should be informed as investors.

I think the message at the end of the day is Trust should be the goal for your company culture since it is the #1 indicator of effective teams. There are many ways to get there from either clear communication or transparency, but you won’t know whether you have it unless you find a way to measure it.

I’ll talk about that more when I discuss what I learned from reading years of blog posts from ultra-transparent Buffer.