A partner in a private equity group (“PEG”) told the management of a newly acquired company that he had only one rule: “No surprises.” It was his way of indicating that the PEG and he, as its representative, could deal with any challenges the company might encounter as long as he was informed on a timely basis. Whatever the ownership structure, his brief statement should be the mantra of all company owners, managers and employees for dealing with all other stakeholders. This includes not only each other but also suppliers, customers, lenders, and the community. What’s at stake is far more than avoiding an unpleasant encounter when something bad happens, including:
- Your credibility is at risk. When management (or any other party) fails to communicate significant business matters, good or bad, to other stakeholders, it engenders an immediate question: “What else hasn’t he told me?” Thus, not only is the instant issue exacerbated by an absence of straightforward communication, it calls into question the whole spectrum of past and future dealings between the parties. As I’m fond of saying, only semi-facetiously, “Be sincere, whether you mean it or not.”
- Closer scrutiny and micromanagement may result. Failure to provide transparency on issues causes owners to insist on a greater say in day-to-day direction and ties management’s hands on a range of issues. The same is true for managers with respect to employees, as well as other stakeholders within the company. Overall, the ability of an organization to cultivate judgment and good decision-making among its personnel will suffer, and the organization’s opportunities to grow will become that much more limited.
- Resolving a problem may be much more difficult. When communication of an issue is delayed until it can no longer be avoided, regardless of the reason, the problem may become more severe. But there’s another reason that getting to a solution will be more complex. More time will be expended investigating the origins of the problem (and assigning blame) instead of working collaboratively and expeditiously toward a solution. Solutions proposed by the party that failed to communicate in the first place will be closely examined to determine if there are hidden motives or agendas behind the proposals. Until and unless trust is restored, progress on solving the problem will, at best, be slow at a time when rapid action is called for.
- A history of transparent communication will help when a problem does arise. Many executives with whom I have worked have the attitude that they only communicate to a company’s stakeholders that which they’re required or asked to transmit. I’ve found that providing more information than is necessary, especially when conditions are good, serves an organization exceptionally well when there’s a downturn or other issue. The historical relationship with a stakeholder provides the context for how bad news is received and addressed. In a recent turnaround situation, a bank that had been defrauded by prior management, responded much better than anyone might have had a reason to expect because when we got involved, we immediately established a completely transparent relationship with the bank’s lending officers. They knew that we could keep them informed as to exactly what was being learned, what action was being taken, and what the consequences or outcome would be. We were able to negotiate a much more favorable restructuring of the company’s financing notwithstanding the severity of the fraud because the bank came to feel that they could rely on what they were now being told.
It’s a trite and overused maxim, but “honesty [openness] is the best policy.” Save the surprises for a birthday party.