white-sox-logoIn 2002, then President George W. Bush signed the landmark Sarbanes-Oxley (SOX) legislation, which laid out some basic rules of the road regarding business behaviors that continue to impact corporate America today. One of the most important components of the act was increasing corporate transparency.
Businesses could no longer get away with the kind of chicanery that turned companies like Enron, Worldcom and Arthur Andersen from appearing on the Fortune 500 to appearing on American Greed.
Obviously, business has fundamentally changed in the last dozen or so years since the law went into effect, and the concept of “transparency” has morphed from legal mandate to best practice buzzword, but companies are still trying to figure out the fiat of striking the right balance between open information and closed corporate secrecy.
With real time communication, constant connectivity and social networks, transparency is more important than ever, particularly when it comes to employee engagement, customer satisfaction and brand reputation.
The success – or failure – of a business and its bottom line results now rely more than ever on creating a sense of true transparency (even if, in most cases, it’s nothing more than a carefully constructed facade).

Corporate Transparency and Information Balance

transparencyCompanies today must walk a fine line between protecting trade secrets and proprietary information with the expectation of consumers and candidates alike that, in the age of Glassdoor and Google, insights and information about employers are readily available and, most importantly, completely authentic.

Too little transparency leads customers and employees to believe a company is intentionally concealing or hiding important information, an opaqueness caused by omission that can lead to people assuming the worst (albeit often erroneously). Too much transparency, however, can erode competitive advantage and market positioning.

Practically speaking, employees need information about a company to successfully do their jobs, particularly in outwardly facing functions like recruiting; business opacity can hamper personal performance as well as employee engagement – not to mention the ability to attract top talent.

A recent study of Korean chaebols conducted by Hanyang University found a direct correlation between company performance and a transparent corporate commitment to ethics; companies whose values follow ethical transparency, in turn, have greater returns on their talent investment, with increased worker productivity and satisfaction.

Of course, full transparency is fraught with manifold issues, particularly involving information security – obviously, not everything is intended for public consumption, as the recent Sony Pictures hacking scandal demonstrated. Although most of our employers probably aren’t being specifically targeted for cyber attacks by the North Korean government, cloud-based file sharing and backup systems do allow companies to provide employees with the information they need while still maintaining controls to preempt private or sensitive information from being accessed incorrectly.
Many of these services offer electronic signature capabilities as well as an automated log of which data (and when) individual employees are accessing, which, unlike paper documents, give employers a control by allowing them to monitor and track data usage as well as flag any suspect attempts to access confidential information for unethical (or illegal) purposes. These systems offer employers a balance between safety and responsibility.

Corporate Transparency and Social Responsibility

sugar coatedThe fact that there’s a direct correlation between companies’ commitment to ethical behaviors and improved financial performance is the business equivalent of karma – not to mention proof that CSR is more than simply a PR ploy. Businesses that rank in the top quartile for social responsibility not only have huge cache for a company’s brand reputation and marketing, but they also lead their peer groups in terms of employee satisfaction, recruitment, and retention.

Building a socially responsible organization starts with corporate transparency; when current and prospective employees perceive their employer as altruistic and committed to the greater good, studies show increased willingness to work additional hours, contribute to intellectual equity and become those all important “brand ambassadors” who actively promote the organization through organic promotion and word-of-mouth marketing.

Similarly, consumers who identify a business as being committed to corporate social responsibility are more likely to become customers or clients; studies suggest consumers are over 50% more likely to buy from brands they perceive as socially responsible over a competitor, even at the same price point.

The ROI Of Corporate Transparency

profit catWith SOX having been enacted over a dozen years ago, the long term impact of this legislation are just beginning to be realized. A study published in the Journal of Banking and Finance looked at the return on investment and cost of debt associated with SOX compliance in 252 large firms. The study found that the companies sample realized a $844 million cost savings over five years as a result of SOX compliance.

For these companies, corporate transparency gave them a better credit rating and yielded significant returns on offset investments. They also found that the companies with less conservative earnings saw greater advantages from corporate financial transparency. When it comes to cost of debt, turns out transparency pays off.

No matter what market or industry your employer happens to be in, corporate transparency has consistently proven the most prescient predictor of company success. Even at public companies or other enterprises that rely on market viability, transparency is more strongly tied to forecasting future outcomes than their accounting or balance sheet.

We talk a lot about the concept of “transparency,” but it’s more than a buzzword – it’s big business’ public commitment to putting their money where their mouth is.

And that’s the bottom line.

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By Matt Charney

Matt serves as Chief Content Officer and Global Thought Leadership Head for Allegis Global Solutions and is a partner for RecruitingDaily the industry leading online publication for Recruiting and HR Tech. With a unique background that includes HR, blogging and social media, Matt Charney is a key influencer in recruiting and a self-described “kick-butt marketing and communications professional.”