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The Naked Corporation: How the Age of Transparency Will Revolutionize Business by Don Tapscott and David Ticoll Rating: ••• (Recommended)
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Barely Don Tapscott and David Ticoll tackle a timely topic in their new book, The Naked Corporation: How the Age of Transparency Will Revolutionize Business. To address the subject, the authors provide ample examples and models for increasing corporate transparency. Perhaps the issue remains too new, but the authors avoid data to support their recommendations, and often rehash more than once snippets from recent books. The subject is worth thinking about, and the authors do a decent job at introducing the issues, but leave readers with as many questions as answers. Here’s an excerpt from the beginning of Chapter 2, “Transparency Versus Opacity: The Battle,” pp. 37-45: Transparency may in general be a good thing, but it’s not always the right thing nor may it always be practical. And it has its enemies. Transparency can be controversial, poorly executed, or placed at risk. All in all, while the world is becoming more open, there are many obstacles to complete transparency, some valid and some not. Obstacles To Transparency Limits of Knowledge We can only take action on what we know. Critical information, like Enron’s role in manipulating the California energy markets, may not become known in a timely manner. Information, events, and complexity tend to increase geometrically. Science and technology have limits. Indeed, the more we know, the more we realize what we don’t know. As H. L. Mencken once said, “Penetrating so many secrets, we cease to believe in the unknowable. But there it sits licking its chops.” Environmental impacts are often only discovered after they become irreversible. A 2002 study by the World Bank, the World Resources Institute, and the United Nations said that several ecosystems are fraying under the impact of human activity and that in the future, ecosystems will be less able than in the past to deliver the goods and services on which human life depends. The study concludes, “It’s hard, of course, to know what will be truly sustainable” because “our knowledge of ecosystems has increased dramatically, but it simply has not kept pace with our ability to alter them.” In another study, the World Economic Forum reached a similar conclusion: “Businessmen always say, ‘What matters gets measured.’ . . . Yet look at environmental policy, and the data are lousy.” The good news is that, thanks to technology, we chip away at the mountain. Says Daniel Esty of Yale University, “I see a revolution in environmental data collection coming because of computing power, satellite mapping, remote sensing and other such information technologies.” One example is the long-running battle between U.S. midwestern states, which are heavy coal users, and northeastern states, which suffer from acid rain. Technology helped prove New York’s claim that its acid rain problem was not just the result of home-grown pollution. The Business Value of Secrets Much of a company’s information is rightly confidential, whether for competitive or for privacy reasons. Innovations, market entry plans, proprietary business methods, pending mergers and acquisitions, and a host of other matters must be kept secret for varying periods of time. Parties to a transaction also benefit from information asymmetries. Your car dealer may have more information about the problems with your car than you do. You may know more about your health than your life insurance company. Parties will attempt to gain advantage through a monopoly over information if they can. Firms have ethical obligations of confidentiality as well. They must protect employee records, customer information, and the like. Transparency means visibility into the operations of institutions, not the personal information of individuals. Experience shows that good privacy policies pay off 2 Firms sometimes have good business reasons to be opaque and play in the Danger Zone. But the Danger Zone can be risky, as the Kellogg’s corn dog fiasco illustrates. These are shifting sands. What yesterday was considered proprietary (executive compensation, for example) is today on the public record. Some firms, following strategy guru Michael Porter’s long-proven advice, preannounce plans to outflank the competition, while others play close to the chest. Even in areas formerly considered competitive and proprietary, transparency is changing the rules. The open source model of fostering innovation, such as with the Linux computer operating system, relies on cocreation and aggressive transparency on matters that some firms still consider proprietary. Open source has scored major successes: Linux, for example, has migrated from the fringe to the mainstream. The Cost of Openness Active transparency costs money for new organizational functions, tracking and reporting, interaction with stakeholders, and outside auditing. For a small or low-margin business, such expenses can be practically a showstopper. Borland Software, a California company with $300 million in sales, says that the 2002 Sarbanes-Oxley rules for corporate disclosure result in new bills of $3 million a year, about 10 percent of its earnings. This is due to the added costs of accounting scrutiny, legal help including two newly hired in-house attorneys dedicated to compliance, and $1 million in added director and officer insurance costs.^3 Companies like BP, Ford, and Hewlett-Packard spend millions on social responsibility staff annual sustainability reports, external verification, consultants, and the like. The business case exists, but each company needs to make it. Even when the spirit is willing and the money is there, few firms have a culture of transparency and most need to invest time and money to build the required processes and infrastructures. Pseudo-Transparency and Deceit Active transparency strives to be inclusive: to address the aspirations and needs of all stakeholders.^4And it aspires to be trustworthy: verifiably material and true. In the past, some firms have benefited from opacity and dishonesty. Today, more companies than we care to imagine still maintain old practices. Others, understanding the growing demand for candor present themselves as open though they change little in their values and management style. Faking it—what we call pseudo-transparency—is likely to result in information overload, confusion, had communication, or whitewashing. SustainAbility, a U.K. firm, publishes—in partnership with the UN Environment Program—a global survey on the quality of corporate reporting related to financial, environmental, and social practices. Its 2002 report points out that few companies around the world provide this scope of transparency reporting, and of those that do, a mere handful have adopted rigorous reporting methodologies. Many companies excluded from SustainAbility’s top 50 engage in what some call “greenwash”—self-promotion in the guise of transparency. SustainAbility points favorably to “the invasion of the suits,” as companies increasingly draw on the services of blue-chip accounting firms and consultants to audit and validate not only financial but also environmental and social reports. By the way, only 5 of SustainAbility’s 50 top-rated reporting companies are headquartered in the United States: Bristol-Myers Squibb, Baxter International, Chiquita Brands International, General Motors, and Procter & Gamble. Three (Suncor Energy, BC Hydro, and Alcan) are Canadian. Transparency Literacy A lack of experience with transparency can lead to missteps on the frontier of openness. It will take time for businesses to become literate about transparency, to understand its dynamics and boundaries, and to develop the competency and skill required to manage in an open economy. Corporate transparency requires its own form of literacy. As the online bookselling leader, Amazon often sails in uncharted waters. In September 1999 the company introduced “purchase circles,” which disclosed the book preferences of its corporate customers. Amazon revealed that customers from Microsoft were snapping up The Microsoft File: The Secret Case Against Bill Gates by Wendy Goldman Rohm. Amazon’s review said the book “paints a harsh and unforgiving picture that’s not at all flattering to Gates or the rest of Microsoft’s top brass.” Meanwhile, a book on Linux was a hot seller at Intel. Amazon.com spokesman Paul Capelli called purchase circles a “discovery tool.” “We know that people don’t make purchases in a vacuum,” he said. “You buy things based on what others around you are buying or what they have to say. You look to family, friends, or neighbors. What purchase circles do is allow insight into groups of people that may have significance for you.” Some customers, however, thought Amazon’s innovation was voyeuristic. Buyers were uncomfortable with the idea that their book purchases might reflect poorly on their employers or betray a corporate agenda, and the disclosure made them feel as if someone were looking over their shoulders. After asking employees for their reaction to the Amazon program, IBM CEO and chairman Louis Gerstner received five thousand email responses within hours. More than 90 percent objected to having their book-buying habits as a group disclosed online. After IBM complained, Amazon removed its purchase circle listings. Gerstner wrote to Amazon CEO Jeff Bezos saying, “I’m certainly not going to tell you how to run your business, but I do urge you to view this as an enormously important issue.” The negative reaction forced the company to modify the service. Today customers can ask that their information not he used in generating purchase circle lists, and companies can tell Amazon to de-list them. Some privacy advocates insist such policies are still wanting, since the burden is on the consumer or company to opt out. Amazon says the feature is popular and now offers purchase circles based on geography, educational institution, industries, and government departments. This amazing story shows that businesses must become transparency literate to better understand what transparency means and how to harness its power. Structural Obstacles While the world becomes more open, structural supports for opacity continue to rise. United States litigiousness dissuades companies from revealing more than they need to; the main blockers of transparency within firms are often their own lawyers. A May 2002 California Supreme Court 4—3 decision against Nike led many to conclude that social and environmental reporting would become more risky in the future. The court ruled that when Nike had denied reports that workers were mistreated in the Asian factories that manufactured its shoes, the company’s statements constituted “commercial speech,” and were therefore not covered by the First Amendment. At issue were statements about the factory conditions in press releases and correspondence sent out by Nike in 1997, including a letter to the editor, that said the sneaker company was doing a good job with overseas labor but could do better. “Because in the statements at issue here Nike was acting as a commercial speaker, because its intended audience was primarily the buyers of its products and because the statements consisted of factual representations about its own business operations, we conclude that the statements were commercial speech for purposes of applying state laws designed to prevent false advertising and other forms of commercial deception,” wrote Justice Joyce Kennard for the majority. The action had been brought against Nike by environmental activist Marc Kasky. Nike appealed to the U.S. Supreme Court, which in June 2003 sent it hack to the state courts. In the meantime, the effect of the ruling has been that companies could be sued and penalized if their social or environmental reporting broke truth-in-advertising regulations. As a result, Nike has said it will not issue such reports until the case is resolved. Bigger potential threats loom. War and national security may be used to justify restrictions on free speech and information access. Also, as Lawrence Lessig argues, there is a real danger that the Internet of tomorrow will he less open and free than the Internet of today. Transparency Fatigue and Paralysis As the world becomes more open, information proliferates and individuals face increasing numbers of ever more complex choices, possibly to the point of paralysis. Ignorance may not he bliss, but it’s less work. Now that I know the effects of carbon combustion on global warming, should I dump my SUV? Should I accept a job with Exxon despite its environmental policies? Should I leave my broker that has been fined for conflict of interest between research and investment banking? This is more than information overload. It is choice overload. Similarly, some business executives are showing fatigue from scrutiny, perhaps leading to “transparency paralysis” as seminaked corporate executives fear making moves that might further expose them to controversy. Exhibit A? With the extended cratering of the stock market, companies are cheap. Billions of dollars sit in corporate treasuries; there are dozens of overexposed sitting ducks and all sorts of industries in crises of overcapacity—airlines, automotive, financial services, you name it. One would expect lots of merger and acquisition activity. But all there has been is a handful of big deals. Few are buying these bargains. Gordon Nixon, CEO of RBC—a financial services firm with assets approaching $300 billion—says that transparency is causing business executives to act like politicians and consider how a decision will he perceived rather than its economic merits. Some executives may retreat to fortress thinking. Others, paralyzed by fear of scrutiny, may hesitate to make the hold moves they need to succeed. Hewlett-Packard CEO Carly Fiorina showed courage when she led her company to acquire Compaq in May 2002. The evidence so far suggests it was a good move. But the flak she received from shareholders and commentators has not gone unnoticed by others. Maybe, for example, we’d see more foreign direct investment if companies weren’t worried about the supersensitive, politicized business environment. The New Power for Obfuscation The Internet’s transparency is a double-edged sword. It is a tool for information access, verification, and discovery. But it can also be used to deceive. A 2003 Federal Trade Commission study found that two-thirds of all spam contains inaccurate information. Just about anyone can put up a Web site claiming virtually anything. Parody Web sites and campaigns illustrate this duality. Are they vehicles for transparency, opacity, or both? December 3, 2002 was the eighteenth anniversary of the chemical disaster in Bhopal, India, where an accident in a Union Carbide plant caused poisoned gas emissions that killed 4,000 residents in their sleep and injured several hundred thousand others. On that day journalists around the world received via email a press release appearing to he from Dow Chemical, which inherited the Bhopal issue after it acquired Union Carbide. In the press release, Dow apologized for the death and suffering caused by the industrial accident and explained that its hands were tied on the matter of financial compensation to the victims. The company’s first allegiance, it said, was to shareholders and the paramount need to ensure a healthy bottom line. “We understand the anger and hurt. But Dow does not and cannot acknowledge responsibility. If we did, not only would we be required to expend many billions of dollars on cleanup and compensation—much worse, the public could then point to Dow as a precedent in other big cases. ‘They took responsibility; why can’t you?’ Amoco, BP, Shell, and Exxon all have ongoing problems that would just get much worse. We are unable to set this precedent for ourselves and the industry, much as we would like to see the issue resolved in a humane and satisfying way.” For information, the release referred the readers to www. DowChemical. corn. The overbearing attitude of the widely circulated press release sparked thousands of complaints. But the complainers had been duped; Dow had no connection to either the press release or the site. Both were hoaxes, the production of the Yes Men, a group of Internet activists who had earlier gained notoriety for bogus sites satirizing the World Trade Organization and the General Agreement on Tariffs and Trade. The press release and site attracted enormous negative publicity for Dow. Dow’s lawyers quickly forced the original hoax site to shut down, but another spoof site, dowethics.corn, picked up its content. It offers this tongue-in-cheek corporate boast: “Did you know ... Dow is responsible for the birth of the modern environmental movement. Rachel Carson’s 1962 book Silent Spring, about the side effects of a Dow product, DDT, led to a groundswell of concern and the birth of many of today’s environmental action groups. Another example of Dow’s commitment to Living. Improved daily.” The site goes on to parody various PR initiatives of the company, such as www.bhopal.com, an authentic Dow-sponsored site that presents the company’s position on Bhopal. Corporate parody sites are a spin-off of the boom in political parody sites. Virtually every politician with a recognizable name has been skewered by mock sites. A parody site so angered George W. Bush during the presidential election campaign that his officials petitioned the FCC to shut it down. When told the Constitution’s freedom of speech provisions protected parody sites, Bush uttered his famous remark “There ought to be a limit to freedom.” The Bush campaign’s reaction immediately caused the parody site’s audience to soar. In May 1999, the site received 6 million hits, while the candidate’s official site received 30,000. Parody sites can confuse people, as the Dow story illustrates. With off-the-shelf software and a few spare hours critics can savagely ridicule any company. Appreciative audiences easily forward the bogus press release or site address to friends around the world. The same viral marketing that made Napster an overnight success can now pummel an unsuspecting company with sarcasm. As George W. Bush discovered to his chagrin, trying to crush a parody site simply boosts its notoriety and drives up traffic. The only real defense is to behave in a manner that doesn’t invite ridicule. Every corporation makes decisions about the type and amount of transparency provided to stakeholders, and most corporations are rethinking their approaches. Reading The Naked Corporation will bring executives up to speed on the subject, but will not necessarily help in making effective decisions. Steve Hopkins, August 26, 2004
ã 2004 Hopkins and Company, LLC The recommendation rating for this book appeared in the September 2004 issue of Executive Times URL for this review: http://www.hopkinsandcompany.com/Books/The Naked Corporation.htm For Reprint Permission, Contact: Hopkins & Company, LLC • 723 North Kenilworth Avenue • Oak Park, IL 60302 Phone: 708-466-4650 • Fax: 708-386-8687 E-mail: books@hopkinsandcompany.com www.hopkinsandcompany.com