Businesses feeling ‘data fatigue’ on transparency issues

Transparency is a hot topic these days. The internet has ushered in more transparency in our lives and in society in general than ever existed before. Many of us broadcast our lives to the world on social media. Google, Amazon and other giant technology companies track our every move online and sell the trail at a profit. Our emails leave a surprisingly permanent trail of our most important daily communication. In our personal lives – whether we like it or not – we have all kinds of transparency.

Transparency is also regularly trumpeted by social scientists and ethicists as the answer to many of our societal problems. Howard Schultz, the head of Starbucks, calls transparency “the currency of leadership.” John Gerzema, American CEO and columnist, and member of the Top 100 Thought Leaders in Trustworthy Behavior, says, “Transparency, honesty, kindness, good stewardship, even humor, work in businesses at all times.” Even the dalai lama has a position on transparency, saying that “a lack of transparency results in distrust and a deep sense of insecurity.” Transparency – and more of it, one would think – should improve our culture dramatically.

The call for increased transparency in business is made frequently. Each time a business scandal erupts, the answer seems to be “there was a fundamental lack of transparency” that caused the problem. The banking crisis and accompanying meltdown was characterized by all sorts of shenanigans by the world’s biggest banks, most of which occurred behind closed doors. The reaction of governments around the world was to increase corporate disclosure obligations, in the name of increasing transparency. But has the increased regulation worked?

We recently learned of a new scandal involving Wells Fargo, where thousands of employees created fictional accounts for customers and charged them fees for nothing. Employees were allegedly acting out due to pressure from bank managers to “make the number” for a given month or quarter.

Let me go out on a limb and make a prediction: As in the global financial crisis, few – if any – will be prosecuted. But government regulations will increase, designed to increase transparency.

At the moment, at least, increasing transparency by increasing regulation is government’s go-to solution to every problem.

Is it possible that increased transparency in business is not the panacea it is cracked up to be? In October 2014, Harvard Business School professor Ethan Bernstein wrote in the Harvard Business Review of what he called a “Transparency Trap.”

His conclusion after gathering abundant empirical evidence studying businesses? More transparent environments are not always better. Privacy was just as essential when it came to job performance.

Bernstein found instances where intense visibility and tracking of employee production activities were making things worse, not better. He pointed out that our sense of being “onstage” is growing because of the proliferation of social media platforms, wearable devices and other tools for transparency. This increased “onstage” sense caused employees to spend more time acting, trying to control others’ impressions and attempting to avoid embarrassment. Efficiency, in turn, suffered. His study suggested the notion that, certainly in business, there can be too much transparency.

The pushback by business to all these transparency demands may be beginning. Michael Meehan, of the Global Reporting Initiative – which sets standards for corporate reporting on environmental and sustainability issues – recently said some large companies have “data fatigue” and that he can see why. His concern is that forcing companies to report every single data point might lead to less transparency, not more. He makes a valid point.

It seems that in the business world, we may be close to the point of “maxing out” when it comes to demanding increased transparency as the solution to so many problems.

Like most problems, the solution here is one of striking the right balance. What will prevent future scandals like the Wells Fargo situation? Will increased governmental regulations solve the problem? Is a bigger government the answer? Or should individual employees be legally compelled to take responsibility for their actions?

Transparency in government, of course, is a whole different kettle of fish. But it is worth noting that the two main candidates for president struggle mightily with the issue. Hillary Clinton seems to have a knee-jerk reaction against the notion every time it surfaces. Donald Trump seems to ignore it. As troubling to voters as this may be, we should ask ourselves whether our never-ending quest for transparency in all things has gone too far, and whether that is partially to blame for the candidates’ obvious confusion on the issue.

That, I suppose, is fodder for another column.

Scott Flegal is a business lawyer and mediator. Visit him at www.flegal.com or www.negotiationworks.org. Follow him on Twitter at www.twitter.com/hscottflegal and read his blog at scottflegal.com.