Most business leaders want employees to think and act like owners.
Inevitably the conversation reaches financial transparency, and their enthusiasm for implementation of what seems a good idea in principle, evaporates.
Share too little and employees assume management is hiding the real numbers and its motives. Share too much without context and explanation, and many will compare the EBIT line in the P&L with their pay packet and conclude that the owner has been ripping them off.
Business leaders often frame this as a binary choice: open books or closed books.
It is not a simple binary choice.
Every business sits somewhere on a continuum. You can choose how much information to share, with whom, when, and in what form. The benefits and risks remain; only their degree changes.
We also need to separate two decisions that often get carelessly bundled together. Financial transparency about how the business performs is not the same as disclosing every individual’s salary. You can explain how a business makes and loses money without pinning everyone’s pay packet to the lunchroom wall. Transparency on individual pay packets in my experience creates more problems than it solves.
Over a long career, I have operated at both ends of the transparency continuum. The outcomes surprised me more than once.
Many years ago, I worked as a senior executive in a major dairy company. We operated a cottage cheese plant in a large regional town.
The plant appeared to have no viable future. We were not the lowest-cost producer, and we could see no commercially sensible way to invest enough capital to compete from a sound cost base.
We made the difficult decision to close it and exit the category.
I had to manage the closure with the least possible cost and disruption to the business while recognising what it meant for employees who had often served the company for many years. The decision would affect families, milk suppliers and the wider regional community.
We told employees what we intended to do and planned a gradual wind-down that might take up to 12 months. That gave people time to look for other work. It also allowed us to run down packaging stocks and gave milk suppliers time to find alternative buyers.
As part of the plan, we also raised prices significantly, expecting that to slow sales.
Demand did not slow at all.
That response forced us to question the assumptions behind the closure. A small difference in the existing production processes gave the cottage cheese characteristics that a significant group of consumers preferred. They valued that difference enough to pay considerably more for it.
At the new price, investment made sense.
We built a new plant alongside an existing milk intake and processing facility in another location. We also offered relocation assistance to several long-serving employees.
Transparency did not save the old plant. It did preserve trust, create time and leave us room to change course when the market proved our assumptions wrong.
I faced the opposite approach after another dairy industry merger.
One of the manufacturing plants that came under our control became redundant. Product rationalisation meant we no longer needed its volume. Its quality was dreadful and its costs were significantly inflated by excessive overheads, low productivity, and the aforementioned poor quality.
Again, I had to guide a plant closure.
This time, the managing director instructed me to say nothing. If anyone asked whether the plant might close, I was instructed to deny it.
On my first visit, employees asked the obvious question about the plant’s future, and I avoided giving them a clear answer.
On my second visit, I defied the instruction.
I told them that we expected to close the plant. I explained the reasons: poor quality, excessive costs and surplus capacity. I also gave them the proposed closure date and outlined how we would help employees through the process.
The effect astonished me.
Costs fell. Quality improved.
The uncertainty had hung over the plant for years, well before the merger that had landed the problem in my lap. Removing it gave people something concrete to deal with. Some found other jobs, others stayed for the redundancy package. Those who remained also set out to prove that the case for closure rested on assumptions they could overturn.
The secrecy intended to preserve stability had helped destroy it. The truth focused attention.
My third encounter with this dilemma came much more recently.
A small manufacturing client followed my advice to share information about costs and profitability with employees. We opened the books further than the culture and financial understanding of the employees could support.
Employees looked at the EBIT line at the bottom of the Profit and Loss, compared it with their pay packets, and decided the owner had been exploiting them.
They did not understand the cash tied up in working capital, the cost of equipment, the need for reinvestment, the risks carried by the owner or the return on capital required to justify those risks.
That failure belonged to management, and partly to me. We had shown people the scoreboard before explaining the rules of the game.
Financial transparency can improve performance, trust and the quality of decisions. Information alone, however, creates neither understanding nor ownership.
Employees need to understand what the numbers mean, which ones they can influence, what actions will improve them and how the gains will flow back to those who helped create them. Without that line of sight, transparency becomes an invitation to misinterpretation.
Start with the economics closest to the work: scrap, rework, overtime, yield, customer returns, throughput and the cash cost of delay. Explain the difference between profit and cash. Explain why capital carries a cost and why the owner expects a return for carrying risk.
Then repeat the explanation, again, and again. One presentation of the profit and loss statement does not create financial literacy any more than one driving lesson creates a Formula One driver.
Increase transparency as understanding and trust grow. Keep individual salary disclosure as a separate decision, and be very wary of disclosure of individual pay.
Opening the books does not create owners. Giving people context, agency and a fair stake in better performance will.
