14 November 2018

Radical transparency: how to make the most of technology and boost stakeholder dialogue

In today’s world, statistics abound showing we are a digitalized society in which corporations are subjected to what some call “hypertransparency”. But it seems most companies have yet to focus on managing the fine line between private and public aspects of corporate information in the digital transformation context. Corporate transparency is no longer enough, at least in the form in which we have come to understand it. The researcher Elisa Baraibar stresses this point in her thesis on the subject.

Radical transparency

Baraibar’s research explains the concept of radical transparency defining a model of transparency management that implies the ability of a company’s senior management to use new internet based technologies to create direct and ongoing dialogue with stakeholders. The behavioral guidelines and shared beliefs that make up the culture of radical transparency, which in some aspects are at odds with those of conventional transparency, are the following:

Regarding the recipient. The recipient of the information is often overlooked in conventional transparency, which fails to consider the essential belief of empowerment of the individual, which is the foundation of the digital transformation.

The radical transparency culture assumes the idea that customers, employees, suppliers, shareholders and private citizens are the main protagonists in corporate communications.

Regarding the channel. There are hundreds of studies—in print and online form—on corporate reporting requirements as the principal channel for corporate transparency. Much less has been written to defend online social media as legitimate channels of corporate transparency, although they characterize the day-to-day reality of radical transparency.  This is especially relevant when we consider the way in which the leaders of these companies themselves use their personal social networks.

Regarding the message. Guidelines on corporate information disclosure also abound in documents and references that offer the classic definition of conventional transparency. In this sense, the following classification of these messages, both on the perspectives of conventional and radical transparency, is worth noting:

  • Regarding the volume of information, in conventional transparency, the trend seems to favor quality over quantity. From the perspective of radical transparency, search engine and social networks algorithms are seem to play a vital role in managing the quantity and the quality of corporate information.
  • Regarding the materiality of information, the basis for conventional transparency lies in accounting rules, especially in requirements of data precision and reliability. On the other hand, radical transparency concern focuses on ensuring verification of corporate messages (fact checking) against fake news.
  • Regarding the timeframe for information, the emphasis is on the regularity for releasing reported information for it to be of use while from a radical transparency perspective, the challenge for management is about more than just periodicity to meet ongoing demand for information and interaction from interest groups.
  • Regarding engagement with recipients, the debate on conventional transparency focuses on accessibility of the information for stakeholders, whereas radical transparency understands that messages meet their goals not only when recipients access them, but when they interact with them.

Regarding the issuer. In traditional conception, accountability is conferred by a political authority on a business entity. According to the radical view of transparency, this responsibility is given to companies by their interest groups.

Therefore, to be considered transparent, companies must internalize two fundamental beliefs:

  • The expectations of stakeholders are a constant point of reference throughout the communication process that constitutes transparency.
  • The company accepts responsibility to each and every interest group for being held accountable not only for their economic performance but also for their social and environmental impact.

In addition, in the current context of digital transformation, a transparent company would need to adopt several rules of conduct that are characteristic of brand journalism, including:

  • Involving executives in the process of communicating corporate transparency.
  • Maintaining a “verification discipline” for information related to the company.

Elon Musk (Tesla): “Funding secured

In August 2018, Tesla CEO, Elon Musk, posted on his Twitter profile the following message: Am considering taking Tesla private at $420. Funding secured.

Hundreds and even thousands of headlines, posts, comments and messages circled the globe, criticizing, evaluating and analyzing those 52 characters. At first, most thought that the information was just another extravagance of the entrepreneur. However, perhaps it was not as innocent or as unfortunate as it may have seemed.

The debate generated by his tweet had two consequences. The first was that the price of Tesla stock rose 11 percent, although it subsequently fell, which served as a means of gauging the market’s response to a potential privatization of the company.

The second consequence was that, for two intense weeks, the entire financial world was forced to take a position regarding Tesla’s plans, in one sense or another. Many of those who seriously questioned the company’s future before the controversial tweet contributed to the confirmation of Tesla’s continuity on the stock market.

We know that the proposed privatization had been effectively suggested by one of the company shareholders. The proposal had been discussed by the company’s board of directors prior to the controversial tweet.

We also know that there was a conscious effort to forego the use of the formal channels of financial information of conventional transparency although Tesla would be covered as the company had stated to its shareholders in November 2013 that Musk’s Twitter feed would become “an additional source of information” on the electric-car manufacturer.

Because of this, the U.S Securities and Exchange Commission (SEC) decided to sue Musk in September for sharing “false and misleading public statements” regarding the company’s market price on twitter. The tweet led to Musk’s resignation as chairman of the company two days after the complaint (though his role as CEO was not affected), an action deemed untimely and exceptional by some and fit and necessary by others.

authors:
Iván Pino Zas
Partner and Senior Director of the Digital Area of LLORENTE & CUENCA
A journalist by trade, Ivan Pino Zas holds a degree in Information Sciences from UCM and a master’s in Sustainability and Corporate Responsibility from UNED-UJI. Pino has 20 years of experience in Communications and Corporate Reputation, specializing in Digital Communications and is co-author of Keys to new Marketing: how to take advantage of Web 2.0 (2009, Gestion 2000) and the editor of the first Spanish-language e-book on communications in social media: Your Internet Communication Plan. Step by Step (2008). A lecturer and professor for the Corporate and Institutional Communications master's program at Carlos III University and Editorial Unit, as well as for Corporate and Advertising Communications master's program at the Complutense University of Madrid.
Jorge López Zafra
Senior Director of the Corporate & Financial Communications Area at LLORENTE & CUENCA
Lopez Zafra has more than 20 years of experience in the Communications sector. He is an expert in strategic planning, financial communications and competitive intelligence (the analysis of sectors and trends). He joined LLORENTE & CUENCA October 2016 after a period spent actively collaborating with the company. Previously, he worked for Iberdrola for eight years, where he helped develop strategies and coordinate communication projects (OPS, M&A, General Shareholders' Meetings and other corporate matters). In addition, he held a variety of positions in the company, including head of strategic communications, digital communications and brand intelligence and reputation. Lopez Zafra also worked for Hispania Service and Airtel.
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