The Disturbing Fact About Open Book Policies

by Sean Foster | November 19, 2020 | Newsletter

Principles of an Open-Book Policy 

Let's first be clear on what an open-book policy is, and isn’t:  

It is when you open the books in a controlled manner, to all your staff, so that they have a better understanding of exactly how the business is performing financially.  

It is not about giving them access to your bank account, or sensitive information such as everyone’s salary. 

There are both good and bad elements to an Open-Book policy, and it is not something I would recommend for every business. 

Firstly, the Bad: (PS. And this why it is mostly not used) 

• most staff don't really care about all the numbers,  
• most business owners don't really understand all the numbers, 
• your staff could believe they are on a sinking ship and leave (when you really need them most) or they believe that the business owner is making so much money, that they get pissed off and leave, only to become a competitor. 
• you may not get the buy in from other stakeholders including your advisor accountant or investors. 
• It just adds another layer of complexity to an already complex, busy business. 

I need to add here that there is a whole bunch of other fears that leads to a lack of commitment to the process. On that note, you do know what fear stands for? It is just an acronym for: False Evidence Appearing Real. 

Now, the good:  

• well implemented Open-book policies result in employees showing an improvement is their commitment and attitude towards the success of the business. 
• every employee, including the business owner, improves their financial literacy of the business, 
• if correctly implemented there is a general improvement in business performance: this Forbes article found it to be around 30%.  

Let's debunk some of the myths and establish some of the rules:  

1. The financial information you should be sharing is only the information that drives results. Certain confidential information, such as individual employee wages, should be kept confidential. This can be tricky to achieve in businesses that have very few staff, but so to is it less important in small businesses to keep this confidential. It is however important to show the overall cost of wages in the business. 

2. You may believe your employees have no interest or motivation in the business numbers and lack the skill to understand them. In my experience this is correct 80% of the time, but only until you have trained yourself and them to really understand the numbers. There are many simple and fun ways to improve financial literacy (speak to me about this.)

3. For most businesses, employee costs are one of the largest costs in the business, as well as one of the costs that has the biggest impact on either losing or making profits. It just makes logical sense that you should throw everything, including the kitchen sink, in ensuring that they are 100% empowered, enthusiastic, and able to directly improve the results of the business. An open book policy will significantly encourage this.  

4. It is widely recognized that a strong productive supportive and engaged culture in a business is not only difficult to build and maintain, but we also know the single biggest factor that builds this type of culture is trust. Trust is the foundation. Have a look at this short video from Simon Sinek explaining trust (the short version, or the long version). An open book policy builds trust.

5. We hear ad nauseum that the world is becoming increasingly more complex and uncertain. In a world of certainty, you understand what is required in a given situation, you can implement rules and procedures and as along as everyone follows these, then the outcome is almost certain. But this is not the world we live in today.  

Nowadays the “rules” are constantly changing, and it is becoming increasingly difficult to forecast what the future will be, even 6 months from now. You need to think on your feet and draw on all of your wisdom and intuition. Do you think your business will be stronger if all of you staff were doing exactly the same? An open-book policy builds agility within the company culture. 

6. I spend much time on business strategy. An effective strategy is one that differentiates you from your competitors and adds value to you and your customers. An open-book policy is an effective mechanism to build on competitive advantage. The fact that so few companies implement it, tells you that it can potentially be a competitive advantage.  

7. With the stresses of life and the bombardment of misinformation that we are all fed, it is worth acknowledging that the more employees you have, the more diverse their beliefs and values will be, both personally and towards your business. It is worth watching the social dilemma on Netflix on this one. An open book policy encourages open dialogue, celebrations, and a more productively competitive and fun culture.  

8. If you were to buy your company, what would you look for? Would you feel more confident in buying the business if there was an effective continuous improvement process, something like Kaizen, or maybe just has systems in place, rather than a reactive business?  

I know if I was selling my own business I would like to convince the buyer that my business is unique, profitable, has excellent systems and processes in place, and has a culture made up of loyal employees devoted to the success of the business. An open-book policy enables this. 

If you are already running and open-book policy in your business then I would love to hear from you, possibly we could show-case the principles that you have adopted to our other BIG members. So, if this is you, please reply to this email and let me know. 

If you do not yet have an open book policy in your business, but are interested to understand more on this subject, then schedule an appointment with me here, and I will happily discuss the options as to how they could work in your business. 

I cannot stress enough that the content, principles and examples mentioned above are more relevant than ever. I sincerely wish every success in your business. I firmly believe that the culture within your business is the secret formula, and I am absolutely convinced that an open book policy is a powerful mechanism that would suit the majority of businesses in building a great culture, strategy, superior business performance, and is respectful of its employees.  

As always, I welcome feedback and thoughts, the good, the bad and the ugly.