Phony Open Doors Lead to Naked Emperors

Honest communication within the workforce isn’t just a nice corporate goal. It’s a hard-nosed competitive advantage that keeps CEOs in the know. And it suffered during the downturn.

Research released this year from the Corporate Executive Board Co. on some 300,000 employees has found that perceptions of communication openness fell dramatically during the recession in 2008 and remained depressed in 2009.

That’s a problem for companies, because the same report from the research and advisory group dispels any doubts about the bottom-line importance of free-flowing feedback.

Companies rated by their employees in the top quartile in terms of openness of communication have delivered total shareholder returns over 10 years of 7.9 percent compared with 2.1 percent at other companies. Those firms also had materially lower levels of observed fraud and misconduct—which ultimately eats away at revenue and profits.

The Corporate Executive Board also found that among the 12 key indicators it tracks in its “cultural diagnostic” of companies, the one that is most strongly correlated with 10-year total shareholder return is employee comfort with speaking up.

“The most important driver of this comfort is a lack of fear of retaliation,” the report said.

Fear is rampant these days. According to the study, nearly half of executive teams fail to receive negative news that is material to firm performance in a timely manner because employees are afraid of being tainted by bad news.

All companies talk a good game about open doors and honest communication. But is it possible your platitudes on the subject don’t prove true in reality? Do bearers of bad tidings or internal critics get shunned, punished or even fired?

Do you or your execs say things like “I don’t see the problem here” or “let’s keep this short” when confronted by tough questions?

If so, your firm probably is less open than it portrays itself to be. And the leadership runs the risk of an Emperor’s New Clothes moment. As the Corporate Executive Board puts it, “Like the emperor in the children’s fable who parades in front of his subjects wearing no clothes, the CEO never receives any contrary feedback until it is too late.”

Keep your CEO fully clothed; make sure your open doors are real, not phony.