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Buff Stuff

  • March 01 2004, 1:00am EST

Don Tapscott and David Ticoll published a book entitled The Naked Corporation: How the Age of Transparency Will Revolutionize Business (Free Press, October 2003). In it, they uncover a side effect of information technology in general and, in particular, the Internet –­ that of putting corporate misbehavior on display to anyone who is interested. Corporations have become, in effect, naked in the eyes of customers, investors and other stakeholder communities. The authors reveal that a strategy of transparency, where companies disclose all possible information, can not only ward off potential public relations disasters, but also contribute to a company's longevity (and bottom line). To address the phenomenon they identify, Tapscott and Ticoll advise, "If you have to be naked, you had better be buff."

The concept of "being buff" is an interesting one. Perhaps Tapscott and Ticoll's ideal world would be akin to a "corporate nudist colony" –­ maybe with just a little spandex to cover the corporate jewels such as intellectual property and competitive strategies that should not be shared! Anyway, it is clear that "buff" corporations, the ones that disclose information important to their various constituencies (thus keeping themselves in good shape), will prosper.

What actions will make a corporation buff? One action is financial disclosure –­ not just including what you need to disclose per regulation, but what you know you ought to disclose, what a normal stakeholder (customer, investor, etc.) would want to know ­– and should. The Securities Exchange Acts of 1933 and 1934 and the Sarbanes-Oxley Act of 2002 are three examples in which the federal government has mandated disclosure and regulated behavior related to financial disclosure. However, buff companies will disclose financial information not necessarily mandated by the laws, such as the faltering operating performance of a particular line of business, that could be important information for customers and investors.

It seems to me that private companies somehow think they are immune to this need for transparency. Certainly, regarding financial disclosure, they are not regulated by law to provide information to the public. However, private companies also have constituencies that need to know financial information about them. Customers, potential customers, partners and others have the right to know whether a private company with whom they are doing business, or about to do business, is financially viable. Buff private companies willingly provide financial information to facilitate this decision. Covering up (not disclosing) this information sends the message that the company has something to hide ­– perhaps they have a "flabby" or "sagging" business model (or worse) causing them not to be buff?

Another action that buff companies will take is the disclosure of risks and their potential consequences. An example accentuates the incredible "nakedness" brought on by the digital world. Has your company been hit by a worm or phishing incident that threatens your online presence? (Note: Phishing is a scam involving cyber crooks posing as legitimate businesses and luring consumers to reveal valuable personal information through a fraudulent e-mail that directs them to click through to a seemingly secure Web page.) If so, come clean immediately with information on the incident and what people can do to recover from it. Hiding the situation, maybe because it "only affected a few," can cause more harm than exposing it when your company becomes the topic of Internet chat rooms, review sites and even media headlines. Your company will get more mileage out of telling the truth quickly, rather than being seen as hiding information that the public should know.

Transparency involves all issues that impact or potentially could impact a company's constituencies –­ not merely those involving finances or operational risk. Tapscott and Ticoll predict the powerful and painful rejection by customers, investors and other communities for corporations that reject transparency and rebuff "buff-ness." The fear of penalties from the Securities and Exchange Commission and other regulators, as well as the fear of public relations nightmares, will drive some corporate managers to get buff. Ultimately, it depends on corporate managers to "do the right thing." When a company has a clear and consistent message of doing the right thing, it will have the muscle tone a bodybuilder would be proud of, engendering trust with its various constituencies and providing long-term bottom line benefit.

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