They'll Find Out AnywayIn an age of free-flowing information, executives should guard their reputations instead of secretsby Don Tapscott Don't attribute AMR Corp. CEO Donald J. Carty's remarkable downfall to him being yet another executive tripped up by executive-suite gluttony. The pensions and retention bonuses he orchestrated for his colleagues are matters clearly within management's prerogative, and as he notes, were well within his industry's norms. No, Mr. Carty's sin is of another order: the sin of opacity. His stealth behavior, standard operating procedure for many CEOs for many years, violated the new norms for transparent decision-making processes in corporate America. AMR (parent company of American Airlines and American Eagle) set up its executive bonus and pension schemes last October, but shareholders and union officials found out about them only when the company made its regular year-end filing to the Securities and Exchange Commission on April 16. Knowing the measures could inflame delicate management-labor discussions, Carty strove to keep them concealed until after unions had agreed to cutbacks as part of the airline's restructuring. Not so many years ago, such a move might have been a nonevent. No longer. Today the smart strategy is to do the very opposite of what Carty did. Instead of suppressing information, he should have raised the concern with American Airlines's unions that his top executives might jump from what many saw as a sinking ship. It's in everyone's interest to motivate these executives to stick around. Or, if Carty and his team couldn't develop a plan that was credible and defensible, then that should have told them to drop the idea. And Carty would still have his job. Not What, but HowEmployees understand that during difficult times difficult decisions have to be made. But compare Carty's style to that of CEO Ned Barnholt of Agilent Technologies, the high-tech Hewlett-Packard spin-off. At its peak in November 2000, Agilent employed 47,000 people. Then came the 2001 economic downturn, compounded by the events of September 11th. Agilent's sales plunged. Despite valiant efforts at avoiding layoffs, such as across-the-board 10 percent salary reductions, in the end the company chopped about a quarter of its payroll. Management worked incessantly to make the downsizing process as transparent as possible. Constant contact with employees through email, intranet, and meetings — both group and one-on-one — kept employees fully informed as the process unfolded. As a result, employees remain tenaciously loyal to the company. Transparency, an old force with new power, is something to be reckoned with. Transparency means more than disclosing financial information. People and institutions that interact with firms are gaining unprecedented access to all sorts of information about corporate behavior, operations, and performance. Armed with new tools to get the truth, inform others, and organize responses, stakeholders now scrutinize the firm like never before. Employees share formerly secret information about corporate strategy, management compensation, and challenges. Customers can better evaluate the worth of products and services and find the best price. To collaborate effectively, companies and their business partners have no choice but to share intimate knowledge. Powerful institutional investors today own or manage most wealth, and they are developing X-ray vision. In a world of instant communications, whistleblowers, inquisitive media, and Google, citizens and communities routinely put firms under the microscope. The corporation is becoming naked on all fronts, and smart firms are capitalizing on this trend. Trust Is Hard to RegainWhen the controversy broke, the American Airlines board promptly rescinded the retention bonuses. But a spokesman for the Allied Pilots Association said the flip-flop "doesn't negate the damage that has been done, the trust that has been lost in American's management team." The unions' condemnations of the retention bonuses and pension fund payments were interesting not only for what they did say but also for what they didn't. Fiery rhetoric about executive snouts in the trough was hard to come by. Consider, for example, the language of a "Dear Don" letter sent to Carty by Transport Workers Union senior executive James Little a day after the company revealed the special pension provisions. Little disputed an American Airlines spokesman's claim that the company has briefed its unions on "all aspects" of the scheme. "No official of our organization or consultant hired by us was briefed on any aspect of this program," wrote Little. "To be sure, several months ago, you did indicate in a meeting with the three union presidents that you had to be free to provide compensation adequate to retain your top executives. However, no union official was given any specifics on the matter, nor did you seek our opinion or authorization. I am deeply angered and disappointed about the company's handling of this matter." John Ward, president of the Association of Professional Flight Attendants, sent a letter to Carty saying "This intentional hiding of information that you knew we needed to have before our members voted is simply unconscionable, particularly in these post-Enron days." Rephrased: We're not saying the intent is fundamentally wrong. We're saying you went about it in a completely inappropriate manner — you weren't open with us. That's not on. Don Tapscott cowrote (with David Ticoll) the forthcoming book The Naked Corporation: How the Age of Transparency Will Revolutionize the Firm (Sterling).
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