Harvard Business Publishing

It's one of the tenets of corporate communications that transparency is a good thing. The history of corporations communicating is littered with examples, good and bad, of what happens when you adhere to or violate the Transparency Rule.

The modern example that has long been held as the standard is Johnson & Johnson's response to the Tylenol murders of 1982. By all accounts, the company handled the crisis brilliantly. It warned everyone, pulled Tylenol off the shelves, and ultimately re-launched the brand with tamper-proof bottles. Tylenol regained virtually all of its market share and has continued to sell well nearly 30 years later.

By contrast, the corporate graveyards are marked with the headstones of many companies that were less forthcoming, or even deceptive, in their dealings with the public: WorldCom and Enron, to go back a few years, and Lehman Brothers and AIG to pick from recent headlines.

The lessons seem to be clear: transparency is a good thing. Those who follow the rule get a chance to survive, even possibly thrive. Those who do not, suffer, and perhaps die.

Moreover, organizations today don't really have a choice. This is the era of transparency, thanks to You Tube, the 24/7 news cycle, and the Internet, and what you don't admit to in public will hit the news in a nanosecond or two anyway.

And, of course, if the news is shaped by someone else, the odds are that it will be considerably less kind to your point of view. You will add skulking to your list of corporate sins.

Given both the urgency and the necessity of transparency today, is there any argument to be made for holding back?

Let's look at a recent case: Daniel Bouton, CEO and Chairman of Societe Generale. Back in January, Daniel Bouton learned one weekend that a rogue trader in his shop had generated almost 50 billion euros in losing bets - a great deal more than the firm was worth.

How did Bouton respond? He told only a select few insiders. He enlisted the help of a couple of closed-mouth traders and spent a few intense days unwinding the trades and getting SG's financial house in order. By mid-week, he was able to report to an astonished French and world press that he had saved the firm and taken 4.9 billion euros in losses.

The bad news was that it was a huge hit. The good news was that the firm wouldn't go under that week.

Was Bouton right or wrong? Had he gone public, the firm would have most likely failed.

Had he notified the media on Monday morning, the resulting feeding frenzy would have almost certainly sunk SG, and perhaps precipitated a much wider financial mess. As it was, the damage was controlled and organizational life went on.

In the end, Bouton was relieved of his CEO title a few months later, but he stayed on as Chairman. Was that an appropriate punishment? Or was that a wink and a nod to a cowboy whose gutsy actions saved the day?

In fact, Bouton was only able to save the firm because he withheld significant information. What should we make of that?

And there's a further price to pay for this non-disclosure. Bouton and SG lose credibility with the press and the public in general. How will that affect them? In a recent press release, SG was reduced to announcing this:

Societe Generale reiterates its formal denial of the market rumors which may have circulated today. At this time, the Group has not experienced significant losses on its structured products activities, which would necessitate a recapitalization of any kind.

Paris, 13 October 2008

In the long run, my guess is that SG will indeed suffer, and die. Bouton saved the firm that week, but trust, once broken, cannot easily be re-established. And without trust, a firm that depends on credit cannot survive.

Where does that leave transparency?