Hey CEOs Who Want Growth: Stop Asking Your Team To Play Pin The Tail On The Donkey

Posted on February 25, 2016

Many CEOs of private midsize companies are reluctant to share financial details of their firms with the rest of the company.  But read why sharing those numbers is crucial and one approach to opening the books that works well.

Surprisingly few CEOs of private midsize companies share intricate financial details of their firms with top management, and certainly not with lower-level employees. The primary fear that I hear time and again is this: Showing our financial numbers will prompt employees to ask for more money. “What, we’re a $50 million firm? Surely they can afford to give me a 10% raise!” However, sharing the numbers can be rewarding – especially when times get tough, as a 70-year-old glass company, Giroux Glass, found out (which I’ll explain in a minute).

The reason why withholding all the financials is a mistake is simple: If the CEO keeps the numbers to himself, the rest of the team won’t have the details they need to determine whether their functional plans are helping increase revenue and margins. Executives are most productive when they have all the data on the state of the business, formulate strategy with the CEO, and take full responsibility for driving execution. When they don’t have this data, essentially what the CEO is doing is asking them to play Pin the Tail on the Donkey: operating blindfolded in creating and executing plans.

Small businesses often run smoothly without sharing financials— the CEO has time to interpret the numbers, decide on actions, and tell their small team of managers what to do.  No problem.  But as the business grows to midsized, more people need more instructions.  The CEO no longer has enough time to tell everyone on the growing team what to do, so he must promote his best people to senior roles.  It’s easy to treat these new executive team leaders the same way they were treated before: as managers of the other managers. However, these executives are now in positions in which they must help the CEO lead the company.  That’s a much different role, and here is where sharing numbers becomes crucial.

So what should CEOs of midsized companies do? The first step is sharing financial data one careful step at a time, always starting with education.  Create a concise, well drafted and thought out business plan and review the plan with your team.  Start with the senior leadership team, then move on to the next level of leaders.  The senior leadership team should know how to understand and interpret financial data.  They should be trained to know, for example, that net profit does not equal cash that can be paid out as bonuses or salary. Opening the books abruptly without this proper training can be confusing, ineffective and sometimes damaging.

For the broader employee base, start with just a few basic metrics.  Sharing profit dollars may be the last thing you share, but consider sharing costs, percentage figures (like cost of goods sold), growth rates and other drivers of profitability.  If you’re wary of sharing these numbers, don’t forget that public companies share all their high-level financial data with the whole world—competitors and all—and they perform just fine.

When done correctly, sharing information fosters a company culture of ownership and accountability.  Take the sharing culture at Giroux Glass as an example. Giroux Glass is a leading glass, glazing and architectural metals contracting company founded in 1946.  A couple of hard hits from bumps with large projects, coupled with the devastation of the 2008 recession, forced the company to make some hard decisions – laying off 30% of their office staff, shutting down a new business sector and cutting overhead expenses.  Morale was low and change was needed.

In 2012, the company focused on developing a culture of accountability and ownership.  “In order to have true accountability, we had to show our employees how their actions affected our bottom line,” says Nataline Lomedico, CEO & President of Giroux Glass.  Rather than sharing all the financials, Lomedico says they shared high-level details, focusing on revenue volumes, gross profit margins, overhead and net profit.

They noticed a difference almost immediately: employees began suggesting ways to save money and become more profitable. They felt trusted and responsible for the success of their department and the company.

By the end of the first year of sharing financial data, Giroux’s revenue grew by 10%, gross profit increased by 14% and they went from a net loss of -11% in 2012 to a net profit of 6% in 2013.  “Having a true open book policy takes hard work and dedication to keep in place,” says Lomedico.  “We are always using different avenues to share our financial information and give our employees tools to make good decisions.  Decisions that will positively impact our bottom line.”

Baby Steps

Sharing everything can work quite well for some companies, as it did for Giroux Glass. But if the idea of sharing everything at once feel risky, consider moving forward in small steps.  Here’s one approach that works well:

1. Identify what you want most from your team.  Are expenses out of hand?  Share that information.  Is inventory bloated?  Share that data.

2. Pick the specific metric to share and analyze the data in private.

3. Put together a short presentation that explains the measure, and why it is important.  Keep it simple.  Include live case studies that illustrate how the actions of the team can help or hurt the metric.

4. Deliver the presentation, then reveal the metric.  A rich discussion should ensue.

5. Follow up quarterly (or maybe monthly) showing how the metric is changing, and tying that to what the team is doing differently to effect that change.

6. As the team internalizes the first element of financial data, repeat the process with the next most critical piece of information.

Many CEOs are fearful that employees will demand higher salaries once they see the numbers.  The key is to educate first.  Try using methods that employees can relate to and that showcase that their individual success depends on the success of the company.  “We used lemonade sale examples, quizzes, and outside consultants to assist us,” says Lomedico.  “We started bi-weekly scoreboard meetings company-wide.  This forced our employees to interact and see how the numbers were calculated and found. And we shared some of our profits with every employee if we hit our company-wide goals.  There was something in it for everyone.”

When you remove the blindfold, figuring out how to pin the tail on the donkey isn’t so elusive.  Don’t make your team guess at what the real objectives are.  Slowly, step by step, educate then share selected financial data.  Start with the leadership team, then include the rest of the company incrementally.  The results will be enriching.

 

 

You can also read the full story on Forbes.  Do you have something you’d like to add to this conversation? Please comment online and we’ll keep this important conversation going.