A few years ago, I joined the Small Giants Community as part of their Leadership Academy, and one of my biggest takeaways was in order to value people over profits, it’s imperative that, in business, we are willing to embody transparency.
This transparency can mean showing up as an authentic leader: as we are. It can also mean sharing our purpose, values, and vision so the whole team can align to do better and evolve the business toward a bigger vision. And transparency can mean sharing the wins and losses with the team by practicing open-book management.
WHAT IS OPEN-BOOK MANAGEMENT?
“Open-book management is a management phrase coined by John Case of Inc. magazine, who began using the term in 1993. The basis of open-book management is that the information received by employees should not only help them do their jobs effectively but help them understand how the company is doing as a whole. The technique is used to give employees all relevant financial information about the company so they can make better decisions as workers. This information includes, but is not limited to, revenue, profit, cost of goods, cash flow, and expenses (Wikipedia).”
HOW IS THIS PRACTICED AT SHADES OF GREEN?
As a company, we adopted open-book management in 2019. Practically, this means that at each staff meeting, we review the books together. It began by teaching the team about a balance sheet and how to read one and decipher a profit and loss statement to compare against an annual budget. It has evolved to reviewing the budget together and helping everyone on the team get a bigger picture view of the company’s financial health. Everything is revealed except individual salaries (they’re grouped under a “salaries” line item), including total revenue, total expenses, cost of goods sold, and net operating income.
To take it a step further, we also practice profit sharing: if the company does well, we all do well. Our financial goals are outlined in our company vision, and a certain percentage of our net operating income each year is set aside and redistributed to all staff members.
WHY DO WE DO IT?
My experience so far has been overwhelmingly positive. When staff members are given the proper information, they can make informed decisions, as an owner would. Also, the impact on efficiency, productivity, and accountability has been noteworthy. Since meeting our goals on a daily basis means we all earn more money at the end of the year in the form of profit-sharing, each team member is incentivized to work hard.
WHAT IS THIS “PEOPLE CARE?”
I believe practicing financial transparency in the form of open-book management and profit-sharing has numerous benefits, especially for the team. Corporate openness shouldn’t be a radical act. It is necessary to hold companies accountable to the people who work within them and to the communities they serve. Especially as a values-driven company, opening the books holds each of us accountable to our collective vision and the meaning we make of our work.