Open-book management can be a way to educate employees on the big picture of a company’s finances, but it also carries a number of risks. Careful consideration should be put into who sees financial information, how it is used and what should remain for management’s eyes only.
Explaining the Numbers
A company’s accounting spreadsheets, line-item budgets and internal and external audits and tax returns can be tough to decipher. Operating in an open book management system that gives staffers access to this type of information can have unintended consequences. Staffers may misunderstand what certain figures mean or misinterpret earning statements, leading to confusion or concern. To be effective, open book management requires not only opening the books, but explaining what the numbers mean in a way employees can understand.
Open books management isn’t necessarily a free-for-all where everyone in the company is welcome to examine any financial documents at any time. Companies typically offer varying degrees of disclosure, which can be cumbersome for management to decide on and oversee. There may be conflicts regarding which employees have privileges and which don’t.
Misappropriation of Information
An open books management system can put a company at a competitive disadvantage, particularly if an employee shares key financial figures with competitors or uses information as leverage for his own purposes. Getting non-disclosure agreements signed by employees can be time-consuming, and even an inadvertent slip in the wrong situation can have devastating effects on a company's ability to compete. This also can open a company to potential problems with clients and vendors, who might not want their financial details exposed.
While opening the books to staffers can create a vested interest in the well-being of the company, poor financial figures have the potential to negatively impact morale. Staffers who see the company is struggling may fear for their jobs and seek to move elsewhere if it looks like the company is in trouble. Alternatively, a healthy bottom line invites requests for raises, increased profit sharing or other distribution of the wealth which may not fit with the company’s long-term strategies and objectives.
Issues related to earnings, salaries and bonus structures may be exposed in open books management, leading to infighting among employees. For example, if you make a decision to forego employee bonuses after a profitable year, expect to be called out for the decision by staffers who are privy to earning reports. Likewise, if your top executives have hefty discretionary expenses accounts, while your administrative staff is denied a request for new computers, it to could lead to dissent.