Governing in the Age of Transparency

Don Tapscott, president of New Paradigm Learning Corp. and adjunct professor of management at the Joseph L. Rotman School of Management, University of Toronto, has been called one of the most influential media authorities since Marshall McLuhan.

by / February 3, 2004
Don Tapscott is widely recognized as one of the leading business thinkers of the Digital Age. He authored several best-selling books in the last decade, including Paradigm Shift: The New Promise of Information Technology, The Digital Economy: Promise and Peril in the Age of Networked Intelligence and Growing Up Digital: The Rise of the Net Generation.

His latest offering is The Naked Corporation: How the Age of Transparency Will Revolutionize Business, co-authored with his long-time partner, David Ticoll. The book has generated controversy and praise.

Dr. Eric Schmidt, chairman and CEO of Google Inc. said of the book, "Tapscott and Ticoll's capacity to combine a fresh and authentic perspective with real-world data has once again opened the aperture on our emerging network economy. A brilliant work."

More traditional business leaders, such as Jack Welch, former General Electric CEO, have reacted with skepticism. In an interview with Government Technology's Public CIO, Tapscott discusses the controversy, praise and criticism of this new work.

Public CIO: For those who haven't read your new book, perhaps you might start by giving a general overview. Obviously the Internet's impact is fueling the shift toward greater transparency, but you also said leaders see transparency either as a threat or an opportunity.

Tapscott: Well first of all, given Enron, WorldCom and the current crisis of trust, most people think of transparency these days as the obligation to openly disclose financial information. They think of transparency as having to do with corporate governance. This is a narrow and old-fashioned view. Basically transparency is a powerful new force in the economy, not just for shareholders, but all stakeholders who interact with companies and other institutions. To deal with companies first, that includes customers, employees, business partners, and to some degree, broader society. These stakeholders have unprecedented visibility into the behavior, performance and management of corporations. They can find out information that is pertinent to them -- information that hurts them if they don't have it and helps them if they do. Moreover, people cannot only find, but they can inform others. And they can organize.

This force has been relatively nascent for half a century. But in the last decade, and particularly in the last half decade, it has really built up a head of steam. It is now bringing about profound changes in the behavior of corporations -- the way they interact with other institutions and society, and for that matter, the nature of the corporation itself and its role in society. As I use the term, transparency is also something that can be done to you. Companies can be passively transparent or naked. But transparency is also a force that can be harnessed to build trust and create sustainable business models. That is, companies can be actively transparent.

Public CIO: So why, in your view, is all this coming about?

Tapscott: There are a number of big factors. One clearly is technological. The Internet is the antithesis of the previous dominant media of this century. Print, and then radio and television were all one way, one size fits all, one-to-many and centralized. They tended to carry the values of their owners. But the new media -- the Internet, and as it is emerging, the Hypernet -- are interactive. They are one-to-one and many-to-many. They are not centralized, but highly distributed. And they maintain an awesome neutrality. They will be what we want them to be, and people will want these media to be powerful tools for understanding the world around them.

Our world is becoming filled with smart communicating devices. Kids sitting in the movie The Hulk communicated through SMS to their friends. That movie was dead before the first day because kids just communicated with each other. They could find out from others, and they kind of organized on the Net. Then all of a sudden this was into all the movie chat groups online, and that was the end of The Hulk. Other dogs got killed this summer as well, so technology is a factor.

The second factor is economic. Companies need to have more candor toward their employees because we have knowledge workers now. People need to have knowledge just to work. They need to know a lot more about corporations they work for. The IBM salesman 20 years ago didn't even know if the company was going to announce a new product architecture on Monday. Then IBM, like every other computer company, didn't pre-announce its products. Today the IBM salesperson needs to know everything about IBM's product strategy, their business strategy, who's on the board, whether or not the compensation program of their CEO is a legitimate one, why they adopted Linux, why they did deals with SAP and Siebel for applications, and on and on. So just to work, people need knowledge. That means companies need to be more open.

Public CIO: You also argue that the push toward greater transparency springs from the economy's new nature in general.

Tapscott: Absolutely. Another big economic driver is the unbundling of the vertically integrated corporation that was the dominant institution for wealth creation in the 20th century. These companies did everything from soup to nuts. The Internet is having the effect of dropping transaction costs between companies, which means many companies are now unbundling and focusing on what they do best, and they partner to do the rest. This doesn't mean companies will be small. It means companies that are focused have a chance to be large. The small companies will be the vertically integrated ones on their way to extinction. That means a lot of information flows that were within the boundaries of the corporation are now between corporations. Companies within their business webs and supply chains need to have a high degree of transparency and openness just for these new business models to work.

Then you have a number of geopolitical factors -- the success of global capitalism. This has resulted in trade barriers falling. We have the liberalization of international markets with integration of global financial markets. These are leading to several things. One is greater scrutiny of corporations on a global basis. Twenty eight of the 100 largest economies in the world are corporations. But there are no global governments to monitor them, nor will there be in our lifetimes. So we are seeing the rise of global institutions that scrutinize companies, and the rise of the so-called civil society filling the vacuum that exists on a global basis. When the Rainforest Action Network decides Home Depot is logging old growth forests, they don't go to some government to complain. They go to the Internet. Two years later, Home Depot is a leader in protecting old growth forests.

We also have demographic factors -- the rise of the Net Generation, which I have written about. The children of the baby boom are the first generation to grow up bathed in bits. These kids, rather than being the passive recipients of television, spend a lot more time interacting online. When they do that, they are authenticating and organizing information. They scrutinize and are telling their stories, composing their thoughts and reading. And they have great BS detectors. This generation is a huge force for transparency and openness. The oldest are 24 now and coming into the work force and the marketplace.

And finally we have a series of political factors. We have the spread of democracy around the world that also gives rise to the rule of law, and generally, an increase in the environments of transparency. We have the proliferation of all these new regulatory regimes for corporate transparency. We have the gradual shift to network forms of global governance and accountability. So you put all that together, and you have a series of powerful historic forces that re-create a much more open business environment.

Public CIO: In the book you made an interesting statement. "In a transparent world with unprecedented access to information, employees, shareholders, business partners, and even to a degree, consumers want evidence that firms are trustworthy and behave according to their values." I underlined both "evidence" and "values." In other words, it is not just more information, but actual proof of trustworthiness and appropriate values.

Tapscott: Yes, people can find out, they can inform others and they can organize. What can they find out? If their employer is a good employer by going to, or or They can find out if their pay is appropriate for the kind of work they do by comparing it to the pay of other people in the company, which is now revealed in many companies, or by comparing it to international standards. They can find out if their company is trustworthy -- if trust is the expectation that a company will be honest, that it will be considerate of my interests, that it will abide by its commitments, and will have candor and be open. If you are going to buy a new car today, you go online and find out who has the best mileage, performance ratings, safety and the other things you care about, such as protecting the environment. You find out how much your dealer makes on the sale. You want to go to your dealer armed with knowledge. Knowledge is power. There is a power shift happening right now toward customers. You can't make garbage smell like roses any more. Tide's got to wash whiter. You can't just say Tide washes whiter -- it's got to wash whiter.

Shareholders can find out -- not you and me, but the people who make decisions about investments for big institutions -- and they are getting more active. The Ontario Teachers' Pension Fund has 200 people who do nothing but scrutinize companies. When they invest in a company, they want to know everything about it, including how management thinks. Business partners know more. If you increase transparency on the supply chain, you drop transaction costs and improve the metabolism of the whole supply chain. But you can't have unethical practices. You may be a computer company, but if somebody is suffering from environmental pollution in one of your plants somewhere in Taiwan, then you are going to get nailed for it. So companies now need strong values.

Public CIO: Another thing you write about, which is relevant to corporations but possibly more relevant to government, is the obstacle to transparency. The trend may be toward being more transparent, but it is not always easy.

Tapscott: No, and there is a battle under way. It is a battle reflected in the reactions to this book. The Economist basically said it is the most important business book in years, whereas BusinessWeek said basically, "Fresh and compelling thesis backed up by powerful evidence, but we don't buy it. Companies will never change." And Jack Welch called me a jackass on national television in Canada because the book questions the transparency of CEOs and their compensation plans. So it is a controversial book. We have people, on one hand, saying we are too tough on corporations. On the other hand, people are saying we are too easy on them. That gives me comfort that we are probably about right.

Public CIO: In the interest of minimizing controversy, could you define transparency as you are using the term?

Tapscott: It is access to pertinent information -- information that is beneficial to you as a stakeholder if you have it and hurts you if you don't.

Public CIO: So you are not talking about information about everything?

Tapscott: No, and that's an important distinction because there are lots of things we know or don't know about corporations that are not pertinent. That has nothing to do with transparency. If I'm working in a company, the fact that someone is having an affair with someone in another department probably is not pertinent to me.

Public CIO: Another key point you highlight is that transparency must be managed.

Tapscott: Yes, and we are not suggesting, as some people have said, you need to get completely naked. Companies have legitimate trade secrets. They need to protect the privacy of customers and employees. There are many aspects of the corporation not revealed to all persons and all media, and at all places and times. So you do need to have a strategy. Most companies and institutions don't. They just muddle their way into it. They have no internal process to figure out what will be released. They don't have a policy that delineates who will decide what gets released to what media. And they have no formal way to track or evaluate the release of that information afterward. Was it a good idea to reveal this information?

There are many other impediments to transparency as this battle is unfolding. There are structural obstacles. Bill Watkins at Seagate wants to be the most open company in the world, and the main people fighting him are his own lawyers. On the other side, we have transparency fatigue. We just all know so much. Maybe it eventually just becomes so overwhelming we throw up our hands. Then there is false transparency, or apparent transparency, which is a form of deceit. Take companies that publish 200 pages of numbers in their annual report. Warren Buffett says, "If I can't understand the numbers in two minutes, somebody's hiding something."

Another barrier is that there are limits to knowledge. I'm sure I had mutual funds investing in Enron in 1998. I thought it was a pretty good company. I thought it had a pretty great business model. On the Enron chat group, I never noticed the dissertation from someone with the handle JanisJoplin298 that said Enron's off-balance sheet financing and other monkey business is going to put it under. How do you parse out that little factoid surrounded by tens of thousands of breathless comments about how Enron is America's corporation for the next two centuries? In other words, we don't have transparency literacy. We don't know how to behave in this highly open world. But having said that, the train has left the station -- transparency is a broad, historic force being accelerated rapidly by these big drivers. It is an unstoppable force. The only thing that could stop it would be something like fascism or some radical change in the whole geopolitical and economic situation. But fascism, because of transparency, is a lot less likely because all of this applies to governments.

Public CIO: In one way, government might emerge as a leader when it comes to transparency. Many government institutions already have to be more transparent than corporations.

Tapscott: That is interesting because the accountability mechanisms of democracy have been stronger than the accountability mechanisms in the private sector, which is the markets. When you can put a $100 million into advertising for a lousy product, and people don't have a way of finding out, of informing others and self-organizing, you can get away with it and sell the product. That's not to say governments are completely transparent.

Public CIO: There is a lot of use of PR in government -- spin and so on. But governments might jump on board faster, which is an interesting reversal. Government has often lagged in terms of technology, and the organizational impact and effects of technology.

Tapscott: We were actually going to get into government in the book. We were interested in these anti-war demonstrations -- not in terms of having a view pro or against the war, but in terms of how fast they happened and how big they were. I was involved way back in the '60s, and these demonstrations in some cities were an order of magnitude bigger than the biggest demonstration at the height of the anti-war movement when almost 50,000 Americans had been killed. And they happened in 18 weeks, not in 18 months, which is how long it used to take to organize a big march on Washington. You had to start 18 months in advance. The government still went ahead with war and still has a lot of popular support for the war. But I think people are getting more engaged. Will it lead us into polarization? I don't know. I hope not. But if you look at the best-seller books right now, they are extreme books attacking George Bush or in favor of George Bush.

We also had a whole section in the book on stakeholder webs and implications for governments. We cut it out because we wanted to focus on the corporation. Stakeholder webs are networks of stakeholders that scrutinize companies and try to change their behavior. There are also stakeholder webs for government. With governments, we are not just consumers; we are also owners. We can learn a lot by studying the market and seeing that also applies to government, but governments are also different because here market forces are not everything. So there are these amazing conversations going on. Every government at every level has a stakeholder web.

This means we have a wonderful opportunity to reinvent democracy if you think about it. Just like we had broadcast media, we sort of had a broadcast model of democracy. Now we are moving to a much more participatory model of democracy where engagement is the big deal.

The big scandal in the last election in the United States is not hanging chads or pregnant dimples or any of that stuff. A hundred million Americans didn't vote. They just don't give a damn. They don't see real differences. Political parties used to be ways of engaging citizens; they are now just tools for political candidates to raise money. And we have a very explosive situation shaping up here. On the other hand, we have this powerful new media. We have the Net Generation becoming voters and citizens who die for engagement. You think people don't vote today -- wait until that generation comes to the fore. It is either, "Engage me, or I'm not interested." They sure aren't going to vote a certain way because some guy has negative advertising on television.

Public CIO: You also talk about the dark side of transparency. Not only are corporations becoming increasingly transparent to different stakeholders, but customers are also becoming increasingly transparent to corporations.

Tapscott: That brings up an important clarification. Just because today transparency is in the interest of corporations, that does not mean individuals should reveal everything about themselves via the Web. Humans have a basic right to privacy, which corporations don't have. Corporations have a right to security. But there is no right of privacy to corporations, and I would argue against trying to extend such a concept to the corporation. The irony is that because of reverse transparency, we are increasingly leaving a trail of digital crumbs as we travel around, and these are being dumped into large databases.

On one hand, it is great to be treated as an individual with one-on-one marketing, but we need to be vigilant that corporations are using that information for the purposes for which it is collected, and not for other purposes. So a lot of people have gotten alarmed and said I was in favor of transparency. Therefore, I was saying that all us individuals ought to open up the kimono too. No, it's the opposite. It is because of transparency in this new information-rich world that individuals need to protect their own information even more carefully.

Public CIO: That is especially important for government institutions to recognize.

Tapscott: Governments should be more transparent and fiercely fight for the privacy of their citizens like never before.

Public CIO: So what is now demanded is a constant vigilance as to what information other people have a right to know.

Tapscott: Totally. You hear it a lot these days -- because of terrorism, privacy is dead and you may need to know everything about people. I think that is both wrong and dangerous. If you destroy privacy, you give away a free society. But it is also just incorrect because there are many things that can be done to ensure governments have the information they need to create a secure world without destroying the privacy of individuals.
Blake Harris Contributing Editor