How (22 page)

From the days of Sumerian clay tablets till now, humans have “published” at least 32 million books, 750 million articles and essays, 25 million songs, 500 million images, 500,000 movies, 3 million videos, TV shows, and short films, and 100 billion public Web pages. . . . When fully digitized, the whole lot could be compressed (at current technological rates) onto 50, 1-petabyte hard disks. Today you need a building about the size of a small-town library to house 50 petabytes. With tomorrow’s technology, it will all fit onto your iPod.
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Knowledge is power. That old adage is as true today as when philosopher Francis Bacon first said it in the seventeenth century. When knowledge—enabled by this unprecedented access to information—was controllable, those who controlled it accrued power and became leaders. Now that information is virtually uncontrollable, the power has shifted to those who share it. We must adapt to take advantage of the new realities.

We have discussed how business in the twentieth century is busy remaking itself in order to profit from the strengths and efficiencies of the free-flowing internetworked world. More people in more places can collaborate freely, sparking innovation and invention. There is less functional disparity between the top and the bottom of an organization, so more and more of our business relationships become horizontal collaborations between equals. Skills and habits that helped us thrive in top-down hierarchies are less vital in collaborative networks. The strong-but-silent leader, the sycophantic yes-man, the hard-sell salesperson are all fast becoming relics of the old world. No longer can you make a Wave, that powerful image of initiative flowing unrestrained into the organization, simply by having the biggest title in the stadium. It now requires a different set of skills, the ability to build strong interpersonal synapses capable of reaching out through these horizontal networks and bringing people together around ideas and initiatives.

As the world transitions to a bottom-up and side-to-side model in which each individual can contribute to the free flow of ideas, it opens up and becomes more transparent. An information society is a dialogical society, one based on the interactive sharing of information among mutually interested parties. Equalized access to information allows more people to act in an informed manner, a lesson Kryptonite learned the hard way. And though it was able to eventually repair the damage to its reputation with a product recall and redesign, in an information world, Kryptonite discovered it is harder to hide from the truth. Everything we do, say, or represent can be verified or disproved easily and relatively cheaply. While Kryptonite’s underestimation and lethargy was a big, public spectacle, it is also an example of a million small interactions that happen every day in business. A salesman tells one potential customer one thing in Chicago and a different lead another thing in Phoenix, believing that the information will never be compared or exchanged. You tell your boss one thing about your recent business trip, forgetting that her easy access to your expense receipts tells her something different. A job applicant exaggerates a university degree he never received, and is easily discovered by a $10 background check.

Transparency—the new conditions of the world that allow us to see past the medium to get to the heart of the message—fundamentally changes almost every way we conduct our lives in public (and in private), demanding a new set of HOWs if we really want to thrive. To understand these changes, we must consider two types of transparency: technological and interpersonal.
Technological transparency
describes the ever-evolving state of the networked world, the transparency that happens
to
us—transparency as a noun, if you will. These are the conditions that Kryptonite fell prey to.
Interpersonal transparency
centers on the realm of HOW we do what we do—transparency as an action, as a way of being, as a verb
to be transparent
. This is the active transparency we bring to our interactions with others. These two forms of transparency live in a symbiotic relationship, each fueling the other synergistically. The question before us as we consider what we need to thrive in the internetworked world is: How do we conquer our fear of exposure and turn these new realities into new abilities and behaviors? How can we become proactive about transparency?

BEYOND PROXIES AND SURROGATES

I was watching CNN when the jury in the Scott Peterson murder trial, one of the most publicized celebrity trials of the past few years, handed down its death penalty verdict. In the aftermath of the verdict, I happened to catch an interview with one of the jurors. When asked how the jury reached its decision, the juror said that the testimony of Amber Frye, Peterson’s mistress, about their tawdry extramarital dalliances, had little to do with convicting him of the crime of killing his wife and unborn child, but everything to do with giving him a death sentence. Her testimony revealed the most about his character and intentions.
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This statement struck me. In legal terminology, Frye’s testimony went to “malice aforethought” and “depravity of the heart,” and these amorphous unprovable notions were the key information the jury needed to consider. Jury foreman Steve Cardosi, when asked if Peterson could have helped himself by testifying in the case, said something just as remarkable. “You know, given his past and his level of honesty,” he said, “it probably would have done him more harm than good to talk to us, because I don’t believe we would have believed him even if he was being honest.”
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This got me thinking about some other celebrated cases of the past few years. In the securities fraud and obstruction of justice trial of media maven Martha Stewart, Judge Miriam Goldman Cedarbaum considered whether Stewart showed remorse in deciding how to best mete out justice after her conviction for lying to investigators, but her postconviction social gallivanting to awards shows and parties in the Hamptons did little for her cause.
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Hotelier Leona Helmsley displayed negative attitudes toward the court. Her famous quote “Only little people pay taxes” displayed an egregious disrespect that proved a factor in her punishment as well.
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Character is a difficult thing to judge, and yet we judge the character of individuals day in and day out, both casually when deciding in our own interests and in the extreme cases when deciding someone’s fate. It is a deeply held, long-standing tradition that informs who we are in profound ways. The importance of the outcome, from the trivial to the most dire, does not change the criteria we use. Whether it be meting out the ultimate punishment or giving a dollar to a homeless person on the street, character, that soft quality of a person’s worth, plays a huge role in our dealings with others.

Then in 2006, when public mortgage corporation Fannie Mae was fined $400 million for financial irregularities, what I heard on the news made clear to me how the world had changed.
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Reuters reported that the enormity of the fine had a lot to do with the fact that “Fannie Mae’s ‘arrogant and unethical’ corporate culture led employees to massage earnings,” and that “Fannie Mae’s faults were not limited to violating accounting and corporate governance standards, but included excessive risk taking and poor risk management as well.”
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James B. Lockhart III, director of the Office of Federal Housing Enterprise Oversight, made it very clear when he appeared on PBS’s
News-Hour
. “This whole company’s culture needs to be changed,” he said. “We’re really demanding sort of a top-to-bottom look at this company.”
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It struck me that if he had been speaking three years before, Lockhart would have said something like “They lacked proper internal controls or compliance mechanisms.” Now he was saying that they had looked deep into the soul of Fannie Mae and decided that something was rotten at the core, that the transgressions arose from an “arrogant and unethical corporate culture.” We habitually judge people’s characters, but when it came to companies, this was not the case until very recently. We did not judge an organization’s “character,” because we couldn’t impute a character to it.

In the days before information transparency made almost everything easily knowable, all we could really know about a company’s “character” were the programs and procedures that stood as proxies for it. When companies could be fortresses, they had much greater control over what outsiders could see. The walls were high, and it was highly effective to post proxies on the parapets like flags that could be seen from a distance. A jury assessing a company’s complicity when one of its employees broke the law had to assume that if it invested heavily in, say, a compliance hotline, then it must be honest and diligent. The hotline served as proxy for self-policing. Since people couldn’t see deeply into the corporation’s true, everyday behaviors, they had to pick a surrogate, a proxy, something that would indicate whether it was good. Often these took the form of programs or departments charged with duties such as compliance or safety. When a company like Fannie Mae became embroiled in a scandal or was accused of wrongdoing, we would judge its culpability on the programs it had in place. The thinking went: Like every city has some criminals, every organization has some bad apples; you judge a city by its laws and efforts to root out crime, and you judge a company by the programs and policies it has in place to keep people in line. City laws and company programs served roughly the same function in this respect, as proxies for their leaders’ efforts to stop crime. You don’t arrest the mayor or penalize the company for the transgressions of its bad actors. In legal terms, they call this the due diligence standard. Judging the actions of an organization centered around answering the question of whether it took reasonable precautions and preventive measures to protect against what ended up occurring; had the organization shown due diligence?

In Chapter 5, we explored the nature of rules as proxies for the desired values of an organization or society. Industrial age capitalism developed many such proxies and surrogates to stand in for all sorts of things. A resume served as a proxy for your work history. A compliance program told Wall Street and regulators that you are vigilant about regulation. The salary you made at your last job communicated by proxy your value in the marketplace. In the pretransparent age, proxies and surrogates were an efficient way of representing information to others, and we selectively put them forth for the world to see as the best indicators of our worth. Both companies and individuals operating successfully in the age of fortress capitalism had good reason to create and manage by proxies and surrogates: They provided efficient and demonstrable leading indicators. By tracking the indicator, you could easily track progress. A company aiming to improve its customer service response could institute a training program to introduce a set of rules and standards. Since monitoring and tracking the actual performance of each of the thousands of employees who graduated from the program was expensive and time-consuming, the graduation rate became an efficient measure of success, and efficiency, as we know, was the opium of the industrial age. Through much of the twentieth century, contemporary culture relied on proxies and surrogates as crutches because of how difficult or expensive it was to get real-time, in-depth information.

Those days seem to be gone. Think how easy it is to see through to the inner workings of a company today versus just a few years ago. Chat rooms, online forums, instant access to financial reports and transactions, news coverage from around the globe—almost nothing goes unreported or unvaulted somewhere online, where it can be quickly retrieved. I know of a lawyer who works with companies to reduce their risk profiles in the human resource and worker safety areas, and in explaining how he tries cases almost immediately said, “Do you know how many hard drives I cart off each month? It’s the first thing I do. We just pick them up and pour through everything that’s been said or thought about the case. Seeing the inner workings of a company is just a subpoena away.” At every level of society now, the easy access to information has changed both how we judge organizations and what we expect of them. Simply having a hotline does not suffice when we can easily poll your employees to determine whether people are scared to call it or do not trust that it is confidential. Increasingly, we can discover and impute character to an organization to evaluate its norms, values, and practices.

Consumers, customers, regulators, judges, and juries have now begun to view companies from a characterological viewpoint. They pay more attention to, and care more about, the inner life and character of the companies with which they do business. They’ve begun to ask themselves whether the company has integrity. Does it have a character? In such an environment, programs and proxies alone no longer suffice. Those passing judgment in our newly transparent age look past programs and proxies deep into the culture of the company. It already happens every day, in almost every business transaction. Global businesses look deep into the workings of potential partners as trust becomes vital to the transparency they require to open themselves to new forms of collaboration. The best and brightest MBAs profess to be willing to forgo substantial compensation to work for companies with reputations for fair dealing and cultures that value the individual. According to a recent LRN study, an overwhelming majority of employees—94 percent—say it is critical that the company they work for have a strong commitment to values. In fact, 82 percent said they would prefer to be paid less and work for that values-driven company than receive higher pay at a company with questionable commitment.
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Business in general has become far more precise and concrete about issues—like conduct, character, and reputation—that it formerly considered “soft.”