ILM Discussion: Trust and transparency

June 27, 2018
Business and finance journalist Matt Packer discusses key news stories with the Institute of Leadership & Management (ILM) head of research, policy & standards, Kate Cooper

 

Open and honest communication is key to engendering trust among employees, no matter how big or small the organisation.

But not all organisations operate an ‘open door’ policy, or commit to transparent business practices – often to the detriment of their workers.

As such, under government plans unveiled on 10 June, every listed UK firm will be required to publish the pay-difference ratio between its highest- and lowest-paid members of staff.

The new proposals – which form part of the UK’s Industrial Strategy – will also require large firms to:

  • report on how their directors take employee and other stakeholder interests into account;
  • report on their responsible business arrangements, and
  • show what effect an increase in share prices will have on executive pay, to inform shareholders when voting on long-term incentive plans.

The legislation arrives in the wake of widespread concerns that some chief executives are receiving salaries that are out-of-step with company performance.

“Most of the UK’s largest companies get their business practices right but we understand the anger of workers and shareholders when bosses’ pay is out of step with company performance,” said Business Secretary Greg Clark.

“Requiring large companies to publish their pay gaps will build on that reputation by improving transparency and boosting accountability at the highest levels, while helping build a fairer economy that works for everyone.”

 

Franker conversations

How will these measures affect the debate around glaring pay disparities?

Kate Cooper says: “Whenever we’ve researched trust, we’ve found that one of its greatest contributing factors is openness. And in the context of pay ratio’s openness would include transparency about what everyone is being paid. I think we often assume that because these details are not published, they’re somehow not known within organisations. The finance function, for example, is very close indeed to the relevant figures. So unless the information is treated as strictly top secret, there will be some background-noise awareness of what people are paid. If the details are only partially known, staff will join the dots themselves.”

As such, Cooper notes: “If you publish the details, you automatically take the issue out of the field of rumour. Not only does that contribute to a climate of openness – it provides a basis for honest conversations about the ratio between the lowest- and highest-paid salaries. That should prompt leadership figures to reflect on the figures and think, ‘Am I worth ‘X’ times more than the lowest-paid member of staff?’ And, more importantly, ‘What is the contribution I make that justifies my higher rate of pay?’ That will go all the way through the organisation – it’s not just about the lowest versus the highest, but about noticeable, and perhaps egregious, gaps between any two levels or departments.”

She adds: “Openness is really important if you want to create trust. Once the information is out there, it paves the way for franker conversations about the relative efforts that workers are putting into the broader performance of their organisations. These legislative proposals – especially the clarity around how much people earn if they hold shares, and the often complex reward packages that members of senior teams have in place – will make a positive contribution to that transparency.”

 

Leading by example

Taking honesty and transparency even further, servant leadership is set to be a hallmark of the next senior-management team at Starbucks if outgoing chairman Howard Schultz’s farewell to staff is anything to go by.

In his earnest letter, Schultz – who left his role on 26 June – writes that CEO Kevin Johnson “is a true servant leader, and he will lead Starbucks as this great company enters its next journey … I am honoured to call Kevin my friend and partner. And Starbucks is fortunate to have him”.

Schultz described the leadership team he will leave in place as “extraordinarily capable”, and noted that, like him, they “believe that Starbucks has a responsibility to use our scale for good”.

In a recent column, Sameer Dholakia, CEO of email-delivery platform SendGrid, and a self-described servant leader, explains the underlying principle of his management approach like so:

“A servant leader must create an environment where all of his employees can do their best work. The servant leader succeeds in this task by breaking down barriers, providing clear direction and encouraging people to think outside the box. The most immediate and practical way to do this is to simply ask the teams and individuals you meet, ‘what do you need?’”

 

Higher purpose

Yet in a profile of Dholakia published last August, Forbes describes the management style that he favours as “unusual”, suggesting that it doesn’t have as significant a following as some of the more authoritarian or delegation-based leadership models. Indeed, the piece notes that Dholakia spends about half of his working hours meeting with SendGrid employees, within a system that depends upon “inverting the traditional organisational chart and putting the CEO at the bottom”.

In which ways does servant leadership improve upon more traditional models?

Kate Cooper says: “Servant leadership is interpreted in different ways by different people – indeed, in 2015 I wrote an explanation of the term as I see it in a column for Dialogue Review. The crux is that there’s a higher purpose at stake – so you choose to work at your organisation because it has a particular vision of a greater good, or because you passionately believe that the mission it is pursuing has a value beyond purely financial value.

“As such, you take the view that everyone in the organisation, from the CEO downwards, should be supporting each other to be the best that they can be, and to deliver on that vision or mission.”

Cooper adds: “Servant leadership stands as a marked contrast to authoritarian, ‘Do what I want you to do’ management styles. Instead, you ask the question, ‘How can I help you to do what you need to do, in order to deliver your part of the vision?’ It’s asking, not telling, and that’s what defines its servant-like aspects. Essentially, everybody is a servant of the higher ideal.”

 

For more on these topics, listen to Episode 2 of the ILM podcast in partnership with LID Radio: 

 

About the authors

 

Matt Packer

Matt Packer is a business and finance journalist who provides expert comment for organisations such as CPA Global, Inemmo Leadership Development Consultancy, The Institute of Leadership & Management and the Chartered Management Institute.

 

 

Kate CooperKate Cooper is head of research, policy and standards at the Institute of Leadership & Management (ILM). She has appeared on BBC Television, BBC Radio 4, has a regular column in Dialogue magazine, is a key note speaker at conferences and provides expert commentary on a range of topics arising from the Institute’s research agenda.

 

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