Is it a good idea to share information about company financial results with employees? If so, who should hear the news? And how often? Should the company tell all, or pick and choose which information to disclose?

While a public company must make its financial statements available to shareholders and potential investors, the owners of a closely held company generally are under no obligation to tell anyone anything about the company's profitability and financial position (except, perhaps, lenders and the taxing authorities). Still, some business owners are finding that being close mouthed about their company's financial situation is not the best management approach.

Arguments in Favor

Proponents of open-book management argue that employees who are kept informed about company financial objectives and performance make better employees. The idea is to give employees a broader understanding of where the company is headed, how it is doing, and how their own jobs affect company profits so that they will be more motivated to perform well and make creative suggestions. Open-book management seeks to replace the traditional "us" and "them" mentality with a "we" approach under which everyone benefits if the company does well.

And Against . . .

On the negative side, open-book management is not without risk. For one, news has a way of traveling fast. What employees hear from you one day, competitors may be hearing the next day. Owners should feel comfortable about this possibility before disclosing information about their company's financial status to employees.

Companies adopting an open-book approach also must be prepared for some fallout from employees who can't--or don't want to--see the big picture. If profits are up, employees' expectations almost certainly will be higher as well. Managers should anticipate requests for additional benefits and higher pay, even if employees understand the need to retain earnings for plant expansion, new equipment, or other corporate objectives.

And if the company is losing money or not meeting profit goals? Some employees may become so concerned about job security that they will decide to look for work elsewhere. In a tight labor market, replacing them with qualified personnel could be difficult.

Go Slowly

Over the years, management methods have come and gone. Open-book management is gaining ground right now, and may meet your company's needs very well. Companies that have used it successfully boast of impressive results. But don't jump in without considering all the pros and cons.