Transparency Breeds Self-Correcting Behavior

In 1997, a film crew took a hidden camera into several Los Angeles restaurants because of reports of poor health practices. They filmed rats in storage areas, food that wasn't refrigerated, waiters "re-serving" food from one customer to another. When the video aired, people were outraged. The result: The Los Angeles County Board of Supervisors passed a law requiring every restaurant to post the letter grade it received from the county's health inspection. The grades had to be prominently posted in the front window, next to the menu. A restaurant that doesn't get at least a C is closed.

Follow-up studies showed that business at the "A" restaurants went up and that "C" restaurants lost revenue after the system took effect. Over the next decade, the percentage of restaurants receiving A grades went from 25 percent to 50 percent of all county establishments, while the percentage of C restaurants declined from 18 percent to less than 2 percent. Most significantly, there was a 20 percent reduction in the number of people hospitalized for food-related illnesses.

The L.A. restaurant story is a good example of one of my favorite quotes: "Transparency of information breeds self-correcting behavior." It comes from Thad Allen, Commandant of the U.S. Coast Guard, and influenced this column. In the L.A. example, the "self-correcting behavior" took place at two levels. Restaurants self-corrected by changing their health practices, and consumers changed their behavior. Sixty-five percent of consumers reported being influenced by a restaurant's grades, which is reflected in their move from lower-grade to higher-grade restaurants.

Thad Allen doesn't just talk about transparency, he practices it. When he was put in charge of search, rescue and recovery 10 days after Hurricane Katrina hit the Gulf Coast, Allen made an enormous impact on the way government agencies were working (or not working) together. He radically opened up communications by creating daily meetings with the leaders of each partner agency, and he briefed the governor and mayor at least once a day on current conditions and the day's plan.

Allen also opened up the recovery process to the media. He was very candid concerning what was going well and what wasn't, never raised expectations unrealistically and invited the media to become partners in telling the public what was going on and how it would impact them. Coverage of the recovery operations slowly improved as people came to trust Allen for his candor and effectiveness.

Public agencies benefit in many ways when they operate more transparently. Employees feel more accountable for their behavior; there's greater focus on performance and outcomes; and the public has more knowledge of an agency's operations and how to access them. Perhaps most importantly, however, public trust in government grows. Given the payoffs, why don't more agency leaders behave like Commandant Allen and create transparency? There are several challenges to being transparent in government:

• Unrealistic expectations. Simply talking about transparency leads some people to expect openness in all operations, which is impossible. Information about certain personnel actions, national security and ongoing criminal investigations are just a few of the many activities that must be kept secret if our values and safety are to be protected.
• An unforgiving political and media climate. The "gotcha" mentality in our society today is so aggressive that it takes only one mistake, or one perceived mistake, to ruin trust and hard-earned reputations. When the federal government posted information about the job gains created by the federal stimulus package near the end of 2009, there were some mistakes in the data; immediately, many people totally discounted the entire effort to be transparent, assuming that it was all a lie.
• Concern about the costs of transparency. Even when we get the data absolutely accurate in our efforts to be transparent, many managers worry that the effort can only hurt them. While teaching in an executive development center years ago, I asked our dean why we didn't do any follow-up studies of our students to determine what they gained from our programs three to six months later. He said, "Look, our agency leaders expect us to get very high evaluations from our participants, which we do. But if we do follow-up studies, no doubt some of the managers won't remember all that they learned here and our evaluations will drop. Even if we go from an average rating of 4.8 (on a 1-5 scale) to 4.5, that can only hurt us. It's not worth it..."

Operating in a transparent way offers enormous benefits to government agencies and to the public. It can improve operations, increase accountability and raise trust. But transparency is an enormous change in attitude and behavior, and it raises issues that must be addressed.

Do you have thoughts about dealing with some of the transparency challenges raised in this column? Please leave them in the comment section below.

Updated Feb. 1, 2010: My column on transparency ended with an invitation for readers to send their own observations on the topic. In today's sound-bite age, most people offer short comments. But one reader had a lot to say, an amazing story of the power of transparency:

Transparency Change Organizational Habits

Dr. Linden, I have read some of your past Management Insights articles, and most recently about how transparency can influence change within an organization. I enjoyed your insight and agree with you completely.

After retiring from the Army I was asked to serve as the assistant finance director for the state of Alabama. I was tasked with looking at every expenditure in the state over $500 to ensure they were legal, necessary and efficient. If they weren't, I was tasked with finding a way to make them so. One large type expenditure I found was that Alabama was spending more than $21 million annually in hardware service contracts, which are basically extended home warranties like the type salespeople try to get you to buy for an electronic appliance at Best Buy or Sears. I found that after state government and many other levels of government, as well as private corporations, go to extreme levels to ensure they get the lowest initial price for buying a piece of equipment they then tend to default to buying service contracts from the seller in order to maintain that equipment over its useful life.

I did some research and found various articles that assessed the profit level of these service contracts to be between 40 percent and 90 percent. Another key aspect of these service contracts is that they provide little information back to the buyer. Once you pay for them up-front, they are touted as a cure-all. How often somebody comes out to fix the equipment - whether preventative maintenance services are done or whether something is replaced - is never reported to the client. So, when trying to ascertain when to replace equipment based on how often it breaks, or whether the money paid for the service contract was worth it, the buyer has no information and the vendor has it all. Consequently, when departments came to me to replace equipment due to repeated repairs, and I questioned them on what basis they felt they needed a new piece of equipment, the answer invariably was "the vendor told me it was time to replace it."

I didn't feel like this was an objective source of information on which to make critical management decisions on the state's equipment portfolio, so I looked for a better way. In October 2000, we instituted the first statewide equipment maintenance management program, where we got an administrator backed by an A-rated insurance provider to cancel the state service contracts, assume the financial risk for all service events (giving the state a 25 percent discount off existing contract costs) and provide data from all service events back to us. It enabled us to make those important management decisions regarding our equipment portfolio based on hard data rather than anecdotal information or a vendor's "hard sell".

The initial result of the transparency of this program was that we found numerous service contracts were being purchased for equipment that the state no longer owned. The program has worked great and generated savings of over $90 million for the state since implementation. The transparency has also led to numerous other benefits, including being able to determine the most efficient and responsive maintenance vendors, and being able to make qualitative judgments between different brands of the same type of equipment so purchases can be made based on life cycle costs as opposed to lowest initial cost.

After all, information is power, and transparency truly does change organizational habits. As as aside, Alabama's success has led to many other states recognizing the opportunity and acting on it. There are now upwards of 15 states that have implemented similar programs, including New York State, Missouri, Florida, Indiana, Kansas, Rhode Island, New Mexico and Georgia. The federal government has yet to fully comprehend the concept but hopefully in the coming generations they can advance as well.

Thank you for your insightful article.

Ran Garver
LTC(ret), US Army