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Open-Book Management and Corporate Performance

CEOs who open their books and share financial information with their employees will most likely be rewarded with greater productivity.

In a research study conducted by the National Center for Employee Ownership (NCEO), companies that shared such information with their employees experienced a one to two percent annual increase in sales growth over what would normally have been expected.

Earlier studies, conducted by the NCEO and others, have consistently shown a positive connection between employee ownership, participation, and corporate performance. A 1986 study by the NCEO showed that highly participative companies grew 8% to 11% faster than they would have been expected to grow. But to date, no research had been conducted on open-book management which typically combines both increased worker participation and financial incentives for increased productivity.

Open-book management has been called the most important management trend in the country. Definitions of open-book management vary but it is generally accepted to include the following components:

Sharing the income statement and balance sheet with most employees;
Sharing other data with employees (such as productivity and plant utilization/quality data);
Encouraging employees to use the information in their daily work;
Training employees to understand financial numbers; and
Sharing the financial results through a gainsharing program.

To conduct this research into open-book management, the NCEO matched 50 to 54 companies that had been practicing it for at least three years with three to five competitor companies, based on SIC codes, number of employees, and sales volume.

We then collected sales and employment data for each target company and for their competitors for a three-year period before and after the year in which the target company implemented open-book management. For each company, we calculated the average rates of sales and employment growth for each period, compared those rates with competitors, and subtracted the difference. For example, if Acme Bicycle grew 2% faster than other bicycle shops in town before implementing open-book management, and 4% faster than other shops after implementing the new management approach, then it can be said that the 2% differential was attributable to open-book management, assuming that something else did not happen at the same time the open-book system was started.

The results of our study indicate that open-book management really does work. Non-employee ownership companies saw an increase in sales of 1.66% per year and employment of 1.27% per year relative to what would have been expected without open-book management. Employee ownership companies did even better, with an annual sales growth increment of 2.21% and an annual employment increment of 1.14%.

These numbers are impressive. Employee ownership companies, for instance, would be nearly twice the size normally expected after 30 years. In the world of economic data, not many things have as much of an independent impact.

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