The Gentle Art of Brutal Transparency

An interview with Hjálmar Gíslason, founder and CEO of DataMarket, an Iceland company that provides services for data access, manipulation, and presentation, based on a recent post on their blog, Iceland: Restoring trust through open data and “brutal transparency.”

From a technological point of view, radical information openness (”Brutal Transparency”) has been possible for years, at least in the most developed countries and economic areas. What factors do you think are the most relevant to the actual level of transparency sought by an economy?

I believe the limiting factor to the level of openness is tradition. Things are as they are because they “always” have been. Take stock markets as an example. The basics of the current system, including requirements for quarterly filings, annual reports and interim reports in case of material events was established in the US in 1934 following the Crash of 1929. People felt the need for a more standardized, more open and more level playing field for participants in the market. These guiding principles are still largely unchanged, but imagine how much the world has changed since then. In 1934, preparing filings every quarter was pretty much real-time information. The state of information technology and communication hardly allowed for anything more advanced than this. Today, we have interconnected information systems all over the globe and decisions are made by company executives, financial bankers and automated systems based on daily sales results or even something that happened a split-second ago in a far-away country. Yet we still inform the market as if it was almost a century ago. I’m sure that people will see the need for change in this system following the events of the past couple of years, just as they did following the crash back in 1929.

Another limiting factor to change is failure to see the opportunities in a world run on new technologies. We encourage consumers to make price comparison and choose the most economic option, as this in turn encourages competition. Consumer organizations, and in some cases governments themselves have put in place elaborate schemes of visiting stores to record prices and publish them in newspapers and online. This has created a funny game of hide-and-seek between the stores and these organizations, where the stores change prices when surveys are likely, make sure that at least one item of the cheapest option is available, even though a more expensive alternative is pushed at the consumer, etc. Yet, all the data that is needed lies in the retailers’ IT systems and could be published in real-time in its entirety allowing for innovative and far more meaningful price comparison services than we’ve seen to date.

Traditions and narrow-mindedness are what prohibits progress in openness. We seem to need a collapse of the established system every now and then to see its faults.

How does a world of Brutal Transparency look like from the point of view of company management, or a politician? How would their strategic incentives change?

Transparency breeds honesty. It’s hard to get away with being the bad guy when everybody sees what you’re doing. The more information you have to reveal, the harder it is to lie, because soon your story doesn’t add up any more. It will be a lot harder for a politician to use the tax-payers’ money to reward political allies or pay for personal expenses. We’ve recently seen a prime example of this in the UK as MP’s expense reports were made public. In fact I’m sure most people will welcome the guidance that is provided by knowing that all their actions will be up for scrutiny, as you’ll always think: “What will this look like to the press and the public?” There are countless stories of honest people that have gradually become corrupt as they see how the little things go unnoticed and over time they loose their sight on doing the right thing. Knowing that “little brother is watching you back” could prevent even the first steps on the way to corruption.

In most ways, the same goes for the company executive, except he may not be responsible to as many people as a politician is. A company executive has responsibilities towards shareholders, staff, customers and to a varying degree to society as a whole. There may be good reasons for different levels of transparency to each of these groups. Your strategy in a competitive market, your upcoming products, your current vulnerable financial situation; these are all things that you might want to keep within a smaller group. My key idea here is that we should change our thinking about what should be secret and what should be open around. Instead of everything being a secret unless we find a good reason to disclose it, we should disclose everything unless we find a good reason not to.

I run my own little company entirely on these principles. There are no secrets to the shareholders, and the only thing kept from the employees are each others’ salaries. I strive to give both groups the tools they need to dig in and take a look at expenses, current financial situation, pipeline, agreements, how we’re progressing towards our goals and so on.

Is this level of transparency something that can be implemented piecemeal, in a bottom-up fashion? How does the benefits of transparency interact with the need for personal privacy or with business tactics (i.e., the “element of surprise”)?

In the world of politics and government, I see “brutal transparency” as an extension of a trend that is already underway, namely that of “open data”. The world seems to be awakening to the fact that public sector data is worth far more to society when made freely and easily available. This spurs innovation, reveals shortcomings of the system and provides a healthy pressure on the government and its institutions to do the right thing.

The Obama administration with its newly appointed CIO, Vivek Kundra, has already made good progress in this direction in the USA. Highly influential thinkers such as Tim Berners-Lee and Hans Rosling have opened the eyes of international organizations and governments outside the USA to the potential that lies like a buried treasure in the public sector’s databases and filing cabinets. I’m convinced we’ll see this trend rise fast in the coming years and become a norm for any responsible government in the next decade or so.

The guiding principle here should be that public sector data is open unless higher-order priorities, such as privacy issues or national security, prevent it. “Brutal transparency” is at the extremes of this.

On the business side, this is a two-sided issue. One is the regulatory side which is set by legislation. I’m pretty sure that one change we’ll see following the credit-crunch is more demand for transparency and disclosing of information by law. We can already see the crack-down on some of the world’s tax-havens, talks of regulation of over-the-counter transactions such as markets for CDS and a demand for disclosing of short positions in the stock-market.

On the other end of the spectrum we have the businesses themselves. I have not noticed nearly as much activity on this end, but brutal or at least increased transparency is a huge opportunity for honest and well-run businesses, and they don’t seem to have realized this yet. Disclosing more about pricing strategies, operating margins and cost break-down to customers will make them more likely to want to do business with you when they see that you’re treating everyone from your suppliers, to your staff and customers fairly. Making your prices easily available in real time, but also emphasizing your differentiation — be it freshness, quality, opening hours or something else — makes way for far more meaningful comparison services than we’ve seen so far. If you’re really the best, disclosing your details will be in your favor, and as soon as you do — anyone that refuses to disclose his data will be assumed to have something to hide.

Like with privacy and national security on the government side there are obviously strategic, competitive and legal limitations to business transparency. The most suitable level of transparency depends on your business and your industry, but there is a great opportunity for almost any business today to differentiate with a higher level of transparency than the current industry standard.