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If you are interested in shifting your culture to one where employees are motivated to go above and beyond their normal daily activities to do what is best for the company, sharing financial information is one way to get there. But Larry Goode, the former owner and CEO of a fluid sealing distributor, writes in Creating an Ownership Culture that this can be a challenge for many closely held companies.
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Open Book Management means you open the income statement and balance sheet to the employees, and invest time in helping them understand the financial workings of the company. He writes: "There are judicious ways to do this and still keep certain information confidential."
Goode shared sales, gross margin, expenses, pre-tax information from the income statement and inventory, receivables and debt data from the balance sheet. This was done at a summary level in some areas. Employee compensation and owner equity were not shared.
His business also showed and explained turn ratios, DSO, and so on, showing charts to illustrate trends.
This strategy is especially common among companies that are employee-owned through ESOPs. (Read: The Ups and Downs of an ESOP)
Goode was committed to creating an ownership culture in his business. He says that practices such as Open Book Management leading to higher buy-in from employees helped the company consistently beat industry benchmarks.
Goode is now president of Goode Advisors Inc.
