On May 16, 2013, Ken Silverstein of Forbes interviewed me by telephone about a controversy over whether Southern California Edison had withheld information about problems at its San Onofre nuclear power plant – problems that later led to radiation leaks that required taking the plant offline.
Ken realized I didn’t know anything about the specifics of the controversy. He wanted me to talk about the generic question of why companies shouldn’t do what SoCalEd was (rightly or wrongly) accused of doing: keeping damaging information secret.
I don’t have a recording of the phone interview, but the following are some excerpts from a follow-up email I sent Ken later that day, only some of which he used in his story. I have edited some of these excerpts and added paraphrases of some parts of the interview that weren’t in the email.
Whether “the company” knew about a problem is never the right question to ask. Companies don’t know or not know something. People do. You always need to ask who knew. And then you need to ask who they told. And then comes the most important question: Does the corporate culture encourage people to push this kind of bad news up the hierarchy, or is the message to keep it to yourself and give your bosses plausible deniability?
Being dishonest about a potential risk that could be serious – a real potential crisis – is evil. By contrast, being less-than-forthright about a potential controversy is merely managerial stupidity.
Bad news or embarrassing information disclosed by a whistleblower after the company tried to hide it will do approximately twenty times as much harm as the same information disclosed promptly and proactively by the company itself. This isn’t a hard number. It’s just a rule-of-thumb. But it’s useful, because you can do math with it.
Thinking purely in terms of self-interest, without even thinking about law or ethics, that 20x factor means that keeping secrets pays off only if a company has a better-than-95% chance of nobody ever finding out. That may still be a good bet in many developing countries, where companies (unfortunately) can still sometimes disappear their critics. But it’s a bad bet in the U.S., where secrets get out far more than five percent of the time.
That wasn’t always true, but it’s true today. So many factors – social media, empowered activists, freedom of information laws, etc. – make it incredibly difficult for companies today to keep secrets. That’s good news for the world. Ultimately it’s good news for the company too, because it reinforces the business case for transparency.
But you have to have a little sympathy for the poor CEO who started out when it made business sense to keep embarrassing and potentially controversial information secret. After decades of hiding your company’s secrets, it’s hard for many top executives to realize that that kind of secrecy is no longer a sound business decision, let alone a sound legal or ethical decision.
SoCalEd is accused of withholding information about a plant defect, information that would surely have provoked a controversy whether or not the defect represented a significant hazard to public health. I don’t know whether it did that or not. But if it did, it was an unwise thing to do. The key point is that the accusations of secrecy have provoked a bigger controversy than the defect would have provoked.
Copyright © 2013 by Peter M. Sandman