BusinessWeek: To Beat the Recession, Open Your Books

By John Tozzi

Revealing company finances to employees may seem scary, but CEOs who practice open book management swear by its ability to lower costs and boost profits.

Commercial aircraft supplier Tracer was in trouble last November. The 27-employee Milwaukee company, founded in 1993, saw sales fall 20% below already lowered projections. With inventory stuck in the warehouse, Tracer's entire staff knew exactly how much they needed to drive sales to hit their monthly target. Founder and CEO Bill Morales, 52, was on the road, but in his absence his team negotiated a deal that would move some 747 parts out of inventory at a deep discount. Morales approved the price, and his staff did the rest. It was the kind of ground-up effort that has helped Tracer avoid any layoffs, even though 2009 sales are still down 30% from last year.

Most entrepreneurs keep the inner workings of company finances hidden from employees, especially when their businesses are struggling. But executives like Morales have embraced open book management, an approach based on transparency and accountability. They train their employees to understand key financial measurements and show workers how their actions affect profits. More than 10,000 companies practice some form of this philosophy, estimates Jack Stack, CEO of Springfield ReManufacturing, who pioneered the technique in the 1980s. Many executives fear that competitors will learn sensitive information if they open their books to employees, and some think their workers have little to offer. But proponents say open book management makes healthy companies more efficient—and can save a company in distress. (more)