No one wants to tell the boss an unpleasant truth and risk his or her displeasure. But in today's ultracompetitive markets, increasing numbers of savvy entrepreneurs are trying to help their organizations improve by cultivating employee feedback. After all, the thinking goes, it's better to have your employees tell you you've got a problem now than to have your customers tell you later.

"Hierarchy is, to a large degree, a thing of the past," notes Richard Block, CEO of Impac Group, a fast-growing company that designs and prints packaging for a range of consumer and entertainment products. Still, Block adds, there's a "stifling tradition" that prevents people from communicating what they really think.

How can you learn employees' true opinions? It helps if you:

  • Create opportunities for anonymity. At CompuWorks, a computer systems integration company based in Pittsfield, Mass., the 65 employees can ask the boss whatever they want, anonymously on the company intranet.
  • Don't ever "shoot the messenger" by penalizing employees who point out painful truths. At Raymond Karsan Associates, a human resource services firm in Wayne, Pa., Rudy Karsan knows that employee grumblings often signal opportunities for this fast-growing company, which projects 1999 revenues of about $75 million.
Karsan takes every chance he can to encourage employees to criticize him. At quarterly meetings with top staff, Karsan initiates a discussion about his behavior and his blind spots. He also takes one of his 450 employees out to lunch every quarter and runs gab sessions, at least quarterly, for 10 employees who sign up for the privilege of castigating him. The process has helped identify problem areas, from unclear communication to Karsan's failure to greet people in the morning. Karsan says the most important thing he can do during the fault-finding process is shut up. "If you try to be defensive," he says, "you're dead in the water." And there can't be any repercussions for employees' honesty, either. "If there are," he says, "word spreads quickly and the process becomes useless."
  • Reward honesty and tough questions. By 1998, the revenues of Impac Group, a company in Melrose Park, Ill., that does special printing and packaging, had grown to $280 million -- in part by outinventing its competitors. Its culture, CEO Richard Block explains, maintains that creative edge by promoting open debate and the combustible rub of ideas -- "an environment that is for experimentation and that urges you to take responsibility for a problem instead of working at concealing it." To underscore that principle, Block submits to lively interrogation at employee meetings and rewards his toughest questioner with a prize. The message: Nothing is sacred. Questions are good. We're all -- CEOs included -- accountable to one another.