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Do You Always Tell Employees the Truth? You Should.

Even if you face something as difficult and stressful as having to close a business, you have only one choice: Do it badly, or do it right.

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I was once hired to run a business whose CEO had been fired for failing to deliver a software product on time. We built the product, it worked--it was a pretty cool precursor to YouTube--but the business plan would not. No matter how we modeled it, the business couldn't make money. We explored options: Could we sell the business? Find strategic partners? Was there any way to salvage the great technology we'd built? Or was shuttering the company our only option?

Throughout this tense and stressful period, another question kept coming up: What should I tell employees? Many of my advisors counseled silence, obfuscation, delay. But I had a company full of super smart people. Many had been involved in numerous successful and unsuccessful tech start ups before. They were supremely experienced in the vicissitudes of Internet companies and they weren't faint-hearted. I believed then, as I always have, in telling the truth.

I was surprised to encounter so much opposition to my honesty plan--from lawyers, investors, lawyers, and consultants. "You can't do that. You don't know how people will react!" or "You don't want word to get out until you know exactly what's going to happen!" (In business, of course, no one ever knows exactly what's going to happen.)

As time went on, it became more obvious that I would have to close the business. Investors and lawyers circled more closely and emotions ran high. I overheard one say: "You can't tell Margaret that. She's too honest." A security advisor was brought in and I was advised to stonewall as long as I could.

Instead, I called a company-side meeting and told everyone just where the company stood. Nobody was surprised.

The next week, we held another meeting to discuss in detail what would happen as far as jobs, vendors, health care, and finances were concerned. The security consultant insisted that he attend in case employees responded violently.

There was no violence. Having been kept fully informed, all the way through a difficult process, nobody felt blindsided. Everyone had had time to assess what the developments meant for them and how to accommodate news no one wanted but everyone understood.

Because we closed the business earlier than we absolutely had to, every vendor and partner was paid. There were no sudden surprises. Employees used the office to conduct job searches and regularly came back from job interviews glowing. The common narrative: "I told them what we'd been doing here. They were blown away!" Far from being angry, violent, and resentful, people left proud of their achievements. Many are still friends and colleagues to this day.

In terms of sheer stress and grief, I can't think of any aspect of running a business that beats having to close one. But, as the moment approaches and momentum builds, you still have one choice: You can do this badly or you can do it well. You can leave people with dignity, pride, and a bank balance intact, or you can deny what's happening and leave everyone in disarray. Even at this juncture, you have an opportunity to build your reputation or lose it.

I often reflected on that overheard statement, "Margaret's too honest." I still wonder what it meant. But I'm proud of it.

Last updated: Sep 11, 2012

MARGARET HEFFERNAN is an entrepreneur and author. She has been chief executive of InfoMation Corporation, ZineZone Corporation, and iCAST Corporation. In 2011, she published her third book, Willful Blindness.
@M_Heffernan




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