In 1787, at the Constitutional Convention in Philadelphia, the founding fathers agreed on 22 "rules for conducting business." One of them decreed "that nothing spoken in the house be printed, or otherwise published or communicated without leave."

In other words, there was zero real-time transparency. 

It was more than 200 years ago, but the justifications for such privacy are, in some ways, more pertinent today. The 1787 Convention rules fostered an "uninterrupted, candid conversation in which everyone felt free to change their minds for the right reasons," notes Ethan Bernstein, an assistant professor of business administration and transparency expert at Harvard Business School. According to historian Jared Sparks, James Madison believed:

…opinions were so various and at first so crude that it was necessary they should be long debated before any uniform system of opinion could be formed. Meantime the minds of the members were changing, and much was to be gained by a yielding and accommodating Constitution would ever have been adopted by the convention if the debates had been public. 

For company founders, this delicate conflict--between the unedited efficiency of privacy and the tell-all idealism of transparency--is all too familiar. To be sure, there's plenty to like about transparency, in all of its entrepreneurial manifestations. These include open-book management; the sharing of employee compensation levels; and corporate social responsibility reports. 

But there are comparable downsides to transparency, depending on how you slice such an all-encompassing term. For example: Clayton Christensen, the decorated Harvard Business School professor and expert on innovation, is critical of how public companies prefer "adorning their balance sheets" to pursuing groundbreaking innovations. Why do companies adorn these balance sheets? Mainly because the balance sheets are a transparent window through which investors can glimpse a company's short-term fiscal health. In adorning the window for shareholder perusal, Christensen argues, companies neglect investing in the less-visible areas (employee development, radical technologies) fueling long-term innovations.

Another downside to transparency is the way it can hinder productivity. It's hard to be your smoothest or smartest self when you know you're being watched--and possibly evaluated--at every moment. "Unrehearsed, experimental behaviors sometimes cease altogether," observes Bernstein in the Harvard Business Review. "Wide-open workspaces and copious real-time data on how individuals spend their time can leave employees feeling exposed and vulnerable."

To research his HBR article, which is called "The Transparency Trap," Bernstein embedded five Chinese-born Harvard undergraduate researchers into the lines of the world's second largest mobile phone factory, located in China. The five embeds worked, ate, and lived alongside their coworkers, who were not privy to the experiment. Bernstein's findings first appeared as a longer article in Administrative Science Quarterly, an outgrowth of the dissertation he wrote under the supervision of several HBS all-stars, including Christensen, Amy Edmondson, the late Richard Hackman, Rosabeth Moss Kanter, Nitin Nohria and Bradley Staats.

The ASQ paper includes a fascinating table detailing how workers conducted tasks when they were observed, versus when they were unobserved. Even seemingly unremarkable behavior--such as wearing rubber gloves when assembling or handling components--changed immensely. Factory rules stated that line workers were supposed to wear gloves or fingertip covers on both hands. But here's what one of the embeds noticed, when the workers were unobserved: 

People usually wear their gloves in their own ways--either they wear a glove on only one hand or they cut their gloves so their fingertips stick out, giving them a bare hand or bare fingertips so when they are doing little things it goes a lot faster. 

You can see how fruitful this observation is. On the macro level, it reveals employees are only obeying glove procedures when they're being watched. On more granular levels, it suggests that the gloves are poorly designed; that employees will break rules (and endure safety risks) to meet productivity goals; and that management has possibly overstressed productivity at the expense of safety.

Just as important, Bernstein's team noticed that factory teams worked faster--that is, they were more productive--when they were unobserved. Bernstein set up curtains around four of the factory's 32 lines, shielding the workers on those lines from observation. "Over the next five months, to my surprise, the lines with curtains were 10 to 15 percent more productive than the rest, even when I controlled for other influences (such as the Hawthorne effect, whereby subjects improve simply in response to being studied)," he writes.

More than this, Bernstein observes, "the curtains supported local problem solving, experimentation, and focus....defects remained extremely low, even as throughput rose. And over time the camaraderie within boundaries made the workers more likely to share--as a group--their privately worked-out solutions with other lines."

By contrast, the employees on regularly observed lines routinely hid process improvements from managers. The reason? One worker told an embed that it was "most efficient to hide it now and discuss it later. Everyone is happy: They see what they expect to see, and we meet our targets."

For Jieliang Hao, one of the five embeds, who is now employed at a stealth hardware startup in Silicon Valley, these concealments were apparent from her first day at the factory.

"[The workers] definitely changed their behavior when they knew someone was coming," she told Inc in a recent interview. She added that workers all preferred the night shift, since there were fewer managers on duty. And as it turned out, the night shift's productivity was higher than the day shift's, even in the absence of supervision. This was one of the impetus for Bernstein's curtains experiment.

Does all of this mean you should never monitor your employees? Of course not. But it's important to give your employees a sense that there are judgment-free boundaries--curtains figurative and literal--behind which they're free to experiment. 

Another takeaway is this: Even if you have the real-time, digital data with which to provide constant employee feedback, you should still use discretion about how and when to deliver that feedback in the form of performance evaluations

"There are all these breadcrumbs we leave digitally around the work place these days," Bernstein said. "Collecting them can seem like a good goal toward making the workplace meritocratic. But it may be hurting productivity. No one wants to feel constantly measured and evaluated."

In other words, if your employees know they'll be criticized for every act of inefficiency, they'll quickly stop experimenting. They'll also stop having fun. Unless it's the night shift, and they know you're not around.