By Nicklas Balboa and Richard D. Glaser Ph.D. 

Failure is an inherent part of business. Major global brands like Apple (when Steve Jobs left), FedEx (whose founder avoided bankruptcy with a trip to Las Vegas), and GM (whose post financial crisis bankruptcy revival saw management turn the culture around from "conflicting to cooperative") faced failure, recovered, and are now listed as a Fortune 100 companies.  

These are tremendous stories. Not all failures are this colossal, which begs the question, how should failure be communicated within an organization? It might be tempting to just “sweep it under the rug”, however research points to a different direction.

Economist Sabrina Jeworrek, from the Halle Institute for Economic Research, and her colleagues conducted a series of experiments that targeted how leadership communication of past organizational failures impacted employee performance. More precisely, the researchers would observe how management communication affected performance and motivation in a phone campaign with workers who spend their days in conversation – ears and jaws strapped to the phones – attempting to recruit volunteers for charitable organizations.

The workers hired for this campaign were split into two groups. The control group received no information about past failures to recruit sufficient volunteers; but in the experimental group, leaders were transparent about the issues in the prior campaign, and the role management played in them.  “It’s important to note the quality of the feedback communicated,” says Jeworrek. “The organizational failures were not on the part of the workers, it was management. We did not use individual framing in the message.”

The results, published in the Leadership Quarterly in 2021, found that performance in the experimental group was almost 20% higher than the control group, in terms of quantity as well as quality. If that alone was not enough, the researchers also discovered that the experimental group voluntarily spent additional unpaid time documenting ideas and contributing feedback on how to improve the recruitment process to make it even more successful.

Organizational Response to Failure

Leader’s responses to failure are a defining feature of organizational growth – they can either make it, or break it. CreatingWE’s C-IQ leadership team member, Ute Franzen-Waschke, a specialist in corporate communication and organizational culture, recently wrote, “At the organizational level, often what is communicated is not even coming from those that are communicating the message. The content can come from various sources, such as leaders communicating a change initiative, or departments communicating news to their workforce.”

The importance of how failure is communicated, as Jeworrek wrote, “speaks even more in favor of increasing transparency in the leader-follower communication.” In other words, the more transparent a leader can be about things that went awry directly with their team, rather than farming it out to others, the more connected, engaged, and motivated the team may be.

So what’s the good news about bad news?

In the case of the phone campaign, not only did the past failure not negatively impact worker performance, management’s transparency about it with the team – and their candid acceptance of their own responsibility for it – significantly impacted the results.

In Conversational Intelligence^®, we know that transparency is one of the key elements of Trust in organizations. When information is withheld from us – deliberately or not – we’re inclined to climb the ladder of conclusions and make up a story about what the truth probably is; unfortunately, it’s rarely the right story or, for that matter, positive. Once this happens, it’s an effort to turn that around.

When employees hear the truth transparently, and hear management say, “we made the mistake” – you’ve now Primed for Trust.   When your team knows they are trusted with this information, motivation increases, productivity is higher, more creative problem-solving emerges, and teams are more likely to step forward and go the extra mile. We have found this to be true over and over again in our work with organizations.

As famed business magnate Henry Ford once said, “The only real mistake is the one from which we learn nothing.” Bottom line: share both the good news, and the not so good. Practice Transparency with integrity, and if there are mistakes, own your part. Trust levels will increase, your team will appreciate it, and it will show up in how they perform.