WMBA 6000 Week 2 Founder Transparency Memo Example

Memorandum

To: Chief Executive Officer, Downbeat Software

From: Chief of Staff

Date: Week 2

Re: How much to disclose about the lost renewal before Thursday's all-hands meeting

Situation

Downbeat Software, the composite music-school software company used in this course, has lost its largest customer. A network of about 60 music schools, which accounted for roughly 18 percent of revenue, told us last week that it will not renew. Our cash runway, the months we can operate at current spending, has fallen from about 18 months to about 12. The figures are illustrative. The question is how much to tell employees at Thursday's all-hands meeting: the whole picture, or only that a customer left, with the runway shared with the leadership group alone. You have asked for a recommendation by Wednesday.

Authentic Leadership as the Test

Avolio and Gardner (2005) described authentic leadership as grounded in leaders' self-awareness and in consistency between their values and their actions. Research on the concept commonly measures four components (Walumbwa et al., 2008): self-awareness, knowing how one's strengths and blind spots land on other people; relational transparency, being the same person in the room as outside it and sharing what one knows; balanced processing, weighing evidence and dissent before choosing; and an internalized moral perspective, letting one's own values rather than outside pressure decide. I use the four components to test the two options.

The Options Tested

Table 1

Two Disclosure Options Tested Against Four Components

Ratings are judgments; the table makes the reasoning for each visible.

Full disclosure fits every component better. The strongest point is consistency. At the last all-hands, you told employees they would hear bad news from you first. A runway figure that leaks from the leadership group, as such figures usually do, would make that promise look empty at the moment trust matters most.

The COO's Concern

The chief operating officer worries that disclosing a twelve-month runway will cause our best engineers to leave. The concern is serious, and balanced processing requires taking it seriously rather than dismissing it. Two points answer it. First, our engineers can read the signs: the largest customer's logo will disappear from our website, and they will hear about it from support staff. Uncertainty without facts tends to produce worse guesses than the facts. Second, research on followers' trust found that leaders who were transparent were rated as more trustworthy and effective than those who were not, especially when the transparency came with a positive, realistic outlook (Norman et al., 2010). The answer to the COO's concern is not less information but more: the numbers together with the plan.

Recommendation

Disclose fully on Thursday. Tell employees what happened, what it does to revenue and runway, what we did that contributed, including relying too heavily on one customer, and what we will do next. The plan should include three concrete steps already decided: a hiring pause on roles not yet posted, a goal to replace the lost revenue through the 40 schools in our sales pipeline, and a review of spending with every team lead within two weeks. Close by naming the date of the next update. After the meeting, send a one-page written summary with the same figures, so that employees who were on customer calls or out sick hear exactly what their colleagues heard, and set up an anonymous question form that you answer in writing within a week.

Talk to the four most senior engineers individually before the meeting. They should not learn the news with everyone else, and their questions will tell you what the rest of the company will ask.

What Would Change This Advice

If the runway were under six months, or if a layoff were already decided, the analysis would differ, because legal and practical considerations would govern timing. Neither is the case. On the facts as they stand, the transparent option is also the practical one.

References

Avolio, B. J., & Gardner, W. L. (2005). Authentic leadership development: Getting to the root of positive forms of leadership. The Leadership Quarterly, 16(3), 315-338. https://doi.org/10.1016/j.leaqua.2005.03.001

Norman, S. M., Avolio, B. J., & Luthans, F. (2010). The impact of positivity and transparency on trust in leaders and their perceived effectiveness. The Leadership Quarterly, 21(3), 350-364. https://doi.org/10.1016/j.leaqua.2010.03.002

Walumbwa, F. O., Avolio, B. J., Gardner, W. L., Wernsing, T. S., & Peterson, S. J. (2008). Authentic leadership: Development and validation of a theory-based measure. Journal of Management, 34(1), 89-126. https://doi.org/10.1177/0149206307308913