Why Managers Should Share Bad News

When employees think bosses are being transparent, they’re motivated to work harder.

Employees would rather hear bad news than no news, suggests new research by Leif Brandes of Warwick Business School in the U.K. and Donja Darai of the University of Zurich in Switzerland. Their study shows that withholding important information from staff—even information that signals bad news—could mean the difference between a motivated workforce and an unmotivated one.

Brandes and Darai devised a new version of “the dictator game” to study the effect of information-sharing on motivation. The goal was for participant B to convince participant A to transfer as much money as possible to B. In the game, A was paid either £5 or £10, but didn’t know how much; A had to decide whether or not to transfer money to B. Participant B knew the sum and could choose whether or not to pay £1 to let A know—meaning B might spend £1 to tell A the bad news that A only had £5.

Participants played the same game up to ten times with different partners. When A participants didn’t know how much money they had, they transferred 48 percent less money to B participants than when they knew they had only £5.

“A person who is willing to spend money on information sharing is likely to be a nicer person than a person who does not,” says Brandes. “Research ... shows that people are willing to share more with those who they perceive to be nice.”

Even so, B players often failed to learn that they could receive more money by being transparent. In fact, they got worse over the ten rounds, says Brandes.

“Real-world managers should take note,” he adds. “It is not uncommon for uninformed employees to eventually even leave the firm, so sometimes bad news is better than no news at all.”

“The Value and Motivating Mechanism of Transparency in Organizations” was published in the September 2017 issue of European Economic Review.