Fear No TruthFear No Truth

The Cookie Jar

Progressive, radically, is also candid with shareholders regarding the amount of financial reserves it sets aside. "In our business, reserving is the cookie jar relative to earnings management." Firms typically use reserves in their quarterly statements to increase or lower revenues, and in doing so to smooth earnings to correspond to Street estimates. "We've gone exactly the opposite way. We say we've got to run our business every day trying to get as much right as possible. So we'll be happy to tell you what our reserve adjustments are on a frequent basis."

This way, reserves are set aside to meet business needs rather than to engineer financial results. "With such a personal management philosophy, it's easy to share reserve information with shareholders."

Renwick says it's "liberating" to run a company this way. "Once it's reported it's over. I don't worry every month about whether we're going to make our earnings numbers. They are what they are so I have no need to manipulate them. I'm in the mode of reporting reality as opposed to smoothing reality and that enables us to focus on long-term strategy."

Being open pays off. It builds trust in management and contributes a brand of candor to the company's considerable success in the marketplace and solid performance for shareholders. (Progressive's share price has increased from less than 20 dollars four years ago to more than 80 dollars today.) But transparency runs deeper — it's part of the company's corporate character. Says Renwick "In insurance, the foundation of success is trust. To be trusted you need integrity and you need to be open. It's fun to manage in an environment where you are always sharing what you know. It's part of who we are."

Don Tapscott, [[email protected]] is the author of 10 books about technology and society, most recently (with David Ticoll) The Naked Corporation: How the Age of Transparency will Revolutionize Business (Free Press, 2003).