I talk a lot about the concept of “radical transparency”  – in fact, it was one of the guiding principles in creating Seventh Generation – so I’d like to delve a little deeper into what exactly it means and how it can be a powerful tool to transform ordinary businesses into more responsible, conscious and profitable entities.

I’ve written before that radical transparency is required for a business to succeed in today’s environment of consumer scrutiny. Information technologies such as social media now let the public keep an eye on everything businesses do, and businesses should invite this scrutiny. Publicly sharing all our activities preempts the critics, and more eyes on the company’s activities means more advocates and friends. Radical transparency also creates new partnerships and in this way becomes the first step towards overcoming the deficiencies that ultimately harms profitability.

There are several forms of transparency a company may engage in. For example, a business that isn’t already required to may willingly disclose its product ingredients, or it may disclose the sources and the means of obtaining the raw materials. Transparent companies may also voluntarily provide the public with sustainability reports, or reveal both the positive and negative impact they are having on the planet.

Unilever has gone a step beyond this to calculate and disclose the impact their consumers have when they use Unilever products.

Yet another form of transparency occurs internally, how much is the company sharing not just with their consumers, but also with their employees. This ties in very closely to how much a company values the work culture they are creating. Is the pay scale and bonus structure transparent? Are financials at private companies shared and discussed with the staff?

What happens when a business lifts the veil of secrecy to the public? Knowledge of the product creates loyal consumers. Knowing that a company is willing to admit failures when they occur allows the consumer to trust the company. A trustworthy CEO will personally communicate with consumers about the successes and failures of the company, putting a face to the company. When trust ensues, profits take off. Knowing the ins and outs of a company enables consumers to make smarter choices which in turn can move the market toward less harmful products and services. Nurturing a positive relationship with consumers is good for the company’s profitability and it creates a chain reaction where consumers ask if other companies are engaging in less than stellar business practices.

It’s no secret that social media has a big impact on the way business is conducted. Many previously successful brands are now in danger of becoming tainted in our minds as consumers are demanding but failing to get information about what is in the products they are using and how their purchases are impacting the world. (See the campaign aimed at Halle Berry to get her to ask her perfume partner, Coty Inc., to disclose the ingredients in her perfume.) Consumers engage with companies on social media with the expectation of being informed of both the positives and the negatives of the business. Facebook and Twitter posts can be a useful marketing tool but they should be used for much more than that – they are a powerful tool in disclosing information before the consumers find out first and risk the brand’s reputation. Take Gap and Zara, for example. They have been using toxic substances in their clothing for decades and only recently were outed for their practices. Consumers took to the Facebook and Twitter fan pages, angrily lashing out to demand a change. To ignore this outcry only makes the company reputation worse – the public is watching, and the only smart thing to do is to listen.

More traditional forms of disclosure are always necessary. Company transparency via social media is important but so is the ability for consumers to easily reach a human at the other end of a product inquiry. Making it easy (and perhaps even enjoyable) for the consumer to contact an individual at the company tells scores about the company and how much they respect their customers. Consumers should have the ability to get information about their purchase and this information must be clear, believable and easy to understand. The more consumers have to dig to get the answers, the less credibility and trust the business will have.

Finally, companies that are transparent with their consumers would also benefit from creating a culture of trust, loyalty and commitment in the workplace. It is important for company morale to know where the work and money is going in the company – from the top level all the way to the lowest level employee. Some companies such as Buffer, a tech company, even going so far as to let all employees know each other’s salaries, claiming it leads to a deep sense of trust and openness among everyone in the workplace. This ultimately leads to a profound sense of “belonging” to the company and the desire to produce good work.

No matter what form of transparency a company takes, it is always a wise business practice to be open about what goes on behind the scenes.

Check out a list of 10 companies who aren’t afraid to be transparent: http://www.forbes.com/sites/johnhall/2012/08/27/10-leaders-who-arent-afraid-to-be-transparent/