When the CEO withholds information, people create their own.

This is a lesson countless leaders learn the hard way. They aren’t transparent about something—the state of the business, why the CFO was let go, what that all-day executive offsite was about—only to find that employees have created their own narrative about it. And it’s usually a negative narrative, fueled by fear and rumor.

This is why great CEOs aren’t just honest with employees; they are proactively transparent. They nip speculation in the bud by telling people about issues that affect the company, both positive and negative.

I recently got a great demonstration of how perception distorts reality in the absence of the truth. I was working with an executive leadership team of a midsize company when the subject of the CEO’s salary came up. People got a little tense. And it gave me an idea.

With the CEO in the room (and with his permission), I asked people to write down on a sheet of paper what they thought he made per year. Only he and the HR leader knew.

After comparing all the scraps of paper, turns out the executives on the team thought he made $250,000 a year more on average than he actually did!

Now, this doesn’t mean you have to go tell the whole company your salary. But it is a vivid example of how keeping information from people doesn’t mean they won’t form an opinion about it. Instead, it just means the opinion they form will be based on assumption.

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