Evan Schuman's StorefrontBacktalk

Far too often these days, companies view secrecy as a perfectly viable approach when a piece of information might be embarrassing or simply unpleasant. Although that may be a fine approach when choosing to keep a golf score unspoken during a family dinner, when dealing with matters of public security (information or otherwise) or issues impacting publicly held companies, it becomes much more complicated.

Two incidents this week illustrate how instinctively executives leap to secrecy as the default—almost kneejerk—choice, even when it’s against their own business interests.

The first involves Amazon.com and it’s multi-hour-long weekday crashes. There has been no shortage of theories as to what was behind the outages, from cyber-thieves to too much traffic to an overly complicated site infrastructure. Amazon issued a statement that, well, was honest about its lack of candor. Amazon said that it knew precisely what was behind the crashes and wouldn’t say.

A less honest company would have done exactly the same thing, but would have said something more like, "We don’t know for certain yet everything that happened, but we’re investigating." Both choices are flawed.

Is it flawed from a revenue perspective? Consider a similar situation with a brick-and-mortar chain. Let’s say that a large Nordstrom’s store suddenly—without explanation—shut its doors at noon on a weekday, refusing to let anyone in. After several hours, the doors opened and people were let in, with no explanation. On the next business day, it happens again. And, again, no explanation.

If the Nordstrom’s had experienced the physical equivalent of a cyber attack, it could simply say, "There was a criminal incident and the store became a crime scene. Law enforcement was securing the facility." No need to detail who got hurt how, but a rough description of the incident shows respect for customers.

Or perhaps a complicated infrastructure set off sprinklers or a rush on a product taxed the store too much and it had to temporarily close its doors. Why not reveal it to address the frustrated consumers who were suddenly locked out?

The biggest customer—and supplier—concern in the Amazon case is, "Will this likely happen again? Is my credit card information safe? If it happens in the middle of a transaction, what control will I have?"

Consumers are likely to use their imagination and draw the most cynical conclusion from a lack of answers. Then there are the shareholder concerns. Does this indicate a major technology flaw?

The hypothetical Nordstrom example shows how much less respect is paid to the online consumer than the brick-and-mortar one. Does the inherent anonymity in the Web cut both ways? Like the site visitors emboldened by their namelessness who post comments and get into flame wars that they would never have the nerve to try in person, are E-tailers treating their customers with a disrespect that they would never dare consider in a physical store?

The other example is this week’s proposed settlement of the Ameritrade data breach lawsuit. The defendant there is a major financial institution, with access to tons of private money details of customers. Trust is a word that is used far too easily in retail, but it’s still a sacred concept in financial circles. An error in handling a sell or buy instruction can literally bankrupt a customer.

In the Ameritrade case, the settlement followed the company’s acknowledgement of a data breach that grabbed data from more than 6.2 million customers. But the utter lack of specifics about the multi-year-old incident is troubling.

A similar issue was argued when TJX tried to defend its secrecy, but even TJX publicly detailed a lot more information than has Ameritrade.

The rationale of secrecy about security breach incidents is strong, but it’s limited. The idea is to not reveal information that could help other bad guys try and break in in the same way. That’s the "we’re keeping it secret to better protect the public" argument—a White House favorite through many administrations.

The problem with that rationale is it should be very short-lived. When TJX justifiably bragged about having completely upgraded and replaced all of the impacted systems, it simultaneously obliterated its own secrecy justification. If the holes have now all been plugged, what’s the harm is saying what they were? Counter: Maybe other retailers haven’t yet plugged them, so we’d be endangering those companies? Counter to the Counter: Isn’t it reasonable to conclude that, this many years after the initial incident, the bad guys already know about it, so why not let more good guys know too?

Setting aside the never-ending "does disclosure make companies more secure?" security argument, there’s a crucial ROI financial argument to make. Just as in the Amazon case, the absence of details will push many consumers—especially investors—to assume the worst. Why risk that?

A lot of information can be released, omitting just the few details that are truly unknown and useful to the bad guys. So why not do it? Embarrassment. When bad things happen, companies don’t like admitting that any of it could be their fault.

Let’s be candid. How many security setups could withstand public scrutiny? How many perfectly well-done PCI-compliant networks could be made to appear to be reckless, with just a few facts?

Can the public be trusted to put such facts into proper context? Can customers be trusted to fairly judge the facts? Can customers be trusted at all? The answer to that question, to be honest, is what this column is truly about.