Time Magazine annually names a Person of the Year. In that same spirit, I'd like to nominate a word of the year for investors: "transparency."

These days, some companies seem to believe that they need a lot of sugarcoating -- uh, I mean, "diplomacy" -- to run properly. For their shareholders' own good, of course! But how can our stock market operate efficiently if companies run on a shortage of truth? Companies' tendency to stretch, bend, or completely ignore reality can be a huge risk to long-term investors.

Why'd he have to say that?
In the past year or so, several incidents have highlighted a brewing conflict between those who seem to fear the plain-spoken truth, and those who embrace it. Take the controversy that ensued when Whole Foods (NASDAQ:WFMI) Chairman and CEO John Mackey blogged about his opinion on the FTC's move to block the company's acquisition of Wild Oats (NASDAQ:OATS). Overall, I thought it was a sensible and savvy move. But the media overflowed with headlines proclaiming that Mackey had ruined his deal, shown his hand -- and basically illustrated that he was a real, opinionated, thinking person.

Along the same lines, several months ago D.R. Horton's (NYSE:DHI) CEO publicly said that 2007 would "suck" for the company. I was shocked to see TV talking heads debating not only the offensiveness of the word itself, but also the dubious idea that such a coarse description -- as opposed to a gentler, more soothing term -- might cause the stock to "rollercoaster." Though the folks on TV eventually agreed that honesty was good for investors, subsequent questions about the merit of "straight-talking CEOs" left me wondering what planet I was on.

Pardon my French, but if something sucks, no amount of sugarcoating, flowery prose, or complicated legalese will change that. Shouldn't we investors applaud honesty and transparency in our companies every chance we get, instead of acting shocked every time a manager says something that hasn't been thoroughly massaged by an army of lawyers and PR experts?

See-through, not skimpy
In his now-infamous blog post on Whole Foods' FTC fight, John Mackey wrote:

The recent global technology and communications revolutions are allowing for ever-increasing interconnections and transparency in processes on every imaginable level in free societies ... Today we live in such a politically correct and litigious society that most people in the public realm simply don't say anything that hasn't been pre-approved and sterilized. This is the main reason politicians are often so boring and obtuse -- they never want to say anything that will offend anyone or that can later be used in an attack on them. However, I am not a politician. I want to honestly communicate what I really believe. If you don't like my style or what I say -- well exercise your freedom not to read or participate.

I was reminded of Mackey's words by an April article in Wired, Clive Thompson's "The See-Through CEO." Thompson pointed out that many companies are adopting a radically more truthful approach in dealing with the public. Consider JetBlue (NASDAQ:JBLU), whose former CEO posted a public apology on YouTube for the company's PR debacle last February.

Thompson's article also noted that if companies try to cover up their mistakes, their efforts will swiftly and inevitably leak to the Internet, eroding the public's goodwill. Is it any surprise that many customers like some companies' less secretive, more open new approaches? The smartest companies seem to recognize that consumers, now more empowered than ever, are demanding respect and honesty from the businesses that get their money.

Transparency may seem risky to the old school, but long-term investors should embrace it. Don't be small-f fooled, Fools. Any company arguing that the unvarnished truth is too much trouble is behind the times -- and might not be on your side.

Whole Foods and JetBlue are Motley Fool Stock Advisor recommendations. To find out what other companies David and Tom Gardner have recommended to subscribers, take a 30-day free test drive.

Alyce Lomax owns shares of Whole Foods. Just call The Motley Fool's disclosure policy "Mr. Cellophane."