CORPORATE GOVERNANCE

 

Issue

 

Transparency is a key principle in Corporate Governance. As such it is considered part of the process of recognition of responsibility on the part of an organisation for the external effects of its actions and equally part of the process of redistributing power more equitably to all stakeholders. This creates a potential issue for many organisations so how should you approach it?

 

Solution

 

Before considering how to approach this issue let’s be clear about one thing – this doesn’t mean that your organisation has to reveal information that belong and are owned only by your organisation. Likewise, any kind of privileged information, or that which would breach legal, commercial, security or personal privacy obligations should not be considered as requiring to be transparent.

 

So what information is considered subject to transparency? Generally, it applies to any information in the possession of an organisation that may be considered public in the sense that users of the information may ask questions, raise issues, and perhaps even challenge the information itself. As such, it is considered that organisations should reveal information related to their objectives, missions and visions, relationships and authorities, responsibilities, revenues, and their rules and standards.

 

Of course, these ideals are considered compulsory for publicly quoted companies as well as public services organisations. Yet there is increasing pressure for them to be applied, albeit with some modification, to small and medium-sized organisations, notably demonstrated in documents such as the 2010 Corporate Governance Guidance and Principles for Unlisted Companies in Europe, produced by the European Confederation of Directors' Associations. Ultimately the decision on the extent to which transparency is exercised will rest with the owners and their representatives after taking into consideration the pressure for good governance from investors, potential investors, and business partners of all persuasions.

 

Initially, unless you are compelled by laws of any kind, the decision on how transparent your organisation will be is a binary one. Will you, or will you not, exercise some form of transparency? Taking this decision is not as easy as it sounds. You will need to consider the impact on your organisation of stakeholders’ reaction to your decision. Most likely a decision on your part not be particularly transparent will have a negative influence on your ability to create and maintain value for your owners.

 

If you accept that there is a need for transparency of some form, then you must remember to keep a sensible balance between the economic and social goals of your organisation. These include such aspects as the efficient use of resources, accountability in the use of the organisation’s power, and its behaviour in its social environment, which will be the primary focus of its disclosures. An overriding consideration in designing your transparency disclosure policy is efficiency and effectiveness. Efficiency, of course, implies cost minimisation whereas effectiveness relates to the achievement of the desired purpose. Thus, it is essential that your organisation’s policy decision with regard to the exercise of transparency meets the needs of your organisation while making the best use of the resources at your disposal.

 

At Park Advisory we understand this may be a complex task and would be more than happy to assist you in creating an appropriate transparency policy and associated procedures. Please do email us at info@parkadvisory.uk for a free, no obligation initial consultation.