Transparency - the Cinderella of governance

Transparency - the Cinderella of governance

Accountability, transparency and independence are the three key cornerstones of sound governance. Acting for shareholder or owners, considering stakeholders as well as the various matters relating to financial transactions fall under the principle of accountability as do other actions such as being prepared for a meeting, creating a register of interest and dealing with conflict of interests. Likewise Independence takes a number of forms. We see it with the appointment of independent directors bringing fresh thought into boardroom dialogue and the separation of management tasks for board duties. However we suggest more independent assessments of board processes could enhance many governance activities. Built into many of the financial transactions is the principle of transparency which becomes more apparent when the figures reported tell their own tale. However transparency of many strategic and environmental issues, in some organisations, is too many shareholders, like Cinderella, can be found only in the kitchen or backroom, out-of-sight, not spoken about or unknown.

Let take a simple example. If shareholders had been advised by the lending institutions they were investing in that their lending policy, prior to the recession, was such that their lending team was financing residential homes up to full market value then any shareholder knowing and accepting that policy through his or her purchase or retention of shares can only look to themselves for answers as to why they lost so much money during the recession. If the information was not revealed then these shareholders were working without the true picture as they have no way of knowing what is happening in the kitchen. Like Cinderella, such lending policies may have been working hard in the organisation’s kitchen but no one knew their true identity or could consider the likely impact when the environmental conditions changed. Shareholders as owners do not have magic wands so individually they can’t change things other than sell their shares if they do not agree with many decisions. But to agree they need to know the facts.

It could be said that Annual Reports, Prospectus and general communiqués are similar to the two ugly sisters or the over dressed dominating Stepmother. They painted a picture of glamour and status without revealing all the key information. How often do you see commentary about outputs that were agreed, but were not achieved? When you do find such information you get a sense of honesty particularly when there is narrative to explain the reason why.

So is it time to review the content of many Annual Reports, Prospectus and Communiqués to shareholders, interested parties and the like – in a sense consider the value of continuous disclosure along the lines that publicly listed companies have to work within and apply a similar principle to private companies, not-for-profit organisations, unlisted companies, government departments and State Owned and Crown owned entities. Material disclosure – the disclosure of anything that could materially change the way shareholders, stakeholders and interested parties can better understand the working of the organisation they are investing in has the capability to act as Cinderella’s glass slipper – to reveal the truth.