Corporate Transparency

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Summary

What is Corporate Transparency? Meaning.

Corporate Transparency (CT) is a term that reflects the idea that the more information is disclosed about organizational activities in a more timely fashion to a wider public the better it is. The call for more CT is a typical seasonal event. After the Asian economic crisis of the late 1990s and more recently after the collapse of Enron and WorldCom and the burst of the Internet bubble there was a demand for greater transparency. Experience also suggests that drowning investors in more and more data does not make companies more transparent. In fact, the opposite can often be the case.


Some degree of CT is important since it is one of the theoretical conditions required for a free market to be efficient. Too much transparency however could be an obstacle in the creation of competitive advantage.


Background of Corporate Transparency

Some typical considerations around CT include:

  • Extending financial and reporting standards and guidelines.

  • Increasing penalties for misleading reporting.

  • Prohibiting a firm from providing both auditing and management consulting services to the one client.

  • Prohibitions on certain remuneration techniques.

  • Disclosing senior executive remuneration and dealings in shares.

  • Establishing an independent supervisory board to monitor compliance with ethical rules.

Advantages and Disadvantages of Corporate Transparency

 

Vaccaro and Echeverri mention 3 effects that increased transparency can have and separate them into one negative aspect and two positive effects:

  1. Negative: Disclosure to information might lead to problems and foster criticism, while not having that much influence on customers’ behavior. It might be possible that customers even use the information so as to request modifications on for example current social responsibility programs. Firm-customer collaborative programs can thus become another field for conflicts in which the willingness to cooperate will decrease. This in turn will negatively affect social responsibility program initiatives; in this way corporate transparency is a self-defeating phenomenon.
  2. Positive: The disclosure of information can also be seen as minimum requirement, because people simply want and need to know what is done with their money; how it is used. Naturally, if an organization asks increased charges from customers for their corporate/social responsibility programs, the customers themselves will want to know how these increased charges are used in particular programs (such as environmental programs)
  3. Positive: Higher transparency raises customers’ understanding of environmental activities and social responsibility programs (and its features). Since understanding of those programs and activities is needed before approval can be given, the disclosure of information is required to stimulate environmental friendly activities as well as social responsibility programs.

Source: Vaccaro, A. and D.P. Echeverri. (2010). “Corporate Transparency and Green Management.” Journal of Business Ethics.

 

The concept is strongly related to other concepts such as Corporate Accountability, Corporate Governance, Corporate Responsibility, Corporate Sustainability and Intangible Assets.


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How to Avoid Too Much Transparency and Allow Some Privacy

CT, Employee Privacy
In an article “The Transparency Trap” it is argued that although a certain level of transparency does drive out wastefu (...)
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Various sources of information regarding Corporate Transparency. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.


8 Steps to Create Organizational Transparency as a Leader

Organizational Transparency, CT, Open Door, Candor, Whistleblower
This presentation outlines 6 steps to become efficiently transparent as a leader. The presentation includes the followin (...)

Information Management as Enabler of Transparency and Public trust

CT, Information Management, Public Trust
This presentation is about how Information Management (IM) contributes to transparency and includes the following sectio (...)

Dealing with Complexity / Transparency in Financial Information

CT, Financial Complexity, Information Complexity, Information Transparancy
This presentation is about information transparency, and includes the following sections: 1. Introduction: an experimen (...)

Tax Dodging and Illicit Financial Flows

Tax Dodging, Tax Evasion
This presentation introduces the concept of illicit financial flows and Tax dodging. The presentation includes the follo (...)

Transparency of Financials: Case Studies

CT, Financial Transparency, Lehman Brothers, Barclays, Financial Crisis
Presentation about transparency during the credit crisis, based on two different cases. The presentation includes the fo (...)

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Compare also: Pro Forma Earnings  |  Safe Harbor Statement  |  Globalization  |  Triple Bottom Line  |  Shared Value

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