Transparency and good governance - a marriage made in heaven

It has been a difficult few weeks for politicians here in the UK as the shortcomings of an outdated expenses system, and the frailty of human behaviour, have been exposed for all to see. It is no doubt a sad but important reminder of the importance of transparency in modern society. The very process of shining a light on the activities of both public and private sector organisations is a most efficient way in which to reveal inappropriate behaviour in the knowledge that the checks and balances that exist in society today will effect change. Personally, and I think I speak for many people, transparency is a critical mechanism that needs to be harnessed more in the push to rebuild and maintain public trust in those institutions critical to our way of life. It is a far more potent weapon than pages of new guidelines and regulations focused on processes and controls. Tell us what you're doing and why you're doing it and let society judge whether it’s right or wrong. That well used adage, of "How would you feel if this matter appeared on the front page of The Times?" is the ultimate test.

So in this vein, I thought you would be interested in a submission which the Report Leadership Group, of which I am a member, made to the Walker Committee review of corporate governance of the UK banking industry last week.

Download Sir David Walker letter

The letter (above) builds on the work of the group and highlights the importance of looking at the issues of governance and reporting in parallel. As the letter sets out, the quality and scope of information available is a critical determinant of:

• How well a company is managed by its executive team
• Whether non executive directors are in a position to exercise effective governance
• A company's ability to communicate effectively to its shareholders
• The ability of shareholders to exercise effective oversight

Do read the letter. I'd be very interested in your views on the position it takes and the ideas it puts forward for using reporting to shine a light on those things that help in determining whether good corporate governance is in place.

As always I am pleased to hear your views and comments on the postings, and to take questions about corporate reporting.

David

Comments

[David Phillips]

Bradley, you ask some interesting questions.

I like your notion of "wasting a good crisis" and not using it as a catalyst to effect change. I have felt for a long time that politicians and regulators have missed the opportunity to broaden the reporting model as a mechanism to reduce risk. I am a strong supporter of a regulatory model that demands more transparency and reduces other elements of red tape. Put a better information set into the market place and the natural checks and balances of modern society with kick in.

You'll be pleased to know that the Report Leadership Group's thinking is getting traction particularly in highlighting the limited value that comes from a lot of box ticking type reporting where the form seems to be more important than the substance. I also believe that there is a growing understanding that a broad reporting model covering market dynamics, the business model, governance, risk and remuneration as well as the financials is critical to the reforms which are needed. What many need to be persuaded of is that to create this model demands a logical blueprint and will only be developed in a meaningful way if it comes under the oversight on a single regulatory body. Who that should be is open to debate and is not made easy by the current concerns over the governance of financial reporting.

I do however believe this should be a key issue that global regulators start to focus on while the fall out of the crisis and the future impacts arsing from a climate change deal in Copenhagen are front of mind.

[W Bradley Burnett]

Sir,

Firstly, I commend your group's efforts to bring about systemic revision to this integral facet of corporate and investor decision making. It seems as though some of your suggestions in your letter had an audience in Sir David Walker, and I am hoping that you and your team view this as at least a partial success.

Secondly, I am interested as to the extent to which you feel governments are "wasting a good crisis" by not incorporating more of the RLG's suggestions into their regulatory revisions. Are the RLG's suggestions being viewed as too new and untested (or otherwise impractical) to be considered in these revisions in the US and UK?

And finally, do the current proposed reforms pose a threat to the inclusion of the integrated reporting model and more environmental sustainability data into corporate decision making frameworks? Do you expect that the current changes being made will shelf these issues until the next crisis?

Regards,

Brad

[Atkinson Accountancy]

Good governance is absolutely paramount. We don't need better rules though - we have them in the Combined Code - it just needs to be rigourously enforced.

So often with corporate failures that I hear about they are contravening the combined code. I ask myself whether the failure would have happened if the Code had been taken seriously...

[Mary Adams]

Reading your letter on Governance, I noticed you again used the language from the PWC report “Joining the Dots” late last year. But I have to wonder if companies really know how to “join the dots” for their stakeholders.

What you do not say directly is that the current challenges in corporate reporting were brought on by the shift to a knowledge-based economy. Although this feels like old news, most companies have yet to translate this shift into changes in management and reporting practices.

Today, the average company’s balance sheet accounts for, at best, a quarter of its value. What makes up the rest of that value? Those of us interested in the question have a number of answers. But we also know that neither the market nor the companies themselves ask the question, let alone try to answer it.

The reason for asking this question goes far beyond the need for transparent reporting. It gets at the very heart of the future of our economies. Intangibles and intellectual capital are the source of competitive advantage, growth and innovation for corporations. It’s time to find a way to help companies join the dots and make their intangibles tangible.