Corporate transparency
Corporate transparency describes the extent to which a corporation's actions are observable by outsiders. This is a consequence of regulation, local norms, and the set of information, privacy, and business policies concerning corporate decision-making and operations openness to employees, stakeholders, shareholders and the general public. From the perspective of outsiders, transparency can be defined simply as the perceived quality of intentionally shared information from the corporation.[1]
Recent research suggests there are three primary dimensions of corporate transparency: information disclosure, clarity, and accuracy.
High levels of corporate transparency can have positive impact on companies. It is known that high levels of corporate transparency improve investment efficiency and
Customer support transparency
Corporations may be transparent to investors, the public at large, and to customers.
Opening up the customer support channels may mean using a feedback tool which allows users to publicly vote on new developments, having an open internet forum, or actively responding to social media questions.[6]
European Union
Standards concerning corporate transparency in European Union are scrutinized under Directive 2014/95/EU, referred to as Non-Financial Reporting Directive (NFRD). Under this legislation companies have to disclose information regarding employed practices related to environmental protection, social responsibility and treatment of employees, respect for human rights, anti-corruption and bribery and diversity on company boards (in terms of age, gender, educational and professional background). By 2018, companies are required to include non-financial statements in their annual reports. It was found that 60% companies disclose their non-financial information in their annual reports in contrast to 40% favoring a separate document in 2019.[7]
Businesses with an obligation to publish such information are large public-interest companies with more than 500 employees, which amounts to approximately 6000 companies across European Union. Companies enjoy great flexibility how to disclose relevant information as they can either use international, European or national guidelines. For instance, they can use the UN Global Compact, the OECD guidelines for multinational enterprises or ISO 26000.[8] Despite enclosed suggestions for guidelines, none is referred to by more than 10% of companies. To better understand the situation, companies are expected to describe their business model in relation to sustainability and strategic risks. This might not be reality as only nearly a half of companies mentioned at least one strategic risk related to sustainability and only 7.2% further described how those risks were being addressed in 2019. The most frequently listed risks where related to climate change (24.9%), environmental challenges (23.9%) and labour issues (23.8%).[7]
As of 20 February 2020, the European Commission launched a public consultation on the review of the NFRD.[8]
China
In 2008, researchers found that value maximization might not be the ultimate goal of Chinese listed companies as a result of the Chinese government being the major shareholder of
In 2002, the
Institutional ownership has positive effect on both, corporate governance transparency and accounting information transparency. However, there is not sufficient amount of evidence to support the claim that higher levels of corporate transparency lead to higher levels of institutional ownership in China.[11]
Taiwan
Corporate transparency in Taiwan is assessed using Information Disclosure and Transparency Ranking System (IDTRS) launched in 2003 by Securities and Futures Institute. Whole process is on voluntary basis with evaluation executed annually in two-stage process where the ranking committee and companies with possibility of expressing their opinions participate.[12]
United Kingdom
The
United States
The Corporate Transparency Act, part of the National Defense Authorization Act for Fiscal Year 2021, introduced "beneficial ownership information reporting requirements" for companies in the United States.[16]
Emerging countries
Countries with multi-party legislatures are associated with higher levels of corporate transparency. Furthermore, when a country transitions to multi-party legislature, opacity is expected to decrease.
Comparing democracies and authoritarian regimes, we can expect that firms are more transparent in democratic countries. Levels of corporate transparency are decreasing as we go from democracies to countries with semi-competitive authoritarian regimes. Lastly, firms in countries with non-competitive authoritarian regimes display the greatest opacity.
When a regime changes from non-competitive authoritarian one to semi-competitive, corporate transparency tends to improve. However, this trend does not hold if a country transitions from a semi-competitive authoritarian regime to democracy.[17]
See also
- Open business
- Radical transparency
- Corporate governance
- Transparency Report
References
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- ^ a b "The Alliance for Corporate Transparency Research Report 2019" (PDF). Alliance for Corporate Transparency. 2019. Retrieved 2020-04-25.
- ^ a b "Non-financial reporting". European Commission. Retrieved 24 April 2020.
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- ^ Department for Business, Energy and Industrial Strategy, Corporate Transparency and Register Reform White Paper, published February 2022, accessed 5 August 2023
- ^ Department for Business and Trade and Department for Business, Energy and Industrial Strategy, Corporate transparency and register reform, published 28 February 2022, accessed 5 August 2023
- ^ William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 as enacted, section 6403, accessed 20 July 2023
- SSRN 3135771.