The Demand and Need for Transparency and Disclosure in Corporate Governance

Abstract

Transparency and disclosure (T&D) are essential elements of a robust corporate governance framework as they provide the base for informed decision making by shareholders, stakeholders and potential investors in relation to capital allocation, corporate transactions and financial performance monitoring. The importance of transparency has been widely recognized by both academics and market regulators, resulting in numerous rules and regulations being introduced over time to ensure timely and reliable disclosure of financial information, creating standards to which companies must adhere. Today, transparency is taking on a new meaning of more comprehensive and proactive disclosures instead of the release of corporate governance details or policies in a ‘reactive’ fashion. The new concept of transparency putting more responsibilities on the corporation not only let the truth be available to the public but imposes to disclose it to every stakeholder and different stakeholder groups. Corporate governance in today’s global environment has become more complex and dynamic in recent years due to increased regulatory requirements and greater scrutiny, creating increased responsibilities for board of directors to comply with rigorous governance standards and also to cope with increasing demand from shareholders and other stakeholders for T&D. Considerable attention has been focused on the corporate disclosure requirements and transparency since the Asian financial crisis. It has generally been agreed that the main failure leading to the financial crisis stemmed directly from the lack of financial disclosure and inadequate governance practices. Thus, corporations are now under pressure to provide timely, consistent and accurate information to shareholders and the public regarding financial performance, liabilities, control and ownership, and corporate governance issues. This is critical if investors are to be able to make informed judgments on the risks and rewards of any investment. On the other hand, the greater the extent of T&D, the greater the level of confidence in the operation of markets, and the greater is the access to capital financing. Due to the growing awareness of investors’ rights, corporations should focus their efforts to elevate their T&D and overall level of corporate governance standards for the benefits of all their stakeholders.