Board transparency can be a true balancing act. On the one hand, inside the boardroom, directors discuss confidential and sensitive information that cannot be disclosed to the public. On the other hand, a certain level of transparency from the board is necessary to get ongoing trust from shareholders and stakeholders.
Finding balance
Board transparency is a gray area in many ways; There is no one-size-fits-all or detailed rulebook. The 2001 Enron scandal resulted in the passing of the Sarbenes-Oxley Act to punish falsifying accounting records and to ensure accurate financial reporting. The Security and Exchange Commission (SEC) has published guidance for corporations to improve their accountability and transparency. In recent years, however, the level of transparency that society expects from organizations has steadily increased, further fueled by social media. Boards, from public and private companies, and even non-profits, are continuously encouraged to assess their board transparency policies.
Gaining trust
What are the advantages of being transparent as a board? How does it contribute to good governance? Transparency helps ensure compliance and accountability, which in turn instills trust. A lack of trust from the shareholders in the board (justified or not) can have a negative impact on the stock market. Board transparency is a powerful mechanism for maintaining trust in the board, complimentary to other trust-building tools. When shareholders have insight into the corporate governance practices, they can feel confident that the board adheres to laws and regulations and that they can hold directors accountable.
A safe space
However, out of legal, confidentiality, and competitive concerns, the information that can be shared with stakeholders and shareholders is limited. The danger of transparency inside the boardroom is that too much visibility could impact board deliberations as directors might be inclined to hold back, fearing information ending up in the wrong hands or being scrutinized. Board transparency should not interfere with the decision-making process around the top table.
Good governance
Board transparency is an ongoing exercise. The goal of board transparency is not to control the board’s actions but to have a better understanding of them. When done right, it establishes trust in the board so the directors can do their job. Good corporate governance includes being transparent about board practices and policies without compromising the confidentiality and effectiveness of the board.
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