The Business Case for Accountability and TransparencyFebruary 14, 2016
At the Pearl Initiative, we aim to inspire the dialogue needed to build the ethical foundations of business in a globalised world. We recognise that corporate accountability and transparency are essential if we are to generate value and rebuild a healthy and competitive global business environment and therefore much of our work is focused on encouraging corporations to embrace governance as part of the very fabric of their business models.
Here in the Middle East, we have witnessed a massive shift in attitude towards corporate governance sparked by the crisis of 2008. By talking with our member firms, we have found that the main reason for the severity of the downturn was a gap in corporate governance and risk management. Most companies now recognise the importance of adopting high standards of corporate governance and see the business benefits. For example, on a macro level, the hard fact is that if a country does not have a reputation for strong corporate governance practices capital will flow elsewhere. Consumers and regulators worldwide have increased their demands on companies to be transparent and accountable for their actions and will use alternative suppliers when their demands are not met.
On a micro level the same can be said; if investors are not confident with the level of disclosure and reporting standards capital will also flow elsewhere. Therefore, the very simple equation is that to secure capital for development, investment and return – transparency in reporting is a valuable tool for setting out not just the facts of yesterday, but the prospects for tomorrow.
Many companies find that driving ethics creates value as businesses are able to adjust their focus on the longer-term strategy, make better decisions and improve efficiency. Sound corporate governance is often a pre-requisite for competing in international markets and many companies state that their focus on building a reputation based on trust and integrity helps attract and retain the best employees.
The value of a business or corporation is now much more tied to its stakeholder reputation than simply its products or services. At the same time, it offers competitive advantages to companies that meet higher business standards. Conversely, companies exposed to major ethical failures pay a high price – both in resolving the issue and in lost earnings due to reputational damage. This issue ultimately boils down to effective Board management and their appetite for accountability. Where we encounter resistance is typically in an established company who would consider themselves to be “doing fine” but there are two main issues with this attitude., Firstly, it fails to understand the importance of reputational risk as even though the company is well, they have to maintain this position and any situation that affects the brand or reputation will tip them from “doing fine” to struggling remarkably quickly. Secondly, refusing to implement basic corporate governance procedures such as accountability practises is tantamount to ignoring changes in the regulatory environment around them. This landscape is continually evolving and to survive and thrive, the company must change and adapt not in the least because they will soon encounter fines and penalties for refusing to adhere to new stipulations.
Fundamentally, the purpose of implementing accountability is to ensure confidence in the future, to realize that we can no longer seek to hide. Transparency exposes companies to opportunity, not threat so we must collaborate to establish what needs to be visible and how that openness can be beneficial in engaging all stakeholders; both established and potential. Most companies seek to build their reputation on trust and integrity, but unless backed up by action, these are just words. Developing and writing a corporate governance policy is a valuable and necessary first step in the process but the real challenge is in implementing such a code. It is embedding the policy into the day-to-day reality of people throughout the organisation and value chain.
In an increasingly competitive business environment, where access to information is easier than ever and stakeholders expect so much more of companies, the business case is clear. Greater integrity and more comprehensive alignment of business strategies and objectives will lead to higher corporate performance. The value of what we are discussing is not just words on paper but the opportunity to build confidence in the corporate sector, in business, to restore it to a place where the public will feel that ownership is worth its value.