Transparency – What, How Much and When?

I am attending the Global Ethics Summit 2010, hosted by Dow Jones and Ethisphere. Here are my notes, live from this session:

How much should a company be disclosing to shareholders, investing communities, regulatory authorities and customers about its compliance program and other ethics-related activities? What risks does a company shoulder when it takes a more transparent approach than not, and what are the risks associated with non-disclosure? And, when a possible transgression has been uncovered, when and how is disclosure appropriate, what are the benefits to the company of disclosure in this case, and how should third parties (such as outside counsel) be engaged when doing so?


 Transparency – What, How Much and When?

  • Alex Brigham, Executive Director, Ethisphere Institute, Ethisphere
  • Nancy Zucker Boswell, President & CEO, Transparency International USA
  • David Andrews, Board Member, Union Bank of California
  • Wendy Hallgren, VP, Corporate Compliance, Fluor
  • David Howard, Partner, Dechert

Wendy tells how Fluor uses transparency as a competitive advantage. Public disclosure makes for public identity. You want your employees and customers know that getting down on time is one factor. Getting it done right is the most important goal.

Nancy pointed out that the correlation between to trust and transparency. If people are watching, then you are going to act better. As companies focus on corruption, sustainability and ethical issues in their reporting there will be pressure for others to also report. Transparency helps with commitment and measurement of steps towards compliance.

The panel took on this issue of whether additional disclosure creates more liabilities. There have been some rumblings that there could more liability to the company.

David Andrews pointed out the board has a standard of care that they need to meet. There is a responsibility to get information out to the shareholders. Frankly, if you are doing something good, you should let people know that you are doing something good.

David Howard, wearing the lawyer, pointed out that no compliance program is perfect and issues will fall through the cracks. If you publicize that you have a complete program, you need to be careful that you are not making false statements.

Inevitability what you do today in 2010 will be judged by the standards in place in 2015. You need to stay ahead of the game.

When reporting to the board you need to be careful that you do not overwhelm them with information. You need to highlight issues if you really want their input.

There are two disclosure tests. (1) Do you need to disclose to the shareholders? and (2) Do you need to disclose to the government? The next step after whether you “have to disclose” is “should you disclose?” Theoretically, you will get better treatment if you voluntarily disclose. However, there is no empirical evidence that you actually get treated better. You show your stakeholders that you are committed to doing the right thing. It does not prevent the cost of an expensive and lengthy investigation. You may still be subject to government action even if the sentence is reduced. You also open yourself to civil litigation. You need to make a “gut check.”