A) WHAT DO YOU THINK THE ISSUE OF TRANSPARENCY IS IMPORTANT

FOR AN EFFECTIVE CORPORATE GOVERNANCE PROCESS?

Transparency is defined as the disclosure of all material information required by market

participants to analyse a company’s business model, transactions and financial results
correctly. Transparency also can be defined as a principle that allows those affected by
administrative decisions, business transactions or charitable work to know not only the basic
facts and figures but also the mechanisms and processes. It is the duty of civil servants,
managers and trustees to act visibly, predictably and understandably.

If something is transparent, it allows light to pass through thereby enabling people to see
through it. Using the same concept, an entity is transparent if it enables others to see through
it. Transparency works hand in hand with integrity. The more the integrity, the more
transparent an entity or person will be. Because of the aforesaid closeness, many people even
tend to think transparency is integrity.

To achieve transparency, a company should adopt accurate accounting methods, make full
and prompt disclosure of company information and make disclosure of conflict of interests of
the directors or controlling shareholders, etc. A key element of ‘good’ governance is
‘transparency’, which incorporates a system of checks and balances among the board of
directors, management, auditors and other stakeholders.

The importance of transparency for an effective corporate governance is if a company is

transparent enough and reports material facts in real time, stakeholders will have more
confidence in the management. Consequently, they will be more willing to invest in the
company, thereby reducing the cost of capital. Transparency also helps those in charge to
avoid fraud and put measures in place against it. All these factors put together enable the
firm’s productive capacity and productivity to improve.

Bennis and O’Toole (2009) offer seven steps for developing a culture of transparency in the
organization which is to tell the truth, encourages people to speak truth to power, reward
contrarians, practice having unpleasant conversations, diversify information sources, admit
mistakes and lastly Build organizational support for transparency.