Corporate Transparency vs. Corporate Governance

Topics: Corporation, Enron, Corporate governance Pages: 5 (1932 words) Published: April 6, 2013
Corporate Transparency vs. Business Performance
Throughout history, mankind has had innumerable moments of corruption and greed. From the City-State wars in ancient Greece to the organized crime during the prohibition, human beings have always been prey to the desires of wealth and power. While our current society may seem civilized compared to those eras, the shallow traits which haunted mankind then are still in play in today’s society. There are always going to be people looking for a way to get ahead of everyone else, and many are willing to bend or even break laws to do it. The corporate world today advances the opportunity for corruption unlike any other arena in today’s world, save perhaps politics, but that topic is for another day. As society has matured throughout the centuries, governments have tried to regulate this dark side of human nature to create a fair and even playing field, thus corporate transparency was born. Essentially, the rule of thumb has been the more transparent a company is, the more likely it will follow the laws and regulations. There has been little resistance to this concept, as most economists would agree that it is necessary to limit corruption. However, one could actually make the case that too much transparency would actually hurt the performance of a company. Therefore, it can be argued that there must be balance for a company to perform at an optimum level and that both extremes, full disclosure and zero transparency, will result in less than optimum performance. The purpose of any business is to make money for its owners and investors. It is an obvious point to make but still an important one. Some people are so concerned with growth that they are willing to break laws and hurt others just so they can get further in life, but others are more concerned with building a foundation for the employees and investors alike to grow and make a living within the company. Both types of people have the same motive, financial gain, but their methods for going about it are quite different. It is part of the reason corporate transparency exists; to level the playing field for all involved and make sure that the wrong-doers are being monitored. However, it is important to understand that everyone, from the entry-level employees all the way up to the board members, is in favor of growing the business, whether it is for personal gain or for the organization. It is the motive behind every decision made. More information means more certainty for investors, which is why investors are always going to want more transparency. It is obvious that low transparency allows decision makers to run amok. Given the opportunity, decision makers can make unethical decisions to expand their own wealth. One of the biggest examples of this is Enron. In the span of fifteen years, Enron grew from nothing to the seventh largest company in the United States (BBC, 2002). Throughout its tenure, Enron routinely misrepresented its profits and debt, showing that the company was doing much better than it actually was. It wasn’t until October of 2001 that the revelation of the scandal took place. Another example of unethical behavior was WorldCom. With WorldCom, high level executives “used shady accounting methods to mask its declining financial condition by falsely professing financial growth and profitability to increase the price of WorldCom’s stock” (Yahoo, 2007). These scandals are primarily what led to the most significant piece of legislation in regards to corporate oversight, the Sarbanes-Oxley Act, which “sets guidelines and requirement for accounting, financial disclosure, the ethical behavior of corporations, and the like” (Yahoo, 2006). The evidence shows that a level of transparency must exist for all involved to have assurances that the decision makers have the stock holders’ and investor’s best interest in mind with all of their decisions.

Transparency definitely has its place in corporate America as it can...
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