The responsibility of a board can vary depending on the context. In the context of corporate governance, the board of directors is responsible for making important decisions and providing oversight for the organisation. The board's primary duty is to act in the best interest of the organisation and its stakeholders. Others include setting the strategic direction and goals of the organisation, evaluating the performance of the organisation's executives, financial oversight, fiduciary duty and ensuring transparency and disclosure. This blog examines the role of the board in balancing information disclosure in order not to give too much or too little to the detriment of the organisation.
Transparency and Disclosure
Transparency refers to being open, honest, and accountable in one's actions, decisions, and communication. It involves providing accurate and accessible information to the public, so they can make informed choices and hold institutions and individuals accountable.
On the other hand, disclosure involves revealing and sharing pertinent information, particularly in situations where conflicts of interest or potential biases may exist. Disclosure ensures that individuals or organisations are transparent about their affiliations, financial interests, or any other relevant information that may influence their decision-making or relationships.
Transparency and disclosure go hand in hand, as disclosure is a key component of achieving transparency. By disclosing relevant information, individuals or organisations can establish trust and credibility with the public or stakeholders. This trust is crucial in maintaining healthy relationships and fostering accountability.
In the business world, transparency and disclosure are crucial for building trust with consumers and investors. Companies that share information on their operations, financial performance, and environmental practices demonstrate accountability and integrity. This transparency enables consumers to make informed choices and encourages businesses to be socially and environmentally responsible.
Moreover, personal relationships can also benefit from transparency and disclosure. In personal interactions, being open and honest about one's intentions, feelings, and expectations can foster trust and prevent misunderstandings. Likewise, disclosing personal biases or conflicts of interest can help maintain integrity and fairness in relationships.
While transparency and disclosure are important, there are also considerations to keep in mind. It is essential to establish guidelines and frameworks to ensure that transparency and disclosure are implemented responsibly.
Factors to Consider for Transparency and Disclosure
Legal and Regulatory Requirements: Organisations must comply with laws and regulations related to transparency and disclosure in their jurisdiction. The Companies and Allied Matters Act, Financial Reporting Council of Nigeria Act, Nigeria Code of Corporate Governance, and various sectors' laws, regulations and codes are the fulcrum for board transparency and disclosure in Nigeria. These requirements often set a baseline for what must be disclosed.
Stakeholder Expectations: Different stakeholders, including shareholders, customers, employees, and the public, may have varying expectations regarding transparency based on their relationship with the organisation or project. For example, employees may expect fair compensation, opportunities for growth, and a safe working environment. Customers, on the other hand, may expect high-quality products or services, competitive prices, and good customer service. While Shareholders on profits and dividends. Understanding and meeting these expectations is crucial.
Industry Norms: Some industries have specific standards and practices regarding disclosure. Organisations should align with industry norms to maintain credibility. These norms are often established to ensure fairness, transparency, and accountability among members of the industry. They can include guidelines for product quality, customer service, pricing, advertising, and more.
Materiality: This helps in improving the relevance and reliability of financial information. It ensures that financial statements provide users with meaningful and accurate information, enabling them to make informed decisions. By considering materiality, accounting professionals and auditors can prioritise their efforts and resources on matters of greater importance, ultimately enhancing the quality and integrity of financial reporting. Information is considered material if it could influence the decisions of investors or other stakeholders. Organisations should prioritise disclosing material information while avoiding unnecessary disclosures that might obscure the important details.
Competitive Considerations: Disclosing too much information that could benefit competitors may not be in the organisation's best interest. Therefore, competitive factors should be taken into account when determining disclosure levels.
Reputation Management: Transparency can help build trust and enhance an organisation's reputation. However, excessive disclosure of sensitive information can harm an organization's reputation if it leads to misunderstandings or breaches of confidentiality.
Strategic Goals: The organisation's strategic goals and objectives should influence its approach to transparency and disclosure. For example, if the organisation aims to be a leader in sustainability, it may choose to disclose extensive environmental and social impact data.
Finding the Right Balance
Finding the right balance between too much and too little transparency can be challenging in corporate governance. The appropriate level of transparency and disclosure can vary depending on the organisation, its industry, its stakeholders, and the specific context. Striking the right balance between transparency and privacy is crucial. Some information may need to be protected due to legal or ethical reasons, such as personal or sensitive data. To strike a balance, it is recommended that board members and organisation consider the following.
Transparency Policies: The board should ensure the establishment of clear policies and guidelines for transparency and disclosure. These policies can help ensure consistency and clarity in communication.
Engagement with Stakeholders: Engaging with stakeholders through surveys, focus groups, and consultations can help organisations understand their expectations and concerns regarding transparency. This input can guide disclosure decisions.
Risk Assessment: Conduct a risk assessment to identify potential risks associated with disclosure. Evaluate the potential impact of disclosing specific information and weigh it against the benefits of transparency.
Periodic Reviews: Regularly review and assess the organisation's transparency and disclosure practices to ensure they remain relevant and appropriate. Adjustments may be needed as circumstances change.
Use of Technology: Leverage technology to provide stakeholders with easy access to relevant information while also allowing for the customisation of the information they receive. This way, stakeholders can access the level of detail they desire.
Transparency Communication Strategy: Develop a clear communication strategy for transparency efforts. Explain to stakeholders why certain information is disclosed and how it aligns with the organization's goals and values.
Transparency and disclosure are crucial in promoting accountability, trust, and informed decision-making. Whether in government, business, or personal relationships, being open, honest, and providing accurate information fosters transparency. By establishing a culture of transparency and implementing responsible disclosure practices, we can create a more just and trustworthy society.
Striking the right balance between too much and too little transparency and disclosure requires a thoughtful and context-specific approach. Board members and organistions should prioritise compliance with legal requirements, stakeholder expectations, and materiality while considering industry norms, competitive factors, and strategic objectives. Regular assessment and engagement with stakeholders can help organisations refine their transparency and disclosure practices over time.
& Advocacy Department,
Chartered Institute of Directors (CIoD),
28, Cameron Road, Ikoyi, Lagos