It is important for selected officials within the organisational hierarchy to take this as an opportunity to reconfigure critical corporate components and lubricate cogwheels considered crucial for accomplishment of the organisation’s mission.
These are exercises that we may want to replicate in numerous facets of our personal lives as well, and in this light, I wish to take this opportunity to wish all readers of the Business Weekly & Review as well as all the cherished devotees of #CorporateGovernanceCorner a Happy and Prosperous New Year.
Governance designates have the crucial responsibility of ensuring that all material matters pertaining to the organisation’s operations and finances are fully disclosed in a transparent manner to stakeholders. This is in line with multiple corporate governance codes and guidelines. Informative and accurate disclosure sheds light on the organisation’s health and standing.
From a financial perspective, Chief Executive Officers and Boards of Directors should ensure that they avoid the risk of their disclosure not being a relevant, faithful and timely representation of transactions and resources. Furthermore, with the growing consideration of Environmental, Social and Governance factors, they must ask themselves exactly how accurate the reporting of all issues of import – to both shareholders and the broader universe of stakeholders – is. Our focus, however, will be on financial aspects.
In seeking to answer transparency and disclosure questions, a number of rudimentary underlying themes can be considered. Firstly, governance designates must answer questions pertaining to the preparation of the financial statements that will be painting a picture of performance to stakeholders. Has this preparation been undertaken in line with internationally recognised accounting standards? International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) generally serve as hallmarks of global best practice for firms in varied sectors and economies. An intimate knowledge thereof is requisite for improved disclosure and greater transparency.
Secondly, material re-statements within financials, as well as major transaction occurrences, must be considered in depth. It would be advisable to go back at least five years to consider any crucial changes to how aspects in financial statements have been reported and stakeholders must be informed of this. With regard to major transactions, are there any related-party transactions such as sales, leases and service-level agreements with subsidiaries or minority-owned companies that have occurred? These are material in that they tend to have financial, reputational, and legal impacts on the firm and must consequently be disclosed. Should these not be reported explicitly within the financial statements, firms may include their information in either a section of their Annual Report or on the organisation’s website for transparency purposes.
Another crucial theme for consideration in this realm is the frequency of review of key elements of financial reports by the Board of Directors (and/or Audit Committees). It is not uncommon during the financial year for quarterly or semi-annual reports to be published that have been thoroughly reviewed by governance designates to ensure regular monitoring and frequent appraisal of the company’s financial and operational standing. These ‘interim’ reports go a long way in keeping stakeholders well-informed. The firm may also consider having a written information disclosure policy which has the primary aim of ensuring that all material information (financial and non-financial) is fully, timely and equally made available to all stakeholders and parties interested in the organisation as a going concern. Such policies are a welcome development as they present the organisation with a guide or standing document for reference where matters relating to disclosure and transparency are concerned.
A few final considerations tied to transparency and disclosure, which may relate more to listed companies would include, for instance, the frequency of periodic meetings that the Board (though more often, executive management) holds with securities analysts in the market. This may shed light on the disclosure of competing market participants and general capital market developments. Furthermore, an awareness of all additional information requirements and clarification in annual reports as stipulated by the regulator, and/or the Stock Exchange, must be maintained. This can avoid detrimental events with reputational repercussions such as sanction and censure.
Overall, disclosure and transparency serve as crucial elements of comprehensive corporate governance regimes, providing a formidable foundation for informed decision-making within the organisation.
The views and opinions expressed in this article are those of the author, Dumisani F. Ntini – Governance and Strategy Practitioner. Contact info@governancegroup.org.
