Author: Dan Keeler

Transparency Fatigue

In the post-Enron corporate clean-up frenzy, investors in US public companies have received a great deal of attention. Most prominent among the efforts to protect the investor has been the Sarbanes-Oxley act. But it is far from alone.Almost every week,it seems, another initiative is announced, promising to bring new clarity to corporate accounting, better reporting or, most recently,more effective measurement and management of Corporate America’s performance (see Newsmaker,page 6).

Most of these recent efforts to protect investors are all both well intentioned and laudable.Whether they will be effective, though, is another matter entirely.Already, a number of non-US companies have either postponed or cancelled plans to list on US exchanges,deterred by all the additional red tape and increasing regulatory burdens. Increasingly, public companies are planning on going private—and many already have done so this year. In fact, as the full impact of the new regulations becomes clear it is looking like Sarbanes-Oxley is creating a more litigious environment that will lead many companies to disclose less rather than more information.

Those who support transparency for transparency’s sake would do well to look at other markets where efforts to increase disclosure have—or almost certainly would—backfire on investors.Asia is a case in point where increasing transparency can actually work against investors’ interests.At a recent conference in
Hong Kong, for example, a group of consultants gathered to discuss how to improve corporate governance in Asian business.Far from promoting an approach similar to Sarbanes-Oxley, the consultants concluded that, in a business environment where personal connections are the key to corporate success, better corporate governance—in the US sense—is at best irrelevant and at worst a hindrance.

Even proponents of improved corporate governance privately admit that companies may be so overwhelmed with the plethora of initiatives that they will turn their back on all of them.

Ultimately it seems there may be a fine line between transparency and invisibility.And if the effect of the intense focus on disclosure is to encourage more secrecy then investors and businesses alike will have lost out.

Dan Keeler