The Transparency in Corporate Governance - Essay Example

Shareholders and investors are being defrauded and deceived on the real status of earning and expenses within the firm through financial statements that are not entirely accurate. Such failures of corporate governance have produced a negative impact on investor confidence and made them question the integrity of information that is provided in the financial statements of a corporate entity.1 The development of corporate governance codes has as its primary objective, the restoration and increase of investor confidence through increased accountability and transparency in corporations2.

Effective corporate governance enhances investor confidence, enhances competitiveness and ultimately contributes to economic growth. Transparency in corporate governance implies a lack of opacity or secrecy in financial operations and is thus associated with full disclosure of financial and operational information. Transparency implies that there are no hidden agendas and that clear information is provided, not only on financial and operational aspects but also on the internal processes of management overseeing and control systems.

It is on the basis of such complete disclosure of information that a meaningful analysis of the Company can be made and outside investors who put their money into an organization can understand its operations clearly and make good investment decisions. Transparency can therefore mitigate the risks associated with corporate governance and the potential for corporate scandals. In countries such as the USA and the UK, ownership of shares in corporations extends over a widespread shareholder base.

This leaves scope for potential conflict, arising between the interests of the stakeholders in the corporation and the Boards of Directors who could allow their own self-interest to influence organizational decision-making.