Corporate transparency no longer ‘nice to have’ as consumers grab power to unearth data on any business.
For many years, the phrase that best described the attitude of most businesses to transparency was ‘on a need-to-know basis’. Whether it was shareholders, employees, customers or civil society, companies were reluctant, or indeed saw no need, to share information with their stakeholders.
“It used to be that if a company identified an issue, it would deal with it internally,” says Patricia Carrier, project manager of the Business & Human Rights Resource Centre’s Modern Slavery Registry.
That has now changed. “Transparency is a must-have for business these days,” says Adam Garfunkel, managing director at Junxion. “It is part of the transition from 20th century shareholder capitalism to 21st century stakeholder capitalism.”
In part, greater transparency has been forced upon the business community by legislation such as the UK’s Modern Slavery Act and the US Securities and Exchange Commission’s climate disclosure rules, along with a plethora of standards and regulations (from food safety rules to renewable energy procurement policies).
But also “consumers and other stakeholders want to deal with companies that are authentic,” says Garfunkel. “They want to feel a connection not just with the products they buy but also the companies they buy them from.”
Thanks to the spread of technology and social media, consumers are engaged and connected both to companies and to other consumers. As the influence of the Millennial generation grows, they have higher expectations of the companies they buy from about issues ranging from resource use to labor conditions throughout their supply chains. These expectations also apply to the companies they work for. This generation wants to work for companies that are doing the right thing and they want to see the evidence of it.
Investors, too, are increasingly concerned about these issues and their potential to hit company performance and thus their returns. Currently, civil society organizations are running ever-more targeted campaigns on issues ranging from palm oil to child labor to workplace safety, targeting entire industries and individual companies. Watch out you may be targeted next.
Yet when something goes wrong in those supply chains, companies at the top of the chain can be held responsible.
Activist investors are filing a growing number of shareholder resolutions, demanding to know how companies are dealing with issues such as climate change. For example, 62% of investors recently voted in favor of a resolution calling on ExxonMobil to assess the impact of climate change on its reserves and operations, up from 38% the previous year.
“Being transparent is managing all these risks. You can’t stick your head in the sand and hope no one notices. Doing nothing is not a viable option,” Garfunkel points out.
Intensifying all these pressures is the vast amount of data now being generated by businesses. However, there is a big difference between data and informed knowledge. Many companies are so large and complex, with supply chains that span continents, that it is almost impossible to keep track of what is happening.
Yet when something goes wrong in those supply chains, companies at the top of the chain can be held responsible. Corporations face two conflicting trends, says Jane Fiona Cumming of sustainability consultancy Article 13. On the one hand, “people assume that responsible companies are doing the right thing and the general public are not too bothered about ‘transparency’ until after something has gone wrong”. Conversely, “there is an automatic assumption that companies in certain sectors are behaving ‘unethically’ regardless of whatever the company may do or report,” she adds.
Being transparent can help in both situations. Having the ability to identify issues before they happen can save companies millions of dollars, huge damage to their brands and the goodwill of their customers, employees and investors. “That is why the companies that tend be more transparent about their risks are consumer-facing businesses, large multi-national groups and those who have previously been caught up with a scandal,” says Carrier. “We are seeing more disclosure evidencing robust due diligence practices from companies.”
Cumming adds: “Companies are being ranked on what they do, not just by organizations they know are doing so, such as Behind the Brands and World Value, but by NGOs, and everyday consumers on social media through initiatives such as Rank-a-brand.”
Sustainability information is now provided on Bloomberg terminals while index providers such as MSCI, FTSE and Dow Jones offer indices themed around a range of sustainability issues.
As the quality of information increases and technologies (such as the internet, advanced analytics and artificial intelligence) improve the ability for everyone to access and use that information, companies need to utilize these tools to gain greater insight into their operations and become more transparent to their stakeholders.
For example, asset manager Arabesque has created S-Ray, a new data analysis tool that allows anyone to monitor the sustainability of thousands of the world’s largest companies. Georg Kell, Vice-Chair of Arabesque and former United Nations Global Compact head, says: “Technology can now be used to harness unprecedented amounts of corporate data and allow us to explore beneath the surface of thousands of companies across the globe. Shining a light on environmental stewardship, on social impact, and on universal values. Ushering in an age of hyper transparency,” he adds.