8/10/2019 importance transparancy and disclosour

http://slidepdf.com/reader/full/importance-transparancy-and-disclosour 1/11

The Importance of

Transparency and

Disclosure

Presented by Brian S. Brown

Seoul, Korea - March 1999

OECD Conference:Corporate Governance in Asia

8/10/2019 importance transparancy and disclosour

http://slidepdf.com/reader/full/importance-transparancy-and-disclosour 2/11

2

Today’s Discussion 

 An effective disclosure regime and the areas requiringfurther development in the Asian context

 – OECD Principles, US vs Asian issues, typicalobjections to more disclosure

Non-financial disclosures relevant to the governance ofenterprises

 – Governance and risk management, value drivers

Concerns relating to external auditing

 – Independence, standards, key audit processes

8/10/2019 importance transparancy and disclosour

http://slidepdf.com/reader/full/importance-transparancy-and-disclosour 3/11

3

OECD Disclosure Principles

 Annual, interim, and material events disclosure of:

 – Financial and operating results

 – Company objectives

 – Major share ownership and voting rights

 – Directors and senior management, and their remuneration

 – Material foreseeable risk factors

 – Material issues regarding other stakeholders

 – Governance structure and policies

High quality standards for financial and non-financial disclosure  Annual external audit under professional standards

Fair, timely and cost-effective access by users

8/10/2019 importance transparancy and disclosour

http://slidepdf.com/reader/full/importance-transparancy-and-disclosour 4/11

4

US vs Emerging Market Issues

SEC Chairman’s Earnings

Management Agenda

 – “Big bath” restructuring

charges

 – Creative acquisitionaccounting

 – “Cookie jar” reserves 

 – Premature revenue

recognition

 – Immaterial accountingmisapplications

Role of Accounting Disclosure in

East Asia Crisis*

 – Related party lending and

borrowing

 – Foreign currency debt – Derivative financial instruments

 – Segment information

 – Contingent liabilities

 – Banking industry

* UN Conference on Trade and Development in 12/98

8/10/2019 importance transparancy and disclosour

http://slidepdf.com/reader/full/importance-transparancy-and-disclosour 5/11

5

Typical objections include ...

Disclosure is seen as a compliance task where only theminimum is presented and then somewhat grudgingly

Family oriented businesses say corporate governanceis hinder-some to their objective of making money

Fear of disclosing competitive information ascompetitors will use it

The market will always expect it and punish bad news

8/10/2019 importance transparancy and disclosour

http://slidepdf.com/reader/full/importance-transparancy-and-disclosour 6/11

6

Non-financial disclosures ...

Traditional accounting is increasing of limited usefulnessand does not always provide needed information

Non-financial disclosures include:

 – Strategies

 – Board membersand policies

 – Compensation

 – Risk managementpolicies

 – Compliance withcode of best practice

 – Value drivers such as:

New productdevelopment

Customer retention

Market share andgrowth

Product quality

Employee satisfaction

8/10/2019 importance transparancy and disclosour

http://slidepdf.com/reader/full/importance-transparancy-and-disclosour 7/11

7

CalPERS principles provide a market focused

approach ...

 Accountability

 – Open and accessible about condition of company and performance

of management team

 – Disclose how key decisions are made, including those for executive

compensation, strategic planning, nomination, appointment and

assessment of directors

Transparency

 – Report compliance with code of best practice and explain reasons

for variations

Long Term Vision – Have a long-term strategic vision with shareholder value at the core

and executive compensation aligned to long term performance

8/10/2019 importance transparancy and disclosour

http://slidepdf.com/reader/full/importance-transparancy-and-disclosour 8/11

8

Investors’ view of adequacy

of value driver information

0

10

20

30

40

50

60

70

8090

100

   E  a  r  n   i  n  g 

  s

  C  a  s   h

    F   l  o  w

   M  a  r   k  e   t   G

  r  o  w   t   h

  C  o  s   t

   R  &   D    I  n  v  e  s   t  m

  e  n   t

   N  e  w    P  r

  o  d  u  c   t 

   D  e  v  e   l  o  p  m

  e  n   t

  S  e  g   m

  e  n   t    P  e

  r   f  o  r  m

  a  n  c  e

  C  a  p   i   t  a   l 

   E  x  p  e

  n  d   i   t  u

  r  e  s

   M

  a  r   k  e   t   S

   h  a  r  e

   P  r  o

  d  u  c   t   Q  u  a   l   i   t  y

Japan Hong Kong Taiwan Singapore

UK US

Source: PwC / MORI survey on ValueReporting TM 

8/10/2019 importance transparancy and disclosour

http://slidepdf.com/reader/full/importance-transparancy-and-disclosour 9/11

9

Evidence good corporate governance

does lead to increase shareholder

value CalPERS attributes

 – US$ 150 million in increased value

 – from -66% to +52% against S&P 500

Business Week survey

 – Top 25 returned 28% (50% better than S&Paverage)

 – Lowest 25 returned just 5%

8/10/2019 importance transparancy and disclosour

http://slidepdf.com/reader/full/importance-transparancy-and-disclosour 10/11

8/10/2019 importance transparancy and disclosour

http://slidepdf.com/reader/full/importance-transparancy-and-disclosour 11/11

11

Some Final Thoughts

Global capital markets will insist upon clear, relevantfinancial information

Capital has no memory, it will flow where is seesreward and understands the risks

Volatility is the inevitable by-product of a global, highlycompetitive, fast-paced marketplace

Solut ions requi re the sus tained comm itment to

high standards, constant improvement andadaptation to ever changing bu siness envi ronm ent