The recent news that the Wi-Fi firm Gowex had been fiddling its accounts for the past four years came as a shock to its board. In just two days the value of the company’s shares was wiped out, the firm filed for bankruptcy, the CEO resigned and now the legal recriminations begin.
Gowex violated the first priority of corporate governance: to have clear accounts. And both the board and auditors failed to regulate the company’s accounts.
In his article “Transparency, a Rising Trend in Listed Companies,” published in the latest issue of IESE Insight magazine, José M. Campa explains that being accountable means “having consistent, comparable reporting criteria in order to provide a relevant, reliable picture of the company’s financial activities, which can be confirmed by impartial third parties.”
Even though this seems pretty basic, the recent experience of publicly-traded companies reminds us how many reporting standards still fall short.
“Bad corporate governance practices damage public trust in business,” says Campa. “Restoring trust and regaining stable economic footing demand that companies embrace good governance instead.”
Beyond Clear Accounts
Campa notes that corporate governance must go further: “Good governance is not just about presenting clear accounts that reflect the company’s financial activities. To ensure the clarity and consistency of its future accounts, there must also be transparency in a company’s decision-making processes.” According to the author, this requires much greater transparency as well as more fluid communication between the major stakeholders at three levels:
- between top management and the board of directors;
- between the board of directors and shareholders;
- between shareholders, or the company owners, and society at large.
For instance, in addition to the usual committees, companies are increasingly setting up specialized committees to oversee strategic areas such as risk investment and technology.
Even though Campa admits corporate governance cannot guarantee that good decisions will always be made, he believes it can ensure there is accountability and that decisions are taken in an appropriate manner.
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