Transparency is a key driver of corporate reputation, but it is also an area in which companies commonly underperform. There is increasing external and internal pressure on organizations to become more transparent, not only from customers and employees, but also from other stakeholders such as investors, media and regulators. Stakeholders need evidence that environmental and human rights risks are being systematically managed. But too much disclosure also can create risks.
In this edition of Proof Points, we examine some barriers to transparency and what solutions would best help companies drive change and improve their sustainability performance, according to stakeholders polled in the latest GlobeScan SustainAbility Survey of experts.
Trading trust for secrecy
Trust in business is in dramatic decline all over the world, perhaps a result of companies’ failure to deliver on transparency in an era when personal and corporate secrets can be unraveled with a few lines of code or clicks of the mouse.
The results of our most recent wave of GlobeScan Radar public opinion research across 24 countries reveal that trust in specific companies is correlated more with a higher rating of the company’s ability to be “open and honest” than with other factors, such as environmental protection or employee treatment. At the same time, the public also tends to rate companies the lowest on transparency, compared to the same list of performance attributes.
Barriers and drivers
One important aspect of corporate transparency is controversial and highly associated with a lack of public and stakeholder trust: sustainability. Seventy-nine percent of experts surveyed in July believe that corporate transparency positively affects a company’s sustainability performance.
Companies attempting to become more transparent around their sustainability practices may encounter a number of barriers to doing so. Survey results show that poor data accuracy and a lack of focus on material issues are most seen as hindering transparency within organizations, among a list of 10 potential barriers. Comparability of data and a lack of mandatory transparency requirements also are considered key barriers.
So what can motivate companies to become more transparent around their sustainability practices? Stakeholders call on two key solutions to enable transparency to bring about greater progress toward sustainability within companies, both associated with requirements for sustainability reporting. From a list of 13 potential solutions, sustainability professionals see mandatory non-financial reporting requirements for all large companies and increased demand from investors for integrated reporting as the two most needed solutions to drive corporate transparency.
Stakeholders, particularly those in government, clearly would like to see companies be required to focus more on reporting beyond financial results. Increased interest from investors in the non-financial aspects of a company’s performance also is needed to drive corporate transparency efforts in the future.
What should companies do to improve transparency?
In order to improve transparency and increase trust among demanding stakeholders — and in the long-term among the public at large — our survey results suggest that companies need to focus on the quality and the comparability of their data, and the need to improve non-financial reporting to meet both future regulatory and investor requirements.
However, gathering good data and writing a good report is only half the battle: It is equally important to focus on communications, engagement and organizational readiness. It is important to ensure that reports are shared with relevant stakeholders and that they act as conversation-starters. Companies also need to make sure that stakeholder-facing functions within the organization (Finance/IR, HR, Customer Relations) are properly trained and able to communicate the salient points within their reports to their stakeholders and the interested public.
Companies need to focus on the quality and comparability of their data and on reporting it, but never neglect what should happen after their reports are published.
GlobeScan and SustainAbility regularly survey influential thought leaders on sustainability in over ninety countries in the The GlobeScan / SustainAbility Surveys. Further findings from this survey will form part of SustainAbility’s upcoming exploration of the role of transparency in driving performance, to be published in December 2014.
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