TRANSPARENCY IN GOVERNANCE IS THE ULTIMATE KEY TO REFORMS
Greetings,
Transparency in governance refers to the absence of secrecy and mystery between the Government / Corporate and those being governed / Stake holders. It implies that the sharing as much information with the citizen / stake holders as possible. The information shared should not be ambiguous or selective, but complete and correct. Transparency does not mean just inform the people about decisions that affect them, but also lets them know the grounds on which such decisions have been taken. Transparency also implies that all rules and regulations regarding the functioning of the various arms of the government, organization and the powers and duties of its officers / directors are in the public domain.
Transparency helps not only to inform the public about development ideas and proposals, but also to convince citizens that the public agencies are interested in listening to their views and responding to their priorities and concerns. This in turn enhances the legitimacy of the decision-making process and strengthens democratic principles.
Transparency also influences civic engagement in a more direct manner. Responsiveness often holds the key to successful involvement of citizens and the private sector. Governments / Organizations that share their assessments and plans with citizens / Stake holders and seek their views on a regular basis can be far more effective in implementing development programmes with the participation of stakeholders.
Thus transparency can help to stimulate active engagement of the private sector and civil society in public affairs, thereby confirming the changed role of the government as an enabler and facilitator of access to, rather than provider and controller of, goods and services.
Since transparency involves sharing of information, meaning most decisions of officials, Board of directors and important rules and regulations are in the public domine, it thoroughly reduces change of corruption, nepotism, favoritism, and the like. Lake of information about the functioning of the government agencies / Board of the company can make it easy for corrupt officials to cover their tracks. On the other hand when official know that their decisions will be out in the open, then, they will be less inclined to act randomly or with self –interest. It would be appropriate to say that the least transparent organization / government exist in the most corrupt countries. Transparency in governance also has a positive impact on the efficiency of government functioning. Since most rules and regulations are in the public domine people approaching the Government for its service will already know about the basic requirements, and officials will not waste precious minute explaining their position to people. Similarly, transparency improves accountability of the government staffs. As the power of all the officers and arms of the government are out in open, and proper records of all actions of officials are available, it would be easy to fix responsibility in case of any misdemeanor. On the other hand if decision making process is shrouded in secrecy, officers involved will take the onus of an incorrect decision.
Information is crucial to good governance as it reflects and captures the government’s activities and processes. Every citizen of the state has right to access information under the control of public authorities consistent with public interest. The main objective of governments providing information to its citizens is not only to promote openness, transparency and accountability in administration, but also to ensure participation of people in all matters related to governance.
Increased transparency of and the public’s access to, information is essential to supplement legislative scrutiny. Opportunities need to be provided for public consultation or participation throughout the budget process. Development and maintenance of avenues for filing, follow up and redressal of public complaints to support identification of instances of waste and mismanagement of resources is essential. Public expenditure impact and efficacy studies may be conducted from time to time by credible agencies and placed in the public domain.
Financial Responsibility
There is need for a Financial Responsibility Legislation to improve and enhance accountability in the conduct of Financial policy by specifying principles of responsible Financial management by strengthening the reporting requirements of the Government and for other purposes. The Act should enunciate Financial management principles and measures for Financial transparency. Accordingly, the Government would need to ensure that borrowings are used for productive purposes and for accumulation of capital assets and not for financing current expenditure. The Government would also need to ensure a reasonable degree of stability and predictability in the level of tax burden and maintain the integrity of the tax system by minimizing special incentives, concessions and exemptions. The non-tax revenue policies would be in due regard to cost recovery and equity.
Transparency in Public Procurement
All procurement in government may be regulated by a Transparency in Public Procurement Legislation. This law may be enacted for ensuring transparency in public purchase of goods and services, in selecting tenderers, or inviting, processing and acceptance of tenders by procurement entities including e-procurement agencies. It is meant to provide a legal framework for all public procurement and should be applicable to Government Departments, Public Sector Undertakings, Listed Companies, Universities, Panchayats, Local Bodies, Statutory Boards, and those who receive money from Government, etc.,
Developing a Framework for Transparency
It will be useful to review the comparative advantage of the major stakeholders in promoting good governance before finalizing the strategies for promoting transparency through the governance approach.
The Government
The government that is accountable to people and is bound by the law of the land can rightly claim to act on behalf of the people. Leadership, therefore, is government’s pre-eminent role in promoting good governance. This leadership applies in particular to ensuring an equitable distribution of benefits and to creating an enabling framework for development. The strategy of the government therefore would include passing laws, reforming the civil service, and promoting economic liberalization, and also promote public awareness on specific issues. An open government should be a goal and disclosure rather than secrecy should be the norm of governance.
Private Sector
The role of private sector is very important as it is an important means of creating jobs and employment that in turn generate revenue through taxes. These taxes are used by the government to design the social programmes that benefit citizens. Therefore, the private sector and the government need to work towards in harmony and understanding for providing better opportunities for citizens. Transparent corporate governance is a must for a responsible private sector.
Non-Governmental and Community-based Organizations (NGOs/CBOs)
The NGOs and CBOs promote the interests of citizens, particularly under-represented groups such as women and the poor. Another aspect of their legitimacy is their explicit not-for-profit orientation. Transparency, however, is as vital to these organizations as it is for government and the private sector. Their advocacy role can be undermined by undemocratic internal structures that may raise suspicion regarding their motives or their not-for-profit status.
Media
The media have an important role to play in promoting good governance. Their role should not be seen as limited to identifying and exposing corruption, but should also recognize and capitalize on their role as a source of truth. They have an important role to play in reinforcing and building momentum for change by recognizing good practice and highlighting successes in achieving development objectives. Like non-governmental organizations, however, their credibility may be undermined by unprofessional conduct that leads to questions regarding their bias.
Professional Associations
The legitimacy of these organizations is based on the professional standards they profess to uphold. Their responsibility regarding promoting good governance and combating corruption is to publish and disseminate their standards and sanction those members who violate them including codes of ethics or anti-corruption clauses in their membership requirements can serve as valuable tools that contribute to creating a culture intolerant of corruption.
The Individual Citizen
Good governance cannot succeed without committed individuals. While the rights of individuals are widely discussed when it comes to issues of corruption, they also have a responsibility to promote good governance: to be informed and to actively participate in the decisions that affect their lives. The responsibility of individuals taking on leadership roles is also equally important. The office holders must act with integrity on behalf of those they act in trust. Integrity improvements at the level of the individual, therefore, have an important role to play.
Good governance requires that all the actors engaged in the governance process follow well-defined codes of conduct and their public affairs are subject to scrutiny by the public under legally stipulated procedures.
Transparency in Corporate:
Today, corporate reporting should no longer be restricted to the financial statements, but encompasses a broad array of additional matters that must also be disclosed. No longer focused on historic results, it should also include prospective elements, such as guidance on future revenue and earnings targets. Moreover, disclosure of a growing number of non-financial performance metrics is required, together with an ever-increasing number of financial metrics.
Transparency enables investors, creditors, and market participants to evaluate the financial condition of an entity. In addition to helping investors make better decisions, transparency increases confidence in the fairness of the markets. Further, transparency is important to corporate governance because it enables boards of directors to evaluate management’s effectiveness and to take early corrective actions, when necessary, to address deterioration in the financial condition of companies. Therefore, it is critical that all public companies provide an understandable, comprehensive and reliable portrayal of their financial condition and performance.
If the information in financial reports is transparent, then investors and other users of the information are less likely to be surprised by unknown transactions or events. Investors and creditors expect clear, reliable, consistent, comparable, and transparent reporting of events. Accounting standards provide a framework that is intended to present financial information in a way that facilitates informed judgments. For financial statements to provide the information that investors and other decision-makers require, meaningful and consistent accounting standards and comparable practices are necessary.
Accountability and transparency are indispensable pillars of good governance that compel the state and civil society to focus on results, seek clear objectives, develop effective strategies, and monitor and report on performance. Through public financial accountability and transparency, governments can achieve congruence between public policy, its implementation and the efficient allocation of resources. Lack of financial accountability could lead to inefficiency, waste, and pilferages, and even impede development.
The three components of the financial transparency cycle are:
• Records Management : Creation, Maintenance and Use Disposition;
• Accounting: Planning, Budgeting and Expenditure, Internal Control and Internal Auditing, and Financial Reporting;
• External Auditing: Compliance, Value-for-Money and Certification Auditing.
• The relationship between good corporate governance and transparency should be apparent. Corporate governance at its core involves the monitoring of the corporation’s performance and the monitor’s capacity to respond to poor performance – the ability to observe and the ability to act. Transparency goes directly to the equity market’s ability to observe a corporation’s performance.
Most information concerning a corporation’s performance is uniquely available from the corporation. Without effective disclosure of financial performance, existing equity investors cannot evaluate management’s past performance, and prospective investors cannot forecast the corporation’s future cash flow. One might well respond that corporations have an incentive to voluntarily provide financial information in order to lower its cost of capital. Delivering information to investors is easy; but delivering credible information is hard. Suppose honest and effective managers report good earnings. What keeps dishonest and ineffective managers from also reporting good, although false, earnings?
To take a less extreme but nonetheless illustrative example, imagine two companies that find themselves in very different circumstances. The first accurately reports a substantial profit from its activities that year. The second also reports a substantial profit from its activities, but in this case the profit really results from reversing reserves created in better times that hide an actual loss from operations. In the extreme, if investors cannot distinguish between accurate and inaccurate financial reporting, then the market cannot distinguish between them. If the market therefore discounts the value of both companies, a good company looks for a form of financing that allows it the ability to demonstrate, at greater cost, its actual quality. Higher cost bank financing thus may have an advantage based on the barriers that accurately reporting companies confront in distinguishing themselves from companies with less transparent accounting practices.
Equity investment requires good corporate governance, and good corporate governance requires the capacity to make credible disclosure of financial results. In the absence of effective financial disclosure, a country’s capacity to support equity markets and, in turn, important kinds of industry, is compromised, Effective corporate governance also requires a second form of transparency – ownership transparency. Shareholders can suffer from poor corporate performance; however, they also can suffer from a controlling shareholder’s divergence of earnings or opportunities to itself. For this reason, it is also important that companies disclose the identity of shareholders who own significant amounts of corporate stock. To be sure, disclosure alone is insufficient to police self dealing by controlling shareholders. As a rapidly growing empirical literature demonstrates, effective substantive protection of minority shareholders is also critical to effective corporate governance and a successful equity market, but knowledge of whether the potential exists is a necessary first step.
e-Governance
In the current days the most important development with regards to increasing transparency in governance has been emergence of eGovernance. eGovernance involves using of internet and information technology in the progress of governance. Putting up information regarding the functioning of various departments, its rules and regulations and major announcements on the websites for everyone to see, this seemingly simple step has increased transparency by a wide margin, because it has removed the local officials in providing this basic information’s to the public. So those in need of such information need not grease the palms of petty officials and since the information is publicly available in the website, they are likely to play cat-and-mouse game with the officials.
In the words of Honorable Dr. A.P. J. Abdul Kalam, former President of India (Reference No. 2 page No. 137)*
“Good governance is being recognised as an important goal by many countries across the world. Many nations have taken up specific initiatives for open government. Smart card is the core of e-governance. Freedom of information is being redefined and supported by detailed guidelines. The Internet revolution has proved to be a powerful tool for good governance initiatives and the world is moving towards Internet governance. An important dimension of the Internet potential is the possibility of providing services any time anywhere. Along with this, there is a conscious effort to put the citizen as the center of focus of the governance. Citizens are being perceived as customers and clients. E-governance has to be citizen friendly. Delivery of services to citizens is considered as a primary function of the government. Particularly in a democratic nation of a billion people like India, e-Governance should enable seamless access to information and seamless flow of information across the state and central government in the federal setup.”
However transparency in itself is not enough to root out corruption, this is because while transparency implies availability of information, it also requires an educated and intelligent population to find out the true meaning of the available information and act on it. Rooting out corruption also requires a prompt and effective criminal justice system which can swiftly punish the guilty. So we can say that transparency is a necessary but not sufficient condition to root out corruption.
In a country like India with a large population of uneducated and poor people information has not only made available, but the availability of information itself has to be advertised. This means that we need activists who can inform and educate the public about the kind of information available to them and how to use the information’s. While some government departments are performing this role, there is a lot of gap remaining which has to be bridged by social activists and the media. The information that is available has to be presented in a manner that is usable by the general populace, for this we need people who can seek information from required sources, collate it and make it comprehensible to the people who may be affected by such information. The news media is one arm of society which can effectively do this. For example the document for the award of tender for a multi-billion dollar project would be difficult to understand for most people, but news paper and news channels have technical people who can understand the nitty-gritty of the complex documents and can present the main points to its readers.
Review of one aspect of corporate governance – disclosure and transparency – is the hot issue of today, of course, the development of this issue will be related closely to other, not less important aspects of corporate governance, such as:
• Judicial system
• Securities market
• Assesment activities
• Banking system etc.,
The country will be in a position to effectively develop its economy, if we solve the whole set of problems in the area of corporate governance. It is important to note that the most important element of governance development is the local business environment within the country. If the business environment is enabling, the companies will need investments, and consequently, they will attempt to conform with high standards of running their business, or corporate governance. Investors and board will both contribute resources to business, and thus the economic machine of interaction will begin to operate thus transparency in governance is the ultimate Key to Reforms.
Thank you.
References:
1. Corporate Governance in India – Evolution and Challenges by Rajesh Chakrabarti, College of Management, Georgia Tech, 800 West Peachtree Street, Atlanta GA 30332, USA.
2. *Towards Improving Governance – by Admiral (Retd.) R. H. Tahiliani, Chairman – Transparency International India.
3. OECD – Transparency, Corporate Governance and Capital Markets – Ronald J. Gilson, Meyers Professor of Law and Business, Stanford Law School, Stern Professor of Law and Business, Columbia University School of Law.
4. Ushering in Transparency for Good Governance – by V. K. Parigi, Workstream Leader (Accountable Workstream), Dr. P. Geeta, Knowledge Manager (Governance & Capacity Building), Mr. Rameesh Kailasam, Senior Manager (Finance, Administration & Contracts), Centre for Good Governance, Hyderabad.
5. http://www.publishyourarticles.net/knowledge-hub/articles/how-to-improve-transparenancy.