ECONOMIC AREA, BUSINESS AND LAW – REFLECTIONS AND IMPACTS
TRANSPARENCY – WHAT IS IT? AND HOW IT AFFECTS THE BUSINESS ENVIRONMENT
What you need to know about the concepts of corporate transparency – positive facts
We can’t stress enough how important regulatory aspects are for the transparency of corporate business. Recently, the Federal Supreme Court’s judgment in ADI 7,194 legitimized the exemption from publishing the acts and financial statements of corporations in official gazettes. With the change, corporations can now choose to publish their acts and financial statements in electronic media, such as their own websites or digital platforms, instead of relying exclusively on the Official Gazettes.
But what does this modernization have to do with the concept of Corporate Transparency?
Regardless of the reduction in costs, the publication of the financial statements gives credibility, reliability and accessibility to information for members, employees, suppliers, customers, the financial market, in short, all the stakeholders of companies, especially small ones. Not forgetting Legal Certainty.
And the relevance of transparency was materialized at the Event held by ANEFAC on 24/10/2024, where the best participating companies were awarded the TRANSPARENCY ANEFAC trophy – Companies that overcome risks and challenges with Transparency, as a contribution to the market, members and all other institutions that incorporate the theme of “transparency” into their policies and strategies.
Transparency is a fundamental concept for good governance, both in the public and private sectors. It involves making information available in a clear, accessible and understandable way, allowing individuals and institutions to make informed decisions and evaluate the actions of authorities or companies.
In the public sector, transparency is crucial for Accountability, as it allows citizens to monitor the use of resources, the execution of public policies and the conduct of government officials. Laws such as the Access to Information Act (LAI) in Brazil exemplify instruments that promote transparency by guaranteeing the right of access to government documents and information.
In the private sector, transparency is seen as a pillar of business ethics and corporate governance. Transparent companies tend to build more trust with their stakeholders, such as investors, customers and employees. In addition, international regulations, such as the Securities and Exchange Commission (SEC) rules in the US, require publicly traded companies to disclose financial information rigorously.
Transparency also plays a role in preventing illicit practices such as corruption and money laundering. Bodies such as COAF in Brazil monitor financial activities to ensure that suspicious transactions are reported and investigated.
In the corporate sphere, transparency stands out as one of the fundamental pillars of corporate governance, and is essential for building trust between the company and its stakeholders (investors, customers, employees and society). It involves not only disclosing financial information, but also operational practices, environmental, social and governance (ESG) policies, business strategies, risks and regulatory compliance.
Key aspects of Corporate Transparency:
- Corporate Governance: Transparency is one of the basic principles of corporate governance. Companies that adopt good governance practices promote regular and accurate disclosure of their activities and financial performance, giving investors and the market a clear view of their operations. This includes audited financial reports, disclosure of changes in management and the communication of risks.
- Financial Transparency: The publication of complete and audited financial reports is essential for business integrity. Transparency in this respect allows shareholders, investors and analysts to understand the company’s economic situation. Proper accounting practices, compliance with regulations such as the International Financial Reporting Standards (IFRS) and the Sarbanes-Oxley Act (in the USA) are fundamental.
- Corporate Social Responsibility (CSR) and ESG: In recent years, the demand for reports on sustainable and ethical practices has increased. Investors and consumers want to know how companies deal with environmental, social and governance (ESG) issues. Transparency in CSR includes the disclosure of sustainability initiatives, inclusion and diversity policies, as well as commitments to ethical standards. Companies that adopt transparent ESG practices gain greater reputation and trust in the market.
- Regulatory Compliance: Transparency is directly related to regulatory compliance. Companies must comply with the laws and regulations of their industries, clearly disclosing their practices and ensuring that they are in line with anti-corruption standards, such as the Corruption Prevention Act in Brazil and the Foreign Corrupt Practices Act (FCPA) in the USA.
- Transparency in Labor Relations: Clear and open communication with employees is a central component of internal transparency. This involves disclosing remuneration policies, benefits, career plans, and the fair handling of labor issues. Transparency with employees can improve engagement, reduce turnover and strengthen organizational culture.
- Relations with Customers and Suppliers: Transparency in business relations includes fair negotiation practices and the honest disclosure of information about products, prices, agreement conditions and responsibilities. Companies that maintain open and honest communication with their suppliers and customers tend to build stronger and longer-lasting partnerships.
- Fraud and Corruption Prevention: Corporate transparency helps prevent fraud, corruption and other unethical behavior. By establishing robust internal controls and auditing systems, companies can identify suspicious activities and promote a more ethical and secure business environment. Compliance programs play an important role in ensuring that companies operate in a legal and transparent manner.
Benefits of Corporate Transparency:
- Trust and Reputation: Transparent companies gain the trust of their investors, customers and employees, which strengthens their reputation in the market and increases consumer loyalty.
- Access to Investments: Financial transparency and compliance with international standards increase the attractiveness of companies for institutional investors, expanding the possibilities of raising funds.
- Risk Mitigation: By clearly disclosing their risks and challenges, companies can anticipate potential problems, adopting preventive measures and increasing resilience.
- Talent Engagement and Retention: Transparency in internal policies creates an environment of trust and security for employees, improving engagement and talent retention.
- Compliance with Legal Regulations: Transparency protects companies from regulatory sanctions, fines and legal proceedings, ensuring that they are operating in compliance with applicable laws and regulations.
For a better understanding of the subject, here is a table describing the various topics covered by the transparency debate:
Aspect | Description | Positive Impacts | Consequences of Lack of Transparency | ||
Corporate Governance | Clear disclosure of corporate management operations and practices. | Increases investor confidence and facilitates fundraising. | Distrust in the market, devaluation of shares and difficulty in making investments. | ||
Financial Transparency | Disclosure of audited financial reports and accurate accounting practices. | Facilitates access to credit and investors. Improves risk assessment. | Regulatory fines, loss of trust and possible investigations. | ||
ESG and Social Responsibility | Reports on environmental, social and governance practices (ESG). | Strengthens reputation and attracts investors focused on sustainability. | Tarnished reputation and exclusion from sustainable investment funds. | ||
Compliance | Adherence to sector laws and regulations. – Risk mitigation | Avoids penalties, lawsuits and increases the company’s credibility. | Fines, lawsuits and possible exclusion from tenders or foreign markets. | ||
Labor Relations | Clear communication with employees about policies and working conditions + Personnel Management | Increases engagement and reduces staff turnover. | Labor disputes, loss of talent and low morale. | ||
Relations with Customers and Suppliers | Fair negotiation practices and clear communication about products and services. | Establishes lasting partnerships and builds customer loyalty. | Loss of trust, breach of contract and competitive disadvantage. | ||
Fraud Prevention | Implementation of internal controls and audits to prevent fraud – anti-corruption processes, money laundering and financial embezzlement | Reduces operational risks and increases the company’s financial security. | Exposure to scandals, financial losses and damage to corporate image. | ||
Ethics | Guides business decisions – profit with social responsibility | Reputation and image | |||
Sustainability | Business longevity | Permanence | |||
There is an intrinsic and complementary relationship between transparency, ethics and sustainability, especially in the business context. These three concepts form a solid basis for responsible business practices and are fundamental to building trust and long-term value.
Transparency, ethics and sustainability are strongly connected and act interdependently to promote responsible business practices. Transparency provides the necessary visibility for a company’s ethical commitments to be verified. Ethics guides business decisions so that they not only seek profit, but also the common good. And finally, sustainability is the goal that harmonizes the company’s operations with respect for the environment and future generations. A company that neglects any of these elements is likely to struggle to build a solid reputation and remain competitive in the long term.