Transparency – too much of a good thing?

One of our occasional looks at old-ish books.
The centrepiece of corporate governance and capital markets has long been disclosure. It's sometimes invoked in the expression from 1917 from the soon-to-be US Supreme Court justice Louis Brandeis as "sunlight … the best disinfectant". Others speak in the duller language of economics about how in reducing information asymmetries we make markets more efficient. Still others view disclosure as a right – invoking freedom of information consideration in public life and a near equivalent when the private sector affects broad social issues. In the larger sphere of governance, Woodrow Wilson famous sought to prevent a repeat of the horrors of the First World War by advocating "open covenants … openly arrived at", though he also favoured negotiations behind closed doors.

Downsides: But transparency has its disadvantages, too. While we might take as a simple moral principle the maxim "would you want your mother to know?", ethics are often messier and not quite so clear cut. Perhaps you care enough for the mother that you don't want to upset her with actions that arise from ethical consideration situated historically in a place she would feel uncomfortable. Discretion is often said to be the better part of valour. In markets and in public affairs, openness has an aim – fostering trust. Trust allows transactions without contracts, reducing the cost of doing business or government. But openness can have the opposite effect, making people more wary of doing business with someone who once made a mistake. Openness can have directions as well. One-way openness can weaken a negotiating position. Even two-way transparency without dialogue may not create communication and with it trust.

Too much of a good thing? The facets of transparency come clear in a collection of essays published a few years ago, partly in response to the UK government's drive to use published targets and reports as a means of increasing the accountability of public institutions. The book Transparency: A Key to Better Governance? takes more of a "government" than "governance" perspective, but it draws on corporate experience in accounting as a way of creating accountability, sometimes with unintended consequences. Crime statistics can make people feel less secure rather than more. The length of waiting lists for hospital appointment can highlight the lack of choice in a centralised healthcare service.

Beating expectations: Similar issues arise in corporate affairs, seen perhaps most prominently in the way that striving to meet or beat analyst earnings estimates can lead management to adopt a short-term focus, to the detriment of the business. Short-termism has its upside, though: the long term is, after all, the sum of all short terms.

Source document: The book, edited by Christopher Hood and David Heald, is available to purchase at Amazon.