By Michael S. Olympios
Chief Consultant
Allied Consultants
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Corporate disclosure is the cornerstone of healthy markets. But how much really corporate governance helped in that direction? I suppose the discipline of corporate governance is still evolving, just like everything else in life. But in principle disclosure is absolutely necessary for investors to make informed investment decisions. On the other hand the information provided by companies must be timely, sufficient and accurate without compromising any strategic objectives. Disclosing however bizarre relationships may be necessary in helping investors understand how governance rules are observed and assess the quality of directors’ independence. This is a critical element that will normally preoccupy the nominations committee. The truth is that companies like their privacy and they think that investors don’t really care or need to know about anything else other than profits and dividends. These misguided perceptions however may prove to be detrimental if they prevail, as we have considerable evidence from a number of public companies that are currently in distress or have failed altogether. The evolution of corporate disclosure is, in part, illustrated by the history of American Express, which was formed in 1850 and began trading on the New York Stock Exchange in 1867.
In 1935, at the dawn of the modern era of corporate communications with shareholders, American Express Co.’s proxy for that year’s annual meeting totalled two pages. It didn’t even name the directors who were going to stand for election. AmEx’s 2005 proxy, by contrast, runs some 40 pages. It includes not only the names of directors, but also their résumés, compensation and possible conflicts of interest. Other sections of the proxy include information on executive pay and corporate-governance practices. Two shareholder proposals, opposed by management, also made the document.
These two reports from a respected American company illustrate the massive shifts that have occurred in the world of corporate disclosure. Although a great deal of disclosure was required by regulators or listing standards, many companies thought that it was to their advantage to supply more information than their competitors in an effort to build investors’ trust.
Despite significant improvements in corporate governance in Cyprus the quality and quantity of information coming out of companies varies considerably, making it harder for investors to compare like for like.
Yet despite significant improvements, Mr. Turner and others worry about the quality and quantity of information coming out of corporate America. Some argue that new types of measures are needed to help shareholders evaluate a company. Others worry that the sheer volume of often-complicated financial information that companies report is already swamping investors. The current state of corporate disclosure is the result of a long struggle between conflicting interests, historians and financial specialists say. There has long been “a tension between the investors and the companies. Investors want more information, and the companies don’t want to provide it,” says Robert Herz, chairman of the Financial Accounting Standards Board, which helps set accounting rules for public companies. Although the tension still rages on more companies realise that it is in their best interest to satisfy the market’s growing appetite for more disclosure.
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