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The Importance of Transparency and Disclosure PowerPoint PPT Presentation


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OECD Conference: Corporate Governance in Asia. The Importance of Transparency and Disclosure. Presented by Brian S. Brown Seoul, Korea - March 1999 . Today’s Discussion. An effective disclosure regime and the areas requiring further development in the Asian context

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The Importance of Transparency and Disclosure

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The importance of transparency and disclosure l.jpg

OECD Conference:

Corporate Governance in Asia

The Importance of Transparency and Disclosure

Presented by Brian S. BrownSeoul, Korea - March 1999


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Today’s Discussion

  • An effective disclosure regime and the areas requiring further development in the Asian context

    • OECD Principles, US vs Asian issues, typical objections to more disclosure

  • Non-financial disclosures relevant to the governance of enterprises

    • Governance and risk management, value drivers

  • Concerns relating to external auditing

    • Independence, standards, key audit processes


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OECD Disclosure Principles

  • Annual, interim, and material events disclosure of:

    • Financial and operating results

    • Company objectives

    • Major share ownership and voting rights

    • Directors and senior management, and their remuneration

    • Material foreseeable risk factors

    • Material issues regarding other stakeholders

    • Governance structure and policies

  • High quality standards for financial and non-financial disclosure

  • Annual external audit under professional standards

  • Fair, timely and cost-effective access by users


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SEC Chairman’s Earnings Management Agenda

“Big bath” restructuring charges

Creative acquisition accounting

“Cookie jar” reserves

Premature revenue recognition

Immaterial accounting misapplications

Role of Accounting Disclosure in East Asia Crisis*

Related party lending and borrowing

Foreign currency debt

Derivative financial instruments

Segment information

Contingent liabilities

Banking industry

US vs Emerging Market Issues

* UN Conference on Trade and Development in 12/98


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Typical objections include ...

  • Disclosure is seen as a compliance task where only the minimum is presented and then somewhat grudgingly

  • Family oriented businesses say corporate governance is hinder-some to their objective of making money

  • Fear of disclosing competitive information as competitors will use it

  • The market will always expect it and punish bad news


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Non-financial disclosures ...

  • Traditional accounting is increasing of limited usefulness and does not always provide needed information

  • Non-financial disclosures include:

    • Strategies

    • Board members and policies

    • Compensation

    • Risk management policies

    • Compliance with code of best practice

  • Value drivers such as:

    • New product development

    • Customer retention

    • Market share and growth

    • Product quality

    • Employee satisfaction


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CalPERS principles provide a market focused approach ...

  • Accountability

    • Open and accessible about condition of company and performance of management team

    • Disclose how key decisions are made, including those for executive compensation, strategic planning, nomination, appointment and assessment of directors

  • Transparency

    • Report compliance with code of best practice and explain reasons for variations

  • Long Term Vision

    • Have a long-term strategic vision with shareholder value at the core and executive compensation aligned to long term performance


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Investors’ view of adequacy of value driver information

Source: PwC / MORI survey on ValueReporting TM


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Evidence good corporate governance does lead to increase shareholder value

  • CalPERS attributes

    • US$ 150 million in increased value

    • from -66% to +52% against S&P 500

  • Business Week survey

    • Top 25 returned 28% (50% better than S&P average)

    • Lowest 25 returned just 5%


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Concerns relating to external auditing

  • Independence

    • Audit committees

    • Professional and firm ethical standards

  • Common standards

    • International accounting standards

  • External audit processes

    • Risk based auditing

    • Quality assurance process

Would the market pay for a zero audit failure standard?


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Some Final Thoughts

  • Global capital markets will insist upon clear, relevant financial information

  • Capital has no memory, it will flow where is sees reward and understands the risks

  • Volatility is the inevitable by-product of a global, highly competitive, fast-paced marketplace

Solutions require the sustained commitment to high standards, constant improvement and adaptation to ever changing business environment


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