Wafa Khlif: “We are too quick to link transparency with responsible decision making”

How can we prevent responsible action from becoming an exercise in communication? What is the role of the board of directors in corporate social responsibility? With these two questions Àngels Roqueta and Wafa Khlif proposed to address the issue of transparency in the corporate world in the Webinar Transparency in the corporate world: a background report or just a form report last October 6th.

Khlif introduced the topic by talking about the origins of the word transparency applied to the corporate world, “it appeared in the 90s, at a time when corruption was considered the price to pay for doing business”. She continued to explain that in 1993 Transparency International was founded, following a change of attitude in public opinion: when the media, citizens and politicians began to actively condemn corruption scandals. From that moment on, institutions began to put this concept in the forefront, and academics established a positive relationship between transparency and business performance in general. “As a result, in many countries, such as Spain, rules were imposed to reward this transparency.”

Next, Àngels Roqueta analysed the Spanish regulations. She began by reviewing the “Regulations of the code of good governance of listed companies”, “a somewhat strange regulation, since it asks either to comply or to explain, it is not necessary to comply or, if I have a breach, I explain why I have it and nothing happens”. In addition, Roqueta warns that many companies are outside the framework of corporate governance, since listed companies are a minimum. She believes that there should be a parallelism with NGOs and public administrations. Roqueta observes that startups, which need to look for investors, are “very skilled at explaining non-financial information, I think they are models to follow for small and medium enterprises”. 

“Startups are very skilled at explaining non-financial information, I think they are models to follow for small and medium enterprises”. 

Àngels Roqueta

Roqueta also spoke about the “Code of Corporate Governance” and the accessibility of information about the board of directors: the dimensions that the board should have, the diversity among its directors (cultural, gender, age…) and the balance between owners and independents. He also reviewed the 2018 “Non-Financial Information and Diversity Regulations”, which are mandatory for companies of a certain size, and which call for a description of the business model: on environmental, social and personnel issues, human rights, the fight against corruption, sustainable development or diversity policies. In short, what is the behaviour of the company.

After reviewing the regulations, Wafa Khlif evaluated how these laws are translated into reality. “With time and with more data from the companies and the real impacts, they no longer have the same results”. She explains that today studies contradict the relationship between transparency and financial value, “we have evidence that giving more information does not mean that there is more financial value, we have a non-significant correlation”. Khlif explains that we conceive transparency as something positive, something that has taken on a political sense of moral imperative, “If we want to do good in society, we have to be transparent. If we are not, we are doing evil.”

Khlif emphasizes that being transparent does not mean making the right decisions. “Nowadays we buy values that reflect our individualities, and transparency is one of the most fundamental elements of capitalism today, and many academics insist that business risk is reduced when companies comply with directives or standards, when they make more disclosure and report”. She insists that transparency has been too quickly linked to responsible decision making. “Transparency can push companies to use disclosure as a tactic to share what stakeholders want to hear, by hiding or avoiding more complicated issues.” In this way, companies are pushed to behave in a totally tactical way, feeding external responsibility, but stopping at this level.

“Transparency can push companies to use disclosure as a tactic to share what stakeholders want to hear, by hiding or avoiding more complicated issues.”

Wafa Khlif

Khlif proposes to promote internal responsibility, to build value-creating boards of directors that serve responsible causes. “Instead of clinging to the fantasy of transparency as the only form of accountability, we have to go further, to the moral maturity of the company”. She regrets that in many cases the mission of contributing to society is forgotten, “ethics has been instrumentalized by many professions and has become a sum of conventions rather than a moral behavior or thought.”

She insists that corporate governance is not a chain of control. “It has to be the practice of true social responsibility, which does not arise from compliance with (external) rules, but from a deeper place in the corporate psyche through contemplation within. Responsible behavior, not a responsible image”.

“Ethics has been instrumentalized by many professions and has become a sum of conventions rather than a moral behavior or thought.”

Wafa Khlif

In response to a question from the virtual public about whether they are optimistic or pessimistic about the future in relation to corporate transparency, Àngels Roqueta says she sees it with optimism, “when a company sees that its competitor is exercising responsibility and the market perceives it well, there is a tendency to copy it. On the contrary, Wafa Khlif ends with a pessimistic reflection, “we can be very optimistic about the amount of information, but it becomes very difficult from the outside to verify or regulate that a company is really responsible”. 

She illustrates her reflection with an example of the debate around the salaries of CEOs in the United States, “they decided to be transparent with the salaries, to give them a moral sense, it is not moral that these people earn 300 times more than the average management. By making it transparent there was the opposite result, instead of lowering salaries, they went up. “Why? We are in a market, so a company that is going to recruit a new CEO cannot pay him less than the others.” In the end, transparency did not solve the initial problem.