Governance

Orly Mercado

Posted on September 27, 2006

Transparency issues, big and small

“If businesses practiced democracy, they would all go bankrupt.” He is a business executive and a parent who made a rare appearance in our parent-teacher association meeting. He did not strike me as opposed to transparency in management, but seemed to be mouthing a “conventional wisdom” I have heard a few times from those running the international school in Kobe my son attends. Democracy and corporate governance are incompatible, so it goes.

I was presiding over our first PTA meeting for the semester. We had just finished discussing “earth shaking” issues like sports day, school bus service, school lunches, etc. when we got to the topic of amendments to the by-laws of the school council, the highest governing body of the school. One mother was livid as she complained that a petition of some eighty parents was ignored. A father made his case for electing members of the council instead of an old boys club appointing their favorites. Others who chimed in basically pointed to the lack of accountability to the most important stakeholders in the school, the parents. Reform is always a tough job, I thought to myself.

It is a small school, but the issue was big for all those in the meeting. Like many Japanese institutions now facing the pressing need for reform, secrecy is still a tradition here. Discussions and debates are done behind closed doors. The right to know is seen as a privilege granted as a favor by those in power. In any event, we were at least discussing the issue of transparency and accountability, I comforted myself.

Nobel prize-winning economist Joseph Stiglitz said that “even if there is a gap between the rhetoric and the reality, the rhetoric has an effect on the institutional behavior.” He also argues that “the mindset of an institution is inevitably linked to whom it is directly accountable. Voting rights matter, and who has a seat at the table — even with limited rights –matters. It determines whose voices are heard.” He was talking about the World Bank and the International Monetary Fund. His words rang true for our tiny institution.

It is the week when two famous convicts entered prison. Enron’s former financial wizard
Andrew Fastow and WorldCom’s former CEO Bernard Ebbers are now serving their sentences for fraud and corporate misconduct. The parent who said that business and democracy do not mix was wrong. What brought down Enron and WorldCom aside from greed was a lack of transparency and accountability, the hallmarks of democracy.

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