Tuesday, October 04, 2005

Need for greater public disclosure

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In 2004, the US government & Congress passed measures or guidelines requiring private enterprise to adopt greater levels of disclosure, as well as tightening its capacity to act contrary to the interests of shareholders. The laws were intended to restore confidence to markets who were questioning the legitimacy of the profits earned by some of America's largest companies. The collapse of 2 'giants' - Enron and Worldcom suggested that this was no 'one-off'. On top of those breaches of public trust, the 'Big 5' accounting firms were called into question for conflicts of interest between their auditing and accounting activities. Apart from the presence of fidiciary duty, there was a clear need here to 'appear judicious', yet none of the 5 accounting firms thought it necessary to do that. That saids alot about business ethics....but it also saids something about community standards of prudential supervision that no one sought to break up these conflicting responsibilities. Clearly the reason is that the only people served by greater accountability would be shareholders, but they have no power. Even fund managers - as custodians of shareholders money - have little interest in redressing these issues since they get their margin anyway, and in fact collapses create buying opportunities if they are competent enough to pick the frauds. But shouldn't shareholders reasonably be able to access the information that fund managers have access to? Shouldn't corporate executives be obliged to release information to the market in a timely and honest fashion. I'm willing to bet the protective measures adopted by government will do nothing to change accounting standards in future. But my concern here is not corporate accountability, but public accountability. Whilst the politicians are busy adopting higher standards of corporate disclosure, accountability and compliance, where are the measures to ensure the same level of scrutiny of public enterprises.

Consider the following areas:

  1. Campaign donations: There is a huge conflict of interest between party contributions and public benefits for corporations.
  2. Treasury operations: The operation of the treasury and central bank are critical to any country, but often their activities are not open to scrutiny because of high levels of confidentiality. Voters should have a right to know the legitimacy of their currency. Consider that the Federal Reserve is not required to disclose its gold transactions. See Cleveland Regional Central Bank advice.
  3. Collusion: Why is the government beyond question over the integrity of its policy platform. Clearly opposition parties are not up to the task. This however speaks to the failings of the adversarial-style of party democracy. The problem is that centralisation of power always corrupts because vested interests can collude, and in the process entrench their political power. The question might be asked? Are oppositions incompetent or just complicit? I would suggest both depending on the issue.
Reason is the standard for debate.

- Andrew Sheldon www.sheldonthinks.com
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