Why Board Transparency Matters: The Basics, Examples, and Practices Towards Better Governance
These days, more than ever before, transparency in corporate governance is crucial. With millennials finally outnumbering other generations and representing 35% of the American labor force, for-profit and nonprofit organizations must adapt quickly.
In this article, we’ll explore five critical indicators of transparent governance, the top seven most transparent companies in the world, and some easy-to-follow ideas for better transparency for board of directors.
Why today’s boards need transparency
As we already mentioned, millennials are the dominant age group in the global labor force. From 2019 to 2029, millennials will move to the 35-44-year-old group. According to the U.S. Bureau of Labor Statistics, this group’s workforce will increase by more than 4.5 million per decade. This is the biggest gain ever for a single age group.
The millennial generation, more than any other, stands for digital transformation, diversity, and corporate social responsibility at work. For this reason, today’s boards should be more accountable and take steps toward better government, environmental, social, and economic life.
The importance of board transparency
Here’s what makes board transparency especially important:
- 39% of millennials prioritize their work-life balance and believe that it depends on the openness of their company and its management team.
- 75% of millennials would leave their employer for the same company with better transparency and accountability.
- 40% of millennials are ready to share their salary information with other employees and stand for pay equity and open culture in the workplace.
As such, openness becomes an aspect boards of for-profit and nonprofit organizations no longer ignore. Not only does it allow becoming more in tune with stakeholders — but also it creates a better environment for employees and their effectiveness at work.
5 basics of board transparency
Further on, we’ll look at the critical indicators that can increase the openness, accountability, and responsibility of every board.
1. Conducting annual evaluations and sharing their results
Annual evaluations on the board level are increasingly important and thus are now common practice for for-profit and nonprofit organizations worldwide.
The Harvard Law School suggests a 7-step approach for better board evaluations. It includes deciding on the goals of board review, people and activities evaluated, research participants, techniques used, methodology for evaluation, and action points on results. Such an approach guarantees more efficient board reviews, providing deep oversight into the board composition and potential issues surrounding it.
2. Ensuring that board directors have the right skillsets
According to Deloitte research, emotional intelligence is a key trait on which the success of each executive director depends. High-impact board members have a personal style, contextual understanding, and business credibility that creates a sense of psychological safety and trust in the board.
For this reason, boards create individual development plans for each executive director. Not only will this help build trust with stakeholders and shareholders, but it will also ensure that every director properly understands their roles and responsibilities and thus has the necessary knowledge to fulfill them.
3. Building a reputation for addressing issues instantly
The way companies manage risks can make or break their reputation. A prime example of proper risk communication is Capital One, a company that suffered a major data breach. The company announced the data breach as soon as it was discovered — in July 2019 — and started working with federal law enforcement to investigate the issue.
In December 2021, the company agreed to pay $190 million for the settlement of a lawsuit against it, and paid out cash payments for the lost time and customer’s out-of-pocket losses. That’s a level of responsibility and accountability every business should create.
4. Establishing clear policies for all board members
Both for-profit and nonprofit organizations, no matter the size, should have established policies in writing on the way they address sensitive issues. The most common policies to develop include:
- Conflicts of interests
- Anti-harassment and discrimination
- Information security, including BYOD (Bring Your Own Device) and MDM (Mobile Device Management) policies
- Code of conduct
- Social media
Beyond these essential questions, it is critical to decide how boards collect, store, and improve data management.
5. Proactively sharing financials and other data
Because financial information is among the most vulnerable to share, that’s exactly what employees, stakeholders, shareholders, and young directors are most interested in.
Boards should ensure immediate and easy access to their proxy statement, tax returns, tax-exemption documents, board resolution templates, and important correspondence. Some companies even leave a link to their financial statements on their websites — that’s what any board member or managing partner should aim for to increase transparency.
|However, the best way to make important information available to everyone is by using board portals. They offer a convenient way to share company data with all interested stakeholders, while keeping the security in focus and making all stages of virtual board meeting preparation a breeze.|
Top 7 examples of board transparency
Here’s how board members of the most open companies in the world set the tone for transparent management in business.
1. Google — known for building a corporate culture of trust
As part of its HR strategy, Google gives new employees access to all of the company’s code and even individual objectives or results of every other company worker. Google also promotes the opportunity to communicate with its directors by asking a question at Friday’s all-hands.
2. HubSpot — the leader of accountability and cross-functional work
HubSpot is responsible for every business decision, as it makes all company data available. From cash balances and board side decks to P&L statements and strategy vision, HubSpot employees have full and unrestricted access Additionally, all employees are also encouraged to work under a No-door policy, which promotes cross-functional collaboration.
3. Slack — the pioneer of social responsibilities at work
The team collaboration and messaging tool, Slack has actionable public good initiatives under its Slack for Good program. For all its employees, Slack allows three days of VTO (volunteer time off). Plus, it pushes other companies towards knowledge sharing and openness by encouraging them to make their Slack channels public.
4. Wikimedia Foundation — the leader among nonprofit organizations
The nonprofit behind Wikipedia, the Wikimedia Foundation, builds a culture of company openness and trust. In its biyearly report, Wikimedia provides a detailed oversight into how it analyzes, answers, and releases outside requests for information.
5. Change.org — known for making its financial information available
Change.org, the project led by the Change.org Foundation, is fully open about its finances. In its yearly Impact Reports, the company shares revenue numbers, development roadmaps, as well as its challenges, strategies, and goals.
6. Insider — the president of behind-the-scenes communication
The media organization behind Business Insider and other platforms, Insider runs a detailed internal blog with regular interviews with the C-suite — and a biweekly newsletter showing their behind-the-scenes life. The company also has a pay transparency policy, keeping all internal salaries open.
7. BoardSource and GuideStar — known for their commitment to open governance
To give nonprofit organizations more chances of getting donor support, BoardSource partnered with GuideStar and created a platform for easy information sharing. Using it, nonprofits can openly show the work process of their boards, while getting more chances to prove their effectiveness.
Overcoming board transparency issues for winning trust
For nonprofit organizations, the biggest risk is failing to compete for financial support, while for for-profit organizations, one of the biggest leadership team challenges is maintaining their reputational standing.
Another issue common for both types of organizations is dealing with regulatory compliance. Building an open environment, making past and current financial statements available, and winning public trust are what can set companies ahead of potential regulatory issues.
How to Increase Accountability and Transparency in the Boardroom
1. Acting for the Good of the Organization
Behavior is often influenced by consequences.
While this is behavior science, it’s not exactly rocket science. Think about children—successful parents apply the appropriate consequence for any given misbehavior.
What happens if parents fail to do so? Generally, their children turn into tyrants and eventually become “the teacher’s problem.”
Also, it teaches people that their actions won’t be either rewarded or sanctioned and that they may as well just act in their own self-interest.
When board members aren’t checked for any misgivings, it teaches them to focus less on the greater good and more on personal gains when it comes to board governance.
Conversely, when boards are focused on making members earn their position, it’s seen as an honor to serve as a member. Conducting one’s self with the interest of the organization at the forefront encourages dignified conduct and behavior.
In ensuring that board members care about their reputation and perception of their skill set, they’ll work hard to avoid sanctions and impact the board positively.
The boards of directors at various commercial banks tell the members what percentage of board meetings each director has attended throughout the past year. Examiners investigate the board numbers, and all directors are subject to stiff sanctions when they underperform as a member.
2. Say It and Never Stray from It
Expectations must be explicitly outlined for board members.
Otherwise, these guidelines will remain too abstract and open for interpretation.
This isn’t meant as some kind of indictment on members. It’s just human nature to act out of whack without clearly designated boundaries. Board members must be well aware of parameters, benchmarks, criteria, and whatever other performance metrics to which they’ll be subjected.
Only leaving everyone to their own devices and expecting the best result is a touch naïve. Seeing is believing. Expecting everyone to be on the same page when there isn’t even a book is a big ask.
3. Boardroom Accountability and Transparency Starts from Each Member Looking Inward
Of course, it’s fantastic for the board itself to implement accountability initiatives. However, the only way all members will act in the interest of effective governance is by always remaining vigilant in assessing their own actions.
Board transparency and privacy for better corporate governance
For for-profit boards, virtually everything discussed in their meetings remains behind closed doors because of the strong fiduciary responsibilities boards of these organizations have. In their meetings, for-profit boards often discuss things involving employees and their privacy, which thus should remain strictly confidential.
For nonprofit boards, especially 501(c)(3) companies, things are completely different. For their own benefit, nonprofit board transparency is crucial, as every action and idea should be clear to all beneficiaries and donors supporting them.
Thus, board privacy and confidentiality is an ongoing balancing act. Everything of non-personal nature can be disclosed to the public, while confidentiality should never serve as an excuse to keep what should be available to the public private.
Enhanced board management with board portals
While transparent board management takes much time and effort, it is a resourceful initiative every board should support.
Board portals serve as one of the most efficient ways organizations can practice transparency by making essential information easily available to stakeholders and keeping all paperless board meetings in one place.
|iDeals Board remains a long-time industry leader and has been a top choice for our customers. The board management software serves as an all-in-one platform for board collaboration before, during, and after meetings — and has the highest rates of customer satisfaction in the industry.|
Do informal board meetings need to be transparent?
While an informal meeting has fewer protocols, it is still a board meeting, which requires full board meeting transparency. Under the Sunshine Act or Open Meetings Act, informal meetings are still subject to regulatory requirements and should be kept transparent.
Are board of directors meetings confidential?
Nonprofit boards tend to make their meeting results available to the public, while for-profit companies are more likely to keep them private due to fiduciary responsibilities — especially if for-profit board discussions include specific individuals and their privacy.
Why is board transparency a good thing?
Board transparency creates a basis for both public and private trust, better communication with customers and investors, and thus more possibilities for staying ahead of the competition for financial support.