When it comes to companies, the less murk, the better.
In the new edition of London Review of Books, author and journalist John Lanchester points out that three recent corporate “outrages” – the sale of UK lender Northern Rock to Virgin Money, the collapse of MF Global, and the Olympus scandal – share “a crucial similarity”:
An interested outside party, paying the closest of attention, and immersing herself in all the publicly available information, would have had no chance of knowing what was really going on.
Lanchester wrote Whoops! Why everyone owes everyone and no one can pay – one of the most lucid popular expositions of the financial crisis – and he strikes me as an excellent advocate of openness and straightforwardness in all things.
But the clarity of the argument for more transparency in corporate and financial matters somehow always runs into a fog of objections. Lanchester reminds us that the 19th century essayist Thomas De Quincey called this “a vicious obscurity”.
Very few of these objections stand up for long. When it comes to calls for clearer executive remuneration structures, it is true that total disclosure can exacerbate the “ratchet” effect, by which the highly paid simply benchmark themselves against each other when demanding the next rise. But if openness encourages companies’ owners to take action against high pay or allows regulators to identify where incentives have got dangerously out of whack, I don’t see the problem.
When the US corporate sector was reeling from an “obscurely vicious” set of scandals 10 years ago, many commentators wheeled out Supreme Court Justice Louis Brandeis’s aphorism about open government to support their call for greater transparency: “Sunlight is said to be the best disinfectant.” It became a cliché. Unfortunately, in the financial and corporate world, it never became a policy.
