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How Will Transparency Improve Business Competitiveness

Benjamin Herzberg's picture
We live in an exciting era, when open and collaborative practices can be translated into tangible economic and social gains. At the recent regional meeting of the Open Government Partnership regional meeting in Ireland, I discussed the practical steps that companies can follow in marrying transparency with economic value creation. On April 15, The European Parliament adopted the directive on disclosure of non-financial and diversity information. The proposal, which will be voted on in June, would mandate certain large companies based in the European Union to reveal information on environmental, social, diversity and governance matters. In addition, corporate governance, including explanations on business models, corporate relationships, and diversity policies on supervisory entities and management would be a key component in the business reporting mechanisms.

As I reflect on this possible new legislation that would challenge the traditional way of doing businesses, I start to realize how much has changed in the understanding of the power of information disclosure and its relationship with business improvement. In June 2000, I spoke at a B2B conference on Supply Chain integration as a young executive from a small Internet startup that was deploying its online collaboration solutions to several markets. I was received with silence when I took the stage and started talking about how new technologies could enable online collaboration and open exchanges of information along the supply chain.

We’ve come a long way from fearing disclosure to embracing it, and realizing the benefits of being open.  Now, the market has evolved, the competitive pressures have increased, and globalization is a fact of life which any company has to deal with. Moreover, with a stressed environment and resources fatigued by years of unsustainable practices, we need to manage natural assets in a sustainable manner, deal with labor in a social oriented way, and ensure the good governance of corporate entities. 

What are the Benefits of Being Open?

Propelled by the open data movement, transparency is arguably one of the hottest currencies in the world, transforming the way people produce, communicate and access digital information. The private sector, among many major players, is a powerful force in driving the benefits of being open and collaborative.

Being open has many advantages. It helps businesses mitigate risks, reduce costs, and improves operational efficiency. In my previous post, I delineated how multinational companies like JPMorgan Chase and Walmart and Armajaro are improving their bottom line by integrating the notion of “openness” into their core business strategy. This new wave of doing business has spread to industries that have complex supply chains as well. This is because opaqueness in labor standards, health and safety conditions, the environmental impact and business ethics of supply chain partners could pose significant risks to companies’ economic prospects and reputation.

How to Report Non-Financial Performance?

While the EU’s directive on non-financial information disclosure is a laudable effort, currently there is no common mechanism for the private sector to openly upload, track and share such information in areas of business ethics, labor standards, environmental footprints and governance practices. There is a widening gap between companies that have the knowledge, capacity and funds to afford open and collaborative behaviors, and those who don’t. This can be especially true for SMEs who face capacity constraints.

Recently, Sedex Global, a responsible sourcing organization working with 36,000 firms, announced a partnership with the World Bank Institute, to pilot the Open Supply Chain Platform, as part of the Open Private Sector Platform. The new Supply Chain portal will be a web-based and user-managed online tool that offers comprehensive supply chain information and enables businesses to conduct online assessments on their suppliers and consumers, based on a series of governance and sustainability indicators. This new initiative will complement the Open Company Data Index  which seeks to incentivize governments to increase transparency around business registries and foster improved corporate accountability.

Opening Up- A New Way of Doing Business

Fifteen years ago, creating an open dialogue between various steps of the supply ladder was at best a waste of time, at worse a risk one should avoid at all cost. Now, openness is the new norm. There are about 300 million companies around the globe, representing $30 trillion USD of private sector spending. According to the McKinsey Global Institute these companies combined stored approximately 7 exabytes of new data on their disk drives in 2010, which is the equivalent of more of 28,000 times the information saved in the U.S. Library of Congress. When these enterprises open up and provide public access to their data platforms, a vast array of economic and social benefits can be reaped.

I hope the new Open Private Sector Platform would create an enabling environment for businesses to apply governance, social, and environmental solutions along the business lifecycle. These new tools should encourage companies - from suppliers to distributors - to be more open and collaborative among themselves and with governments and citizens.
 
 
 
 
 

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