Magazine article Communication World

Peering through the Walls: Business and Cultural Differences Keep Many Asian Companies from Becoming Fully Transparent

Magazine article Communication World

Peering through the Walls: Business and Cultural Differences Keep Many Asian Companies from Becoming Fully Transparent

Article excerpt

Is transparency an inherent good? Like other courses of action, such as maintaining an open-door policy or trusting markets to make the right decision, transparency can often be held up as an ideal. Resisting a call for transparency can at best seem odd and at worst evoke suspicion. While nobody expects companies to reveal trade secrets, the communication profession is generally premised on the idea that openness and information exchange are good for business.

In Asia, the call for transparency was loud following the 1997 financial crisis. Investors wanted to know what management was doing and what happened to the money. This crisis brought about increased diversity in financial portfolios and improved corporate governance, but many now argue that transparency has not been adopted as readily. A February 2008 article in the Singapore business magazine The Edge put the spotlight directly on what it described as "the tendency of local and regional companies to place little value on building intangibles and goodwill." In other words, companies in Asia are not very transparent and spend relatively little time communicating with stakeholders when compared with corporations headquartered in the West.

Others have made the same argument. In his best-selling book Asian Eclipse, Michael Backman describes how conglomerates in many Asian countries maintain close relationships with banks (of own their own) and government. Consequently, there is little market pressure to be more transparent. A significant body of academic research, especially in accounting and finance, has found differences between corporate disclosure practices in emerging markets and those of more mature markets. Differences in cultural expectations, legal traditions (for example, French or British), and disclosure requirements tended to account for these differences.

Corporate Asia often does not view transparency as an inherent good. To illustrate, consider one of the hottest issues of 2008: the emergence of sovereign wealth funds. Quite simply, SWFs are investment vehicles created by countries such as Singapore, China, Brunei, South Korea, Malaysia, Kuwait, United Arab Emirates, Russia, Australia, Canada and Norway. These funds invest the country's foreign exchange reserves and other assets for the benefit of the nation. For example, the investments are a reserve in case of a global economic downturn. In a country such as Singapore, saving for a rainy day is especially important because the country has no natural resources and is surrounded by nations such as China and Indonesia that offer a less expensive manufacturing base. In total, estimates suggest that the 18 largest SWFs actively invest more than US$2 trillion.

The problem is that few people understand these government-owned funds, which are investing in some of the corporate world's most respected companies. The lack of SWF transparency fuels suspicions that one day the funds will manage their investments with a political, rather than purely financial, eye. A report from the Peterson Institute of International Economics states that management of such funds "has become a major focus of national and international economic and financial policy because of their size, their lack of transparency ... and the risk that political objectives might influence their management."

The lack of information invites suspicion and governmental regulation, and this begs the question of why SWFs (along with corporate Asia) do not simply open up and put stakeholders at ease. This is not an easy question to answer.

Asia is different

Exactly how is Asia different from other regions? There are several key factors:

* Placing suspicion before trust. One challenge is to understand the general tendency to be initially suspicious before being trusting. To illustrate, consider the following quote from Singapore's first prime minister, Lee Kuan Yew, who continues to play a leading role at GIC, one of Singapore's wealth funds: "There have always been these calls for transparency, and we [GIC] have been careful about it. …

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