What is transparency in business?
Transparency in business is about timely honesty and trust. It means operating in such a way that outsiders easily know what’s going on. The three primary aspects of transparency are information disclosure, clarity, and accuracy.
The possibilities for disclosure are endless. A company can disclose its pay scale, financial contributions, and environmental impacts, among other things. Of course, having transparency in business doesn’t mean giving away the secrets to your success.
Some voices in the business community argue that disclosure harms a company’s interests. In fact, it has been shown to increase customer satisfaction and employee happiness.
Transparency in business is good for business. It has become increasingly popular over the last two decades as more and more big name brands get on board. Some companies come to it reluctantly in the wake of scandal. Luckily, other pioneering brands are embracing it wholeheartedly and setting an excellent benchmark.
The Biggest Issues & Why They Are Important
1. The Triple Bottom Line – People, Planet, Profit
The Triple Bottom Line is a reporting and accounting framework that incorporates social and environmental aspects as well as financial ones and is one way of creating transparency in business. It was made famous by business author and social entrepreneur John Elkington’s book, Cannibals with Forks: the Triple Bottom Line of 21st Century Business.
This is what the TBL approach measures:
- People measures the company’s impact on its labour force and the community where it operates. For more detail about people issues, check out the the Labour Standards and Community Investment sections of this buying guide.
- Planet measures the company’s impact on the environment. At the most basic level, companies aim to minimise environmental harm, moving on to having a neutral effect. The ultimate goal is to create positive impact on the environment. For more info on a range of environmental issues, check out the Environmental Sustainability section of this buying guide.
- Profit measures the company’s impact on the economic environment. This goes further than internal profit and loss figures to include how the local economy is affected, in terms of job creation for example.
Why It’s Important
Triple Bottom Line reporting is a more holistic framework for creating transparency in business. Companies don’t operate in isolated bubbles. TBL considers the company as a part of a bigger, more interconnected system. More importantly, it analyses how operations affect that system.
If companies report on their people, planet, and profit bottom lines, then they think about their actions and effects. With awareness comes better, more conscious decision making.
We consider TBL reporting essential for large, established companies. Though startups may not yet have the resources or know-how to do it, this is a goal they should strive for.
2. Internal vs. External Reporting
When putting together reports, a company has two options: to do the analysis in-house or to hire an independent auditor.
In-house reporting is done at the risk of bias and misinformation. In the best case scenario, enthusiastic employees write more optimistic reports than an outsider would. In the worse case scenario, they avoid reporting unsavory information out of fear for their jobs.
Why It’s Important
The most transparent reporting is through a third-party independent audit. Because the auditor is not dependent on the company for long-term employment, he or she is not easily swayed to misrepresent information. As a result, the auditor can analyse the company’s operations more objectively and produce a more trustworthy report.
Of course, an independent auditor hired by the company might still feel some pressure to produce a positive account, as opposed to a government auditor who is not being paid by the company at all.
With all the pressure surrounding eco-business practices, a company might be tempted to appear more “green” that it actually is. Greenwashing is a deceptive tactic used by companies to create a “green” public perception using marketing and advertising when there’s no substance to its claims.
A simple example is slapping a green label on a product to appear more healthy or environmentally friendly without actually changing the product.
Of course, there are different degrees of greenwashing: omitting hidden trade offs, having no proof, being vague, or making an irrelevant claim. At worst, greenwashing is an outright lie. The Australian Trade Practices Act now includes punishments up to $1.1 million in fines for companies found guilty of making misleading environmental claims.
Why It’s Important
Greenwashing is considered unethical and deceptive. Companies should avoid it at all costs, and customers should report it and hold those responsible to serious consequences.
4. Reporting Contributions to Political Parties or Lobby Groups
Sometimes companies fund a political campaign, a lobby group, or research to promote or protect their interests. This isn’t necessarily a bad thing… But it can be.
One notable example comes from the environmental documentary Before the Flood. It presents growing evidence that big oil companies secretly fund false research institutions to cast doubt on climate change.
In some industries, funding third-parties is the norm. Pharmaceutical companies and big food manufacturers are both big supporters of lobbying against food and drug laws and regulations. In many cases, these contributions are kept private.
Why It’s Important
By not publicly disclosing these contributions, the company is not being honest about what or who the company supports. Transparency in business means clearly disclosing any potential conflicts of interest and contributions the company may make.
Take Action: How to Encourage Transparency When You Shop
It is difficult to evaluate a product’s transparency from the shelf. Sure, you can look for certifications, a good indicator that the company’s claims are validated. Nevertheless, certifications only tell part of the story, and they don’t exist for every type of situation.
Cool Australia recommends asking the following questions about product claims:
- If they make a claim, can they prove it to be true 100% of the time?
- If the claim is true, does it really matter?
- Is the problem being avoided really important?
- Are there any other negative issues being overlooked?
- Are claims backed up by solid evidence?
Knowing which companies are transparent takes time and research. Look at company reports, study external assessments, and follow media stories. For instance, The B Corp Assessment contains a Governance score, which measures both corporate accountability and the overall transparency of the company’s practices and policies.
Research? Who has time to do that?!
We know you don’t, so we’re making it easier to assess transparency in business. The brands on this site have been carefully analysed. We also have tougher transparency requirements for our transparency scores on our site brands when to publicly listed companies and to companies with at least $20 million in annual revenue. You view the scores as you browse the Peachy store. Head over to our shop now to explore transparent products and companies.