February 24, 2023

The value of Transparency in Corporate Governance

Law is ever-evolving, and new challenges and regulations are constantly arising. This article dives into the unifying value of transparency in corporate governance and how this can be compared across three key jurisdictions: the UK, Europe, and Luxembourg.

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The huge advances in technology made over the course of the last decade mean that the requirement for transparency in corporate governance is more important than ever. As online platforms and social media have become integral to doing business, especially globally, companies must quickly adapt to ensure their efficiency in this new digital age. This is why corporate governance policies must fit the new requirements imposed on companies, especially in relation to corporate transparency. Who can forget the Enron Scandal, and the tale of a successful company that reached illustrious heights only to experience such a bewildering descent?

Corporate governance is vital to any business, and transparency and accountability are crucial components of good governance. This article discusses how each country has implemented corporate governance policies and practices to encourage transparency and accountability.

In this article, we will cover the following:

The Crucial Role of Disclosure, Transparency and Accountability

Enron’s Devastating Collapse: What Can We Learn from It?

The abrupt collapse of this powerful corporation Enron, once one of the largest in the world, remains astonishing even today. It’s especially difficult to comprehend how its management succeeded in deceiving regulators for years by placing bogus assets and deceitful accountancy practices. Yet the scandal inadvertently highlighted the crucial importance of transparency in corporate governance. It revealed how the unethical behaviour of specific figures within the company – illustrated through the extensive insider trading and absence of visibility into corporate and government entities – contributed to the collapse of the global financial markets.

The shocking revelations sparked the implementation of a worldwide program of proactive and vigorous reforms, as business leaders and governments understood all too well how if left ignored, such an inherent lack of transparency might one day result not only in the collapse of the markets but in worldwide economic disaster. Indeed, just last year, in an investigation into auditing problems at companies, journalists at Bloomberg News pointed out that:

It’s not clear that investors are any safer today than they were before Enron Corp. failed.

Enhancing Corporate Governance with Accountability and Transparency

Corporate governance is a wide term. Ultimately, however, it refers to the effective system of governance that companies should have in place to ensure the existence of confidence between all the different parties involved in various markets, notably the capital market, the labour force, as well as customers and suppliers. Understanding how entities react to the need for a solid legitimate, regulatory, and institutional framework in which market participants can place their faith is critical from both a local perspective as well as a global standpoint – as the devastating effects of Enron demonstrated. Various European nations’ corporate governance codes and acts showcase a wide range of progressive developments, from fresh boardroom practices to new statutory regulations. Indeed, Europe is among the world’s most rapidly evolving corporate governance climates.

Accountability and transparency are the key principles relevant to the efficacy of corporate governance codes in any company and in any jurisdiction, although there are subtle differences in focus between the legislation in various countries.

In the United Kingdom (UK), for example, the principles inherent to the Corporate Governance Code focus primarily on the rights and responsibilities of the company board, the shareholders and other relevant stakeholders, whilst in Germany, the Deutscher Corporate Governance Kodex establishes the key standards expected from company behaviour and outlines a company’s expected responsibilities of its board of directors, management, and shareholders.

It is critical to be aware of the rights of shareholders to safeguard them from the misapplication of corporate assets by management, as well as the power of auditing and accounting standards in assessing the level of information asymmetry, particularly from an international angle. These corporate governance characteristics determine the power balance between shareholders and the management of entities.

The Importance of Disclosure

Disclosure is highly valued in corporate governance, and it is an obligation for companies in Luxembourg, Germany, and the UK to guarantee their transparency in operations, decision-making processes, and financial reporting to maintain appropriate corporate governance.

This requires that firms are answerable to their stakeholders and furnish periodic reports on their activities and financial performance. Moreover, companies should highlight any risks or doubts that might impact their business and present regular financial statements that are easy to comprehend and available to all stakeholders.

Transparency in corporate governance means that businesses must observe the best practices. This includes the establishment of solid internal controls, the implementation of a clear command hierarchy, and the fostering of open communication and collaboration among all stakeholders. Companies must ensure the diversity of their board of directors and that it represents all their stakeholders, as well as monitor the performance of its duties.

The Key to Eliminating Market Abuse

These days, following the implementation of European wide legislation such as the EU Market Abuse Regulation, which was long awaited for its framework for preventing, detecting, investigating and punishing market abuse, the outrageous misuse, manipulation and outright deceitful appropriation of company assets has hopefully been, for the most part, eliminated.

One egregious example of such abuse occurred at the UK car manufacturing company MG Rover Group when it was discovered that four of the company’s directors had paid themselves huge dividends while simultaneously running it into the ground. The directors took large bonuses for five years until MG Rover Group finally went bankrupt in 2005.

When their greed and dishonesty were finally discovered, it was too late to rectify the £1.3 billion of debt they had left behind, along with the thousands of local people they had caused to lose their jobs, causing hugely negative implications for the local economy. Yet this is just one example.

Another case that comes to mind is the case of the Dutch international retailer Royal Ahold, which in 2003 revealed the numerous accounting irregularities of its various subsidiaries. Its CEO, CFO and, shamefully, the executive responsible for its European operations were all charged with fraud. Then in May 2006, they were judged guilty by a Dutch federal court of the falsification of paperwork and handed suspended prison sentences and substantial fines. The proliferation of fraud and the abuse of company assets at the director level across Europe was a key contributor to the development of European Union (EU) legislation on corporate governance.

Defining and Establishing Best Practices

The European Commission (EC) “Corporate Governance” Directive 2006/46/EC mandated that all publicly listed companies are required to include a corporate governance statement in their annual accounts for shareholders for the first time.

Various long-term strategies followed, such as the EC’s Europe 2020 and EU Action Plan, as the EU attempted to bolster corporate governance, enhance competitiveness, and foster sustainability among firms across the EU. To a great extent, these projects have been highly successful, with a range of EU corporate governance changes achieving substantial changes.

However, across the EU, and specifically in the UK, LUX and Germany, significant challenges continue in relation to ensuring the success and complete acceptance of corporate governance initiatives. A complicating issue with regard to the unification and harmonization of corporate governance concerns the variation in the legal forms of businesses across jurisdictions. This includes the public, private as well as in the not-for-profit sectors.

Each sector has its own particular governance issues, which must be met through the application of the best practice principles developed for their application from the German Corporate Governance Code (Deutscher Corporate Governance Kodex) that lays out the necessary rules for the oversight and administration of publicly traded German businesses, and comprises internationally and domestically accepted guidelines and suggestions to promote responsible and conscientious corporate governance to the overarching corporate legislation of the Companies Act 2006 in the UK, and then to the lattice of various statutory regulations in Luxembourg, which has not yet established any official code of best practice for the benefit of shareholders.

In the past two decades, multiple transformations have taken place with regard to corporate governance conventions among EU member states. Nowadays, numerous European businesses comply with the principles of excellent corporate governance. These practices come with certain advantages, such as improved disclosure and transparency in respect of: accurate financial statements, minority shareholder rights, connected dealings, remuneration, and acquisitions. Owing to the European Union corporate governance initiatives, a substantial amount of convergence has been accomplished regarding corporate governance practices, though conflicts continue.

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The Need for Harmonization

Yet the divergence of corporate governance best practices across the European Union (EU) still remains. In Luxembourg, the United Kingdom (UK), and Germany, the corporate governance law, statutory regulations, and models for governance in public and private business remain very different. This means that there is substantial room for improvement in terms of harmonizing corporate governance practices across the EU.

Analysis of corporate governance best practices

In the following articles, we will explore how the corporate governance law, regulations, and models of governance in public and private business in Luxembourg, the UK, and Germany, in particular, are developing. We will examine each region’s current regulations and models and how each nation’s corporate governance laws and regulations evolve. We will also analyze the approaches to corporate governance adopted in each region and evaluate their effectiveness. Finally, we will consider the potential for harmonising corporate governance best practices across the EU and discuss how it could occur. Through our analysis of corporate governance best practices in Luxembourg, the UK, and Germany, we hope to provide readers with a comprehensive overview of the current state of corporate governance in the EU and highlight the potential benefits that harmonization could bring.

About this article


Regulation (EU) No. 596/2014 of the European Parliament and of the Council on market abuse as complemented by the Act of 23 December 2016 on Market Abuse as last amended by the Act of 27 February 2018, implementing Regulation (EU) No. 596/2014, Directive 2014/57/EU and Directive 2015/2392/EU.
Directive (EU) The European Commission (EC) Directive 2006/46/EC amending Council
Directives 78/660/EEC on the annual accounts of certain types of companies, 83/349/EEC on consolidated accounts, 86/635/EEC on the annual accounts and consolidated accounts of banks and other financial institutions and 91/674/EEC on the annual accounts and consolidated accounts of insurance undertakings.
Deutscher Corporate Governance Kodex (German Corporate Governance Code)
UK Companies Act 2006
Boitan, A. and Maruszewska, E. W. (2021) “Corporate Governance Features among European Union Countries – An Exploratory Analysis” The Review of Finance and Banking 79-91
Constable, S. (2021). How the Enron Scandal Changed American Business Forever
European Commission (2010). European Top 20. A strategy for smart, sustainable and inclusive growth.
Farrell, G. (2021). Twenty Years After Enron, Investors Still Vulnerable to Fraud
Financial Times (2009). Fraud agency to investigate MG Rover case
Goodley, S. (2011). MG Rover directors banned from running companies after collapse
Milkiewicz, H. and Wei S. (2003). A Case of ‘Enronitis’? Opaque Self-Dealing and the Global Financial Effect
Principles for Responsible Investment. (2018). Action 10: Fostering sustainable corporate governance and attenuating short-termism in capital markets
Szalay, G. (2019). “The Impact of the Lack of Transparency on Corporate Governance: A Practical Example” Corporate Law & Governance Review Volume 1, Issue 2.
The New York Times (2006). Ex-Ahold Executives Fined in Netherlands Fraud Case
Walker, R. (2002). Enron’s Transparent Problems


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