FREQUENTLY ASKED QUESTIONS

What are transparency policies?

 

Transparency policies are changing. Traditionally, they are public requirements that corporations or other organizations disclose factual information to reduce public risks that those organizations create or flaws in their performance. Auto safety ratings, nutritional labels, toxic pollution reporting, and corporate financial disclosure aim to reduce public risks, for example. School report cards, campaign finance disclosure, and bank mortgage-lending reporting aim to improve the fairness or quality of key institutions. Now digital entrepreneurs are creating innovative transparency systems that may build on public data but also add mapping, interactivity or other dimensions. 

 

What do transparency policies have in common?

 

Whatever their purpose, transparency policies have 5 characteristics:

• public disclosure

• by corporations, organizations or individuals

• of standardized factual information

• about specific products or practices

• to further a public purpose. 

 

How do transparency policies work?

 

Transparency policies work by providing missing information that people need. The idea is that new information improves the choices of customers, employees, investors, and citizens. Those changed choices, in turn, improve markets or government accountability. They encourage organizations to reduce risks they create or improve services. For example, nutritional labels on packaged foods aim to reduce risks of heart disease and cancer. They work if shoppers use them to make healthier choices and if food companies, in turn, improve their products.

 

What kinds of public problems can transparency policies address?

 

Transparency policies are best suited to problems where:

• an information gap creates needless risks or service failures

• the policy problem lends itself to consensus metrics

• new information can be provided in understandable form

• people have real choices 

• organizations can improve products or practices

• and it’s ok if some people end up better off and others don’t

 

Why is government action needed?

 

Many private transparency systems thrive—ratings of motion pictures, colleges, and restaurants, for example. Often, however, private systems do not provide enough information to help ordinary citizens make wise choices. When public risks are serious, government often steps in because only government can require disclosure, assure that it will last, and link it to democratic processes. In the digital age, we are seeing hybrids. Private software developers create sites that garner information about crime, potholes, or drug side effects, for example. Government often helps standardize information, enforce laws and publicize findings. 

 

Can transparency policies actually reduce risks and improve public services?

 

Auto rollover ratings, restaurant grading, nutritional labeling, bank reporting on fair lending, and corporate financial reporting are examples of policies that reduce risks or improve services. However, transparency often fails because of politics, poor planning, or flawed execution—or because it is not a suitable approach to the problem at hand. Out-of-date, inaccurate, or useless information is often worse than no information at all. 

 

Let's say the kind of policy problem is suitable to a transparency approach and information is accurate and up to date. Information must still become embedded in users' decision-making in order to further policy goals. For that to happen, information must:

 

• have value to consumers or citizens in achieving their goals

• be compatible with their decision-making routines

• and be comprehensible to them

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But effectiveness depends also on whether disclosing organizations change their practices in response. For that to happen, consumers' or citizens' reactions must become embedded in organizations' decision-making. Those reactions must:

 

• have value to the company, government agency or other disclosing organization,

• be compatible with the way managers ordinarily receive and process information,

• and be comprehensible to managers.

 

How to design effective transparency policies?

 

In Full Disclosure, we suggested 10 principles for effective design:

 

1. provide information that is easy for ordinary citizens to use

2. strengthen user groups

3. help disclosers understand users' changed choices

4. design for discloser benefits

5. design metrics for accuracy and comparability

6. design for comprehension

7. incorporate analysis and feedback

8. impose sanctions

9. strengthen enforcement

10. leverage other regulatory systems

 

Can international policies work?

 

Transparency policies provide a promising approach to some problems that cross political boundaries, even when there are no treaties or formal multinational agreements. International corporate financial reporting and international infectious disease reporting, for example, show promise in reducing risks to investors and reducing the spread of epidemics.

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How does the Internet change the potential of transparency policies?

 

Leaps in information technology make possible a new generation of transparency policies. Technology can empower ordinary citizens to play an active role in shaping the content and format of the information they need. It also provides opportunities for people to pool their knowledge of auto defects, hospital mistakes, or disease outbreaks. However, technology alone cannot improve public transparency. Governments, disclosing companies and the users of information must be willing to play new roles.