DISCLOSURE: BEYOND RIGHT-TO-INFORMATION

Imagine if we could assess the performance of local governments every quarter. Imagine if we could compare Bangalore’s education performance with Mumbai’s, Hyderabad’s healthcare delivery with Chennai’s. Imagine if the media could cover city performance the same way that they cover Infosys and Wipro, and the kind of healthy competition this could unleash.

If this has to happen, we have go beyond Right-to-Information, to Disclosure.

Today, “Right to information (RTI)” about government activity is the talk-of-the-town. Legislation has been passed in many states, and is in fact being considered at the national level. This will dramatically change the secrecy with which governments work, and allow citizens access to a variety of details that we could not get before. The Right-to-Information wave will have enormous significance in checking government excess, and exposing corruption. Successes will not be immediate, but eventual. Each such example would be an individual incident: a fodder scam in one place, or a college fee scandal in another, each being pried open with the crowbar of RTI law.

However, we need to think about how RTI could be used to ensure more systemic solutions, where the performance of our government institutions are discussed in a regular, predictable manner. This is what good “disclosure” is about, this is how institutions can be governed properly. Good governance will arise not out of individual exposes of scams, but out of institutionalised disclosure practices that are constantly being improved.

Understanding the evolution of financial statements and disclosure in the private sector can help us see the similarity between the evolution of “Right to Information” issues in the private sector and the current debates on the topic in our public institutions:

The form of private enterprise that we are now familiar with - the “company” - only began in the 17^th century, interestingly enough with the launch of the East India Company:

- Between 1600 and 1617 the company sponsored 113 voyages, each supplied with newly subscribed capital and treated as a separate venture.

- At the end of each voyage, assets as well as earnings were subject to divisions among the shareholders.

One of the first attempts to deny stockholders access to the records of their company occurred during 1633. After a decline in the fortunes of the East India Company, some stockholders moved for the appointment of a committee of inspectors. The Governor (Chairman) refused to put the motion to the meeting and the governing committee decided that no-one should be permitted to read or copy, or to 'ravel and dive' into the accounts without its consent.
A Select Committee published its First Report during 1844, including the recommendation that “the accounts of every such Company be open to the inspection of the shareholders: and that the annual balance-sheet, together with the reports of the auditors thereon, be registered.”
In the United States, progress on corporate disclosure followed the standards set in England, until the early 1900s. As late as the 1920s many corporations still kept sales figures secret, some did not depreciate assets, failed to treat non-operating income consistently, did not separate retained earnings from paid-in capital and did not disclose asset write-ups.
It was after the Great Depression of 1929 that substantial changes were brought in. President Roosevelt championed full disclosure as the preferable remedy to the malaise of American financial markets; he made the famous statement, “Sunlight is said to be the best of disinfectants.”
A seminal document in the universalisation of accounting principles was Paton and Littleton’s “An Introduction to Corporate Accounting Standards” (1940), the most coherent statement of principles to emerge from this period. This document set the tone for much of the subsequent evolution of corporate financial disclosure practices in the ensuing decades.

Over the past fifty years, these practices of disclosure have been strengthened, each time because of some new scandal that erupted. For example, with the recent Enron and Anderson scandals, there has been a new law called Sarbanes-Oxley Act, which requires CEOs of companies to take personal liability for the disclosures being made. Hence, disclosure practices are not a static set of tools, but constantly evolving. The fundamental principles behind the creation of these standards have been the guiding lights of all material and legislation: creating a level-playing field for all stakeholders by providing regular, detailed, and standardised information about the state of an institution.

We can now see the comparison of what has happened in the private sector to our governments: the Right-to-Information laws are only the first step. We have a choice, either to continue to use this tool to extract information on a case-by-case basis, or to take the learnings of the private sector that evolved over 300-odd years, and telescope the timeline to focus on DISCLOSURE from our government institutions. What disclosure does is give “information” three important characteristics:

Timeliness: The information being provided relates to the immediate present, not something that happened three or five years ago. Hence, people are interested, and the information is not like reading yesterday’s newspaper
Predictability: a shareholder of a company KNOWS that she can expect information every quarter. This knowledge that information will come allows all concerned to expect, and analyse the data. Today, information from government comes out unpredictably, in selective bunches, so that there is no context for the average citizen. As a result, the information disappears into a black hole.
Standardisation: the information is packaged in a manner that is understandable.

When information has these 3 characteristics, it unleashes the creative forces of all concerned with that particular institution. For a private company, it could be a research analyst, or a shareholder or a rating agency or a lender. For a government, it will be a citizen or an elected representative or an administrator or an NGO.

In government today, we do have audited statements prepared either by the Comptroller and Auditor General (CAG), or state-level accounting departments, but these are weighed down by a few constraints: for one, they fail the timeliness test and are invariably delayed by several months, sometimes even years. For example, the CAG’s audited report for the Union Government is currently available only for 2002-03. And the Union Government’s auditing is far superior to that of smaller entities: less than half the state audits for 2002-03 are available. Most significantly, given the focus of this column, city audits are commonly delayed by several years. This lacuna is compounded by the fact that public engagement with government finances is restricted to the budget announcement, which is really an instrument of promise rather than performance. Finally, disclosure is more than audited statements; it includes performance metrics, and critically, a vibrant space for periodic structured discussions.

Disclosure is different from RTI: yes, they belong to the same family of getting information, but the methods and processes are very different. Unless we recognise this difference, we will not extract the benefits that disclosure practices can offer. Unless a framework is created within which information becomes intelligible, unless a mechanism of “layering” is developed where we can sequentially ask more and more detailed questions of government, the true power of information will not be captured.

We need to have both, the rhythm of regular disclosure documents that present the performance of our government institutions to various stakeholders as a matter of course, as well as the scalpel of right-to-information to cut open specific issues that require greater analysis.

The writer is Campaign Coordinator of Janaagraha, a citizens’ platform for participatory democracy. He can be reached at ramesh@janaagraha.org