What You Can’t See…

By Kurt Lieberman, CEO, Magni Global Asset Management

August 2019

There is an old expression: “What you can’t see can’t hurt you”. I was reminded of it as I watched the excellent HBO miniseries called “Chernobyl”. The five-part series chronicles the explosion of a nuclear reactor in the Soviet Union in April 1986. The series reveals the limited understanding of radiation on the part of the citizens in the surrounding communities, and especially in the political leadership of the Soviet Union at the time. In that case, what you couldn’t see did kill many.

There was something else that couldn’t be seen. Opaqueness from pervasive secrecy in the Soviet Union hid information and knowledge; many in the Soviet Union, including those with a monumental need to know, could not see important information. Literally, the opaqueness contributed to the root cause of the accident, prevented more rapid and effective measures, caused delays in evacuating personnel, and resulted in many more deaths than it might have. The opaqueness nearly resulted in a far greater catastrophe. In 2006 former General Secretary Gorbachev said Chernobyl was the reason for the fall of the Soviet Union.

There have been other nuclear disasters, including Three Mile Island (in Pennsylvania) and Fukishima (Prefecture of Japan), though those incidents did not cause a system of government to collapse. Chernobyl was devastating to the Soviet Union as it laid bare the problems created by pervasive secrecy and the associated fear of disclosure. That was despite Gorbachev’s previously launched Glasnost policy to open the country.

Opaqueness is a problem everywhere. More recently, we have read about a series of very ugly sexual harassment, sexual assault of children, and even indentured sexual servitude scandals in recent years. If you look at each one of the scandals, the unifying theme across all of them is the power opaqueness gives to bad people doing bad things. Bad actions are hidden from view. When individuals live in an environment that is opaque, they often do not feel as compelled to report bad actions to the applicable authorities and the bad actions continue more easily. Opaqueness provides the cover for corruption and often even worse actions.

An excellent analogy is that corruption is the equivalent of mold, while opaqueness is the equivalent of a dark, warm place. Corruption, like mold, loves the cover of darkness. Conversely, transparency is like sunlight; it disinfects and prevents problems.

Responsible Investing is about the application of ethics to investing. Opaqueness has three very important implications for Responsible Investing. First, ethics is about doing what is right and good. Transparency helps maintain an ethical environment and a culture of doing good things in organizations. That is true for all organizations, not just businesses. Second, it about more than simply being ethical within a company (i.e., employees and shareholders). It is also about being ethical with all the stakeholders of a company, including suppliers, competitors, and communities where the company operates. Only through the inclusion of all stakeholders can the quality of governance truly be assessed. Third, companies that are opaque should be considered riskier and, hence, less attractive investment opportunities. Simply put, opaqueness is important investment information.

Understanding the harm done by opaqueness is important outside of investing. Opaqueness is thoroughly inconsistent with good governance is not just businesses, but also countries, charities, schools, sports organizations, and even religious organizations. Fortunately, the world is growing more transparent with the help of technologies, including social media, and this should allow us to live and thrive in a more successful and happier world.