What it means
The name comes from a saying that sunlight is the best disinfectant, meaning that decisions made in the open are less likely to be corrupt or careless. In the United States the term is used for federal and state open-meetings and open-records laws, and many other countries have similar freedom of information rules.
The details differ widely from place to place, so a business has to check the rules that apply to the particular public body it deals with. Typically, a sunshine law requires that meetings of a public board or committee be announced in advance and held in public.
It also lets members of the public request copies of documents such as minutes, budgets, contracts and correspondence. Certain material, such as personnel matters, active legal cases or commercially sensitive information, is often exempt.
For a finance professional, the most direct impact comes through public procurement, which is how governments buy goods and services. When a company bids for a city contract, its pricing, the winning bid and the contract terms may become public records.
A firm that does not want a competitor to see its cost structure needs to ask in advance which parts of a bid will be protected. Sunshine laws also affect publicly funded organisations such as universities, hospitals and pension boards.
Their budgets, salaries and investment decisions may be available for scrutiny, and journalists and watchdogs use these records to report on spending. That scrutiny pushes such bodies to document their decisions carefully and to follow clear procurement rules.
The nuance is that transparency has costs as well as benefits. Officials sometimes avoid candid discussion in public meetings, and responding to records requests takes time and staff.
Even so, most advocates argue that the public benefit of openness outweighs the administrative burden, particularly where large sums of taxpayer money are involved. Private companies should not confuse these laws with the disclosure rules for listed companies, which are separate and enforced by securities regulators.
A sunshine law applies to government bodies, while disclosure rules apply to companies that sell shares to the public. A firm that works with the government may find that both sets of rules matter to it at the same time.
In practice
Real-world examples.
Example
A construction company bids $4.2 million to build a library for a city council. After the contract is awarded, a local reporter requests the bids under an open-records law, and the company's pricing for labour and materials becomes visible to its competitors.
Example
A hospital run by a county authority holds its budget meeting in public, as the law requires. A taxpayer group attends, reads the proposed capital plan and questions a $900,000 spending line for new equipment.
Example
A software supplier wins a contract with a state agency and marks its pricing methodology as a trade secret in its proposal. The agency's records officer reviews the claim and releases only the parts not covered by the exemption when a request is made.
Case study
Seen in the real world.
Riverbend Facilities Group is an illustrative, fictional cleaning and maintenance company that won its first contract with a regional transit authority. The contract was worth $1.8 million over three years, and the managing director assumed the details would stay private.
Six months later, a local newspaper used an open-records request to obtain the contract and printed the hourly rates Riverbend charged. A rival firm used the numbers to undercut Riverbend on the next tender.
In this illustrative story, the finance director rewrote the company's bidding checklist. Future bids separated confidential cost data from the price schedule, marked trade secrets clearly, and kept legal advice on file about what the authority could withhold.
Watch out
Common mistakes.
- Assuming that a contract with a public body is private, when it may be open to inspection by any member of the public.
- Marking an entire bid as confidential, which tends to be ignored, instead of identifying the specific parts that genuinely qualify for protection.
- Confusing sunshine laws with securities disclosure rules, when one governs public bodies and the other governs companies that sell shares.
Questions
People also ask.
Do sunshine laws apply to private companies?
Generally not, but a private company that deals with a public body may find that its contracts and communications with that body can be requested.
Are all government records public?
No, most laws contain exemptions for matters such as personal data, ongoing investigations and certain commercial secrets.
Why do finance teams care about sunshine laws?
They influence what pricing and cost information a company reveals in a public bid, and they affect how public bodies report spending to citizens.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related