- Anti-corruption programmes
- Organisational structure
- Country-by-country reporting of revenues, transfers and value sharing.
Data was collected exclusively from publicly-available sources, namely the websites of each company, with analysis guided by questionnaires that were constructed by TI. Each question that was used to form a rating was scored on a scale of zero to one, with one being the best score.
TI approached their study based on the notion that a number of the world’s largest publicly-traded companies do not have enough transparency measures in place to help prevent another global financial crisis. Criticism was aimed at companies projecting too little information about their commitments to comprehensive anti-corruption systems. Conversely, TI asserts that greater disclosure allows external parties such as investors, the media, activists and citizens to monitor behaviour. Essentially, TI’s argument is that having strong governance and anti-corruption measures in place is just the first step; whatever measures a company takes must be broadcast clearly to have their full effect. Reporting on elements such as anti-corruption programmes, organisational transparency and presence in various countries gives a clearer picture of a company’s operations, revenues, profits and taxation. Therefore, stakeholders have the information to make informed decisions and influence corporate behaviour.
Efforts to promote transparency and accountability in business dealings, particularly in emerging markets, were amongst the elements aimed at being addressed by TI. It also aimed to create an index that ranked companies on their performance, to identify those that were below-par in the publication of their anti-corruption efforts.
The aim of this article is to highlight the shortfalls of TI’s report and approach. There are many more facets to a good compliance programme that cannot simply be advocated publicly, and it is inaccurate to suggest an organisation has committed any wrongdoing by failing to disclose certain activities.
Results and interpretation
1. Anti-corruption programmes
The results of TI’s report clearly identify organisations that have chosen to keep their operations largely confidential; however, in the anti-corruption-programme category such companies were the minority. Some organisations managed to score 100 percent in various criteria, based on questions relating to compliance with laws, application of internal codes and policies, gifts and hospitality measures, disclosure of political contributions and facilitation payments, and so on. As an example, BASF, BG Group and Statoil achieved maximum-possible scores across the entire category in their reporting on anti-corruption programmes. It was also discovered that, with the exception of eight companies, all in the sample made an open declaration to commit to complying with all relevant laws.
Despite constituting the biggest industry group in the sample analysed, the financial-services sector was found to have the lowest average score. Of note, only two banks achieved a positive score in relation to reporting on the prohibition of facilitation payments. The report even devoted an entire chapter on the financial-services sector, naming and shaming various entities with poor transparency.
The distinction should be made that this is not an analysis of the worthiness of the anti-corruption programme itself; it is certainly arguable that the structure and execution of the programme is what is most important. Whilst the information that a company projects is in many instances the basis on which first impressions are made of that business’s approach to various issues, TI’s analysis does not cater for a number of variables. In this category, 13 rather broad questions were asked of each company, and the results are essentially based upon yes, no or in-between responses to those questions. This approach does not allow for any scope on the type of industry, geographical location or the different types of corruption risk each company might face. A crucial part of formulating any substantial compliance programme is the ability to identify the various risks that a company might face, map those risks against the structure, goals and strategy of the business, and weigh up all these factors against the risk appetite of the organisation. In other words, the compliance programme needs to prioritise and target the specific risks of a particular business based on its internal and external environments. It is inefficient and ineffective to have a compliance programme that tries to deal with all corruption risks evenly, with no regard to the circumstances of the business. Equally, TI has not portrayed an effective, accurate picture of anti-corruption efforts in conducting a one-dimensional and standardised analysis of group of companies without consideration of the different issues they each face.
2. Organisational transparency
This section of the study looked in particular at the companies’ efforts in disclosing all the details of their organisational structure. The concept of the materiality of various holdings in a company’s structure raised a number of issues in this study, as a company may have subsidiaries in various countries which do not technically reach some regulatory thresholds by which a “holding” might be classified. TI aimed to look for entities which provided details, regardless of value, on all holdings. Based on this, of all the industry groups utility companies received maximum possible scores on disclosure of their entire organisational structure, whilst tech companies were deemed to have disclosed the least amount of information.
Again, this is just one aspect of many facets of a business, the disclosure of which does not necessarily indicate how a company is addressing the risk associated with having numerous subsidiaries in various locations. There is certainly merit in an organisation being open about all its different holdings; however – and perhaps of greater importance – an organisation’s compliance programme should address the issues posed by having numerous different holdings, and, especially when located in foreign countries, should cater for the business having a presence in those particular locations. An in-depth analysis of such programmes is perhaps a more substantial indicator of how the corruption issues that might coincide with a multi-layered organisation are being addressed.
3. Country-by-country reporting
For each country in which a company in the sample group conducts its operations, TI posed a set of five questions relating to country-level financial data. TI considers country-by-country disclosure to allow local citizens and civil society organisations to monitor companies’ business relations, transfers and value-sharing practices, as well as money transfers to governments in the form of taxation and licensing. Further, the failure of multinational companies to fully report on all their operations in developing economies creates difficulties for the people of those countries to demand accountability for corrupt practices from the multinationals present there, as well as from their government. Of the three main categories on which companies were assessed in the report, the country-by-country analysis saw the poorest results. Forty-one out of the 105 companies analysed scored zero percent, with the average score across all 105 companies being only four percent. As examples of good country-by-country reporting, TI highlighted the following examples:
- disclosure of revenues on a country-by-country basis for all countries in which a company operates
- disclosure through a comprehensive country-by-country data table, including financial data on revenues, taxes and community contributions
- disclosure of the amount of taxes paid on a country-by-country basis for all countries in which the company operates.
There are a number of issues with the validity of TI analysing such data and of the report pointing the finger at companies that fell short in this category, particularly when judged on the reporting of payments to governments. Making payments to governments is not an illegal practice, nor is it an issue identified in legislation such as the Foreign Corrupt Practices Act. The issue from a bribery and corruption standpoint is payments made to government officials, so it is questionable why companies in the report have been scrutinised for not disclosing legitimate government payments. Transparency on this front should focus on the particular foreign government and their approach to handling instances of illicit payments, not on the companies who pay taxes.
What should be disclosed publicly?
There are a number of items which a company should prioritise in terms of its public disclosure. There is no need to disclose other elements, let alone attract scrutiny for keeping such information confidential.
As highlighted repeatedly, the transparency of a company allows for open review and judgment of an organisation’s actions, thereby increasing accountability and scrutiny of its conduct. Not only does this benefit the investment decisions of stakeholders, lift the community standards of how a company operates and promote ethical behaviour in a company’s surrounds, it also helps generate trust and openness in business dealings. With the ever-increasing requirements from governments for greater responsibility in dealing with humanitarian issues, a joint effort between businesses is required. Corporate transparency helps build trust between organisations and develop a positive approach to collectively deal with issues that can hamper the progress of an economy.
Assessing a business on its transparency is, however, very limited in terms of what it can reveal about the business’ overall conduct and behaviour. It is important that companies are encouraged to be as transparent as possible, though these results cannot be looked at as a measure of the increase or decrease in corrupt practices, nor can they provide a valid judgment on the quality of an anti-corruption programme or monitoring measures for corrupt behaviour. It is like a police officer passing judgment on someone’s propensity to abide by the law based purely on what they say or do not say – people are not going to openly publicise the fact that they have been breaking the rules. In the country-by-country reporting section it is clear companies remain closed on various activities, but this does not spell corrupt behaviour.
Some valid issues have been raised by TI in the report. The combat against corrupt behaviour can only begin when the world’s premier companies lead by example, and the best possible example that they can give is providing full and accurate details of how they operate. This sends a warning signal to potential contractors that corrupt behaviour will not be tolerated. Governance and compliance programmes should factor in the issue of transparency when looking at risk mitigation, but there are other elements to a good programme that require equal, if not more, attention.
Transparency in a company is not in itself a solution to the risks associated with corrupt behaviour. Whilst TI’s report does correctly highlight the importance of disclosure and accountability as being a positive step in eliminating risks as well as tackling broader issues, is not an accurate reflection of corruption levels and attempts by leading global companies to minimise them.