Corporate transparency: old problems and new ideas

Every January, the world’s most powerful people gather in the Swiss Alps to think through mankind’s woes and ponder how to make the world a better place. In 2011 many people chose not to listen. They took to the streets to protest abusive government practices and rail against the excesses of the rich.

The 2012 Davos meeting appears to recognise that popular confidence in leaders of politics and business is at a new low, and have set the agenda accordingly. The theme of “new models” is appropriate to a world seeking reform of the global financial system, and stronger relationships between the rulers and the governed.

The World Economic Forum is worried that if the global citizenry does not take hold of new ways – or models – to bring people, institutions and technology together, human potential will be limited. Hopefully these new models also include new ideas about governance; ideas that address economic crises and intolerant regimes.

Handling global power shifts

The global shift resulting from the emergence of new economic powers raises questions about models of growth and economic prosperitCorporatey. Transparency InternationaI's Bribe Payers Index (BPI), published in November 2011, classifies industrialised countries (including Brazil, Russia, India and China – collectively known as "BRIC") according to the propensity of firms from those countries to pay bribes when operating abroad. According to the report, companies from Russia and China, who invested US $120 billion overseas in 2010, are seen as most likely to pay bribes abroad.

The BPI shows a number of companies from major exporting countries still use bribery to win business abroad, despite awareness of its damaging impact on corporate reputations and ordinary communities. The inequity and injustice that corruption causes makes it vital for governments to redouble their efforts to enforce existing laws and regulations on foreign bribery and for companies to adopt effective anti-bribery programmes. In this spirit, all major exporting countries should commit to the provisions of the OECD Anti-Bribery Convention.

Fortunately, there are signs that global power shifts are being accompanied by responsibility: all BRIC countries now have anti-bribery laws on their books, compared to one out of four a year ago.

New models for corporate transparency needed

People lose confidence in financial markets and their participants for many reasons, including the lack of transparency in reporting, the persistence of unmanaged conflicts of interest and the revolving door between businesses and the regulators charged with monitoring and controlling firms. Combined, these factors lead to the instability of global financial markets.

Emerging models of corporate behaviour must embrace transparency as their model, particularly in the financial sector where crises can have systemic after-effects.

Transparency International’s private sector tools and approaches have become the basis for a coalition of institutions and networks devoted to reducing corruption in business operations.

How far has corporate reporting come?

Public reporting is a key step businesses must take to build trust, and which the global economy – especially the financial sector – direly needs. Public reporting sends a strong signal to all stakeholders: employees, investors and consumers, that a company is serious about clean business. A company that clearly demonstrates it has a zero-tolerance policy to bribe paying is sending a strong signal to bribe takers that they should keep their hands in their pocket and not held out for a bribe.

• 70 per cent of companies surveyed, and that are signed up to the UN Global Compact, have anti-corruption policies. But having a policy is not enough. Implementation is where the rubber hits the road.

Ethos and Transparency International Switzerland published a survey evaluating the anti-corruption measures of 20 of the largest listed companies in Switzerland.

• They found Swiss companies operating overseas have stronger anti-bribery measures applying to both bribery of officials and other businesses – in line with US and other anti-bribery rules – while the companies that only banned public sector bribery did not operate overseas and therefore appear to have set the bar lower.
• While 19 companies surveyed ban public sector corruption, only 11 prohibit private sector or indirect corruption. That means that while all companies tell their staff not to bribe civil servants or politicians, only half reject bribing other businesses or suppliers, or getting intermediaries to do the bribing for them.
• The worst score is in the area of facilitation payments – payments made to civil servants to quicken proceedings and reach a largely pre-determined outcome – which are banned by only five companies.

This survey raises the question: Can companies be counted upon to fight corruption by themselves, or are strong mandatory corporate governance laws needed? The “self-regulation” approach of setting standards for companies to meet themselves has its limits.

Resources

Socially Responsible Investment and Corporate Responsibility Indices

The following indices use the Business Principles as a reference:

• The FTSE4Good Anti-bribery Criteria developed with advice from TI;
• The Dow Jones SA Index
• The Business in the Community Corporate Responsibility Index

Reporting

Indicators developed by Transparency International are influencing the development of corporate social responsibility and sustainability reporting:

• UN Global Compact Reporting Guidance on Reporting Against the 10th Principle: Transparency International was co-chair of the task force that developed the Reporting Guidance. The Business Principles tools provided the framework for the Reporting Guidance.
• The Global Reporting Initiative (GRI): Transparency International was a member of the GRI Working Group that developed the anti-corruption Society Indicators for the third edition of the GRI’s Sustainability Reporting Framework. The Business Principles are the only voluntary code referenced in the Society Indicators.
• International Corporate Governance Network Reporting Guidance: this was influenced in its development by the Business Principles.
• Transparency International collaborated with the World Economic Forum’s Partnering Against Corruption Initiative, the International Chamber of Commerce, the United Nations Global Compact and more than 20 companies and organisations to develop the Resisting Extortions and Solicitations in International Transactions (RESIST) . The training tool helps employees counter solicitation and extortion demands in challenging operating environments. The tool also aims to help companies reduce the probability of such demands being made.