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Transparency in Corporate Reporting: If there is nothing to hide – don’t hide it

Written by Peter Van Veen on Thursday, 20 November 2014

Last week, we released our Transparency in Corporate Reporting (TRAC) report on the world’s 124 largest publicly listed companies. Several companies that had recently been involved in corruption scandals did much better than than one would expect. How is this possible?


 

You may have noticed that our Transparency in Corporate Reporting (TRAC) report on the world’s 124 largest publicly listed companies was released last week. 

Many companies scored very poorly especially in organisational transparency (with an average of 39%) and country-by-country reporting on basic financial information (with a truly awful average of 6%).

As in 2012, when we ran this study for the first time, there were some very surprising results.

A number of companies did very badly which one would expect to do well given their public statements, such as Google’s “You can make money without doing evil.” Unfortunately, Google does not back this up with transparent reporting, resulting in a total score of 20% and putting them in the same category as the Industrial and Commercial Bank of China and firmly in the bottom quartile of the study.

But the inverse was also the case.  Some companies did much better than one would expect.

For example, a number of companies that have recently had corruption scandals or are currently under investigation for corrupt activities, did very well in our ranking.  How is this possible?

Well, frankly, the fact that companies like Siemens, Barclays or HSBC are in the top quartile should not be surprising as the prosecutions / fines they have faced due to corrupt practices in the past should have focused the senior management’s attention in this area and anything less than top marks for their Anti-Corruption Programmes would have been very worrying indeed. 

But there is another category of company that have done surprisingly well. These are the companies that are currently under investigation / accused of corrupt practices, despite apparently having good policies in place; companies such as GSK, ENI and Petrobras.

A question we have been asked on more than a few occasions over the last week or two is how it could be that ENI tops the list whilst also being under investigation for corruption, an investigation that extends personally to their CEO? 

The simple answer to this is that the TRAC study does not measure how corrupt a company is but rather how transparent they are in reporting their anti-corruption efforts.  

A company cannot claim that a top ranking automatically means they are not corrupt.  The ranking does not exonerate anyone.

What a top ranking means is that the company communicates some of the right things.  It does not mean the company is fully transparent.  It does not mean the company is free of corruption.

Underlying the 26 TRAC indicators lies the assumption that the reasonably simple levels of disclosure and transparency that are required are indicators of:

  • An ethical culture intolerant of corruption
  • The existence of a relatively sophisticated internal anti-bribery and corruption (ABC) programme (the company’s internal procedures are often better than what they publish externally[1])

Unfortunately this leaves us with the paradox that some companies at the very top of the ranking are currently being investigated for corruption.   More sophisticated tools may be required to provide a satisfactory explanation.  One example of such a tool is our index of defence companies which gives a glimpse of how a more detailed scoring methodology can start to tease out differences in culture and effectiveness.  

The message for these companies is clear:

  1. You cannot afford to rest on you laurels: top-line reporting on what policies are in place on your operations and holdings is only the first step
  2. When faced with a corruption investigation, the response should be to achieve a level of transparency that really convinces the outside world of probity and integrity.  

After all, if there is nothing to hide – don’t hide it.

 

[1] Transparency International UK’s Defense Companies Anti-Corruption Index shows that companies typically under-report their anti-corruption efforts.

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Read 2840 times Last modified on Tuesday, 24 November 2015 11:47
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Peter Van Veen

Peter is the Director of TI-UK's Business Integrity Programme. You can follow him on Twitter @pvanveen

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