Transparency in Corporate Reporting:

What? Why? How?

Riga, February 2013

BUSINESS PRINCIPLES FOR COUNTERING BRIBERY

The Business Principles for Countering Bribery are the cornerstone of Transparency Internationals private sector anti-corruption activities. The enterprise shall prohibit bribery in any form whether direct or indirect. The enterprise shall commit to implementing a Programme to counter bribery.

BUSINESS PRINCIPLES FOR COUNTERING BRIBERY

Scope:
Bribes Political Contributions Charitable Contributions and Sponsorships Facilitation Payments Gifts, Hospitality and Expenses

Implementation:
Organisation and responsibilities Business relationships Human resources Training Raising Concerns and seeking guidance Communication Internal Controls and record keeping Monitoring and review External verification and assurance

TRANSPARENCY IN CORPORATE REPORTING

3 DIMENSIONS
REPORTING ON ANTI-CORRUPTION PROGRAMMES:
Demonstrates: basic preventive measure against corruption are in place commitment to anti-corruption

ORGANISATIONAL TRANSPARENCY:
Is a neccessary pre-condition for: transparent company structure transparent intra-company, cross-border financial flows

COUNTRY-LEVEL REPORTING:
Allows for monitoring by local citizens and civil society organizations of: taxes and other transfers to governments value sharing or transfer pricing practices and other domestic financial flows

THE BUSINESS CASE

10% 20%

Corruption adds up to 10% to the total cost of doing business globally.

Moving business from a country with a low level of corruption to a country with medium or high level of corruption is found to be the equivalent of a 20% tax on foreign business.

25%
Source: UNGC / ICC / Transparency International / WEF, 2008)

Corruption adds 25% to the cost of procurement contracts in developing countries.

THE BENEFITS OF BUILDING AN EFFECTIVE ANTI-CORRUPTION PROGRAMME

Companies with anti-corruption programmes and ethical guidelines are found to suffer up to 50 % fewer incidents of corruption, and to be less likely to lose business opportunities than companies without such programmes.
Transparency International, Global Corruption Report 2009 - Corruption and the Private Sector

Having an anti-corruption programme in place and publicizing it is seen as valuable or very valuable to a enterprises brand by 86% of respondents.
PricewaterhouseCoopers, Confronting corruption The business case for an effective anti-corruption programme, January 2008

TRANSPARENCY IN CORPORATE REPORTING

METHODOLOGY & RATIONALE
FOCUS ON PUBLIC REPORTING:
it allows for equal and objective evaluation, regardless of company cooperation it reflects a companys commitment to countering corruption it makes companies more readily accountable for shortcomings

METHODOLOGY:
companies provided methodology in advance and invited to provide feedback

DATA COLLECTION:
desk research - corporate websites and relevant embedded links data verification by companies

EVALUATED DIMENSIONS:
reporting on anti-corruption programmes organisational transparency country-by-country reporting

RANKINGS:
three separate company rankings for each evaluated dimension an overall transparency index

TRANSPARENCY IN CORPORATE REPORTING

METHODOLOGY - SAMPLE

100+ largest companies by market value (based on 2010 Forbes Global 2000)
only publicly listed companies operating in multiple countries companies incorporated in 22 home countries companies operating in more than 200 countries and territories

TRANSPARENCY IN CORPORATE REPORTING

RESULTS ANTI-CORRUPTION PROGRAMMES

average result 68% three European companies at the top Chinese and Russian companies on the bottom the poorest scoring question related to the prohibition of facilitation payments on average, financial companies performed the worst

TRANSPARENCY IN CORPORATE REPORTING

RESULTS ORGANISATIONAL TRANSPARENCY

average result 72% 45 companies achieved the maximum score good disclosure of subsidiaries, but poor disclosure of non-fully consolidated holdings materiality as a major limitation to full transparency on average, technology companies performed the worst

TRANSPARENCY IN CORPORATE REPORTING

RESULTS COUNTRY-BY-COUNTRY REPORTING

very low average result of 4% Statoil on top with 50% score, followed by Tesco, Rio Tinto and BHP Billiton 41 companies with zero-scores the best performing industries: basic materials, oil and gas new US and EU legislation may improve future disclosure for extractives companies listed on their exchanges

TRANSPARENCY IN CORPORATE REPORTING

RESULTS SPECIAL FOCUS ON FINANCIAL SECTOR

average index score 4.2 very large disparity in scores on anticorruption programmes country-by-country reporting very rare the financial sector underperformed the average in each of the three dimensions

TRANSPARENCY IN CORPORATE REPORTING

RESULTS COMPLETE INDEX

TRANSPARENCY IN CORPORATE REPORTING

RESULTS COMPANIES OPERATING IN LATVIA

http://www.transparency.org/news/feature/shining-a-light-on-the-worlds-biggest-companies

Abbott Laboratories, Amgen, AstraZeneca, BASF, BayerGroup, Gazprom, GlaxoSmithKline, Hewlett-Packard, IBM, LOral, Merck & Co., Microsoft, Oracle, Pepsi Co., Philip Morris International, Roche Holding, Samsung, Sanofi Aventis, SAP, Siemens, Statoil, United Technologies

Revenues/sales: Capital expenditures: Pre-tax income: Income tax: Community contributions:

Statoil 0 0 Statoil 0

TRANSPARENCY IN CORPORATE REPORTING

RECOMMENDATIONS
TO MULTINATIONAL COMPANIES:
should publish detailed anti-corruption programmes should publish exhaustive lists of subsidiaries and other holdings (regardless of materiality) should report on a country-by-country basis financial companies in particular should improve their levels of disclosure

TO GOVERNMENTS AND REGULATORY BODIES:

should require companies to disclose all their subsidiaries and holdings should require companies to report on a country-by-country basis

TO INVESTORS:
investors should demand highly transparent reporting in all three dimensions risk rating agencies and corporate responsibility indices should incorporate transparency in reporting into their evaluation process accounting standards should introduce relevant reporting requirements

TO CIVIL SOCIETY ORGANISATIONS:

should monitor multinational business located or operating in their countries should advocate for improved corporate reporting

TRANSPARENCY IN CORPORATE REPORTING

RESULTS
SOME RESULTS WERE SURPRISES:
Companies that live off access to and exchange of information fared poorly Some companies in more challenging environments scored well

SOME WERE ANTICIPATED:

Banks scored poorly Extractive companies scored well in areas where we had focused attention in earlier indices (ie anti-corruption programmes) but poorly in new areas (country by country reporting)

TRANSPARENCY IN CORPORATE REPORTING

CHALLENGES
INDUSTRY OR REGION SPECIFIC: DEFINING THE POPULATION TO ENSURE THAT THE RESULTS ARE MEANINGFUL AND PROVIDE THE DESIRED IMPACT

PUSH BACK FROM THE TARGET COMPANIES:

Public information, internal information or both? Degree of detail and specificity required

PUSH BACK FROM OTHERS:

Is the methodology meaningful? relevant? Is corporate reporting a valid proxy for good behaviour?

TRANSPARENCY IN CORPORATE REPORTING

IMPACT / ADDED VALUE
DIRECT HIGH LEVEL ENGAGEMENT WITH COMPANIES:
Valuable input to develop and carry out our private sector anti-corruption strategy Enhanced ability to affect corporate behavior

RAISES PUBLIC PROFILE AND AWARENESS

On the issues On the organisation

ENHANCES CREDIBILITY FOR MORE EFFECTIVE ADVOCACY WITH:

Investors and Investor Groups Governments and Regulators Civil Society Organizations

CATALYST FOR CHANGE IN BEHAVIOR:

Some companies published missing information during the consultation process Companies not covered in the survey advised us that they had published missing information as a result of the report

OTHER RESOURCES
BUSINESS INTEGRITY TOOLKIT

OTHER RESOURCES
BUSINESS INTEGRITY TOOLKIT

STAY INFORMED www.transparency.org Transparency International Secretariat, Berlin Private Sector Team Email: privatesector@transparency.org