Thursday, 23 August 2012

Lack of transparency is the path to corporate corruption

As recently highlighted in CI’s new report on supermarket supply chains, consumer organisations can play a vital role in holding corporations to account. However, this job is not made easy when companies disclose too little about their policies and operations. Guest blogger Angela McClellan from Transparency International explains the importance of corporate transparency and the right of consumers to be informed.

Holdings, subsidiaries, affiliates and entities—this is the landscape of modern corporations. To the consumer, they are opaque, complex entities and seeing what lies behind them is never easy.

Information on multinational corporations and their operations is often inaccessible or incomprehensible, leaving the average consumer confused and in the dark—a clear violation of the consumer’s right to be informed.

In addition, as the recent banking scandals have demonstrated, lack of access to information also means a lack of accountability, which creates an enabling environment for, as Transparency International (TI) puts it, “the misuse of publicly entrusted power for private gain”. In other words: corruption.

Whether it is interest rate manipulation such as in the alleged Libor affair at Barclays or multi-billion dollar money laundering such as accusations against global subsidiaries of HSBC, corruption can take many forms.

But in all cases, corruption damages public trust, undermines corporate credibility, and hurts the consumer who pays the price for a lack of sound risk management and individual bankers gambling for personal gain.

TI recently released its Transparency in Corporate Reporting study in which it assesses the country-by-country reporting, organisational transparency, and disclosure of anti-corruption programmes among the 105 largest companies in the world, based on publicly available information.

Its methodology is based on the assumption that companies which disclose this information have less to hide. The more transparent companies become, the less space there will be for shady deals and private enrichment.

Together, the companies surveyed in this report are worth more than 11 trillion USD and play a vital role in the global economy, wielding enormous political leverage. Not only that, but many are household names that touch the lives of people all across the world, carrying an important social responsibility.

The impact of these companies and their actions goes beyond investors or shareholders and has a profound effect on the individual, the consumer and the worker. Our report sheds a negative light on financial companies, described as the least transparent. This is particularly worrisome given that the financial sector has received copious amounts of public funds through bail-out programmes in recent years.

To avoid the continuing privatisation of win and socialisation of loss, consumers and other stakeholders, including investors, shareholders, tax payers and regulators, need sufficient information to be able to assess the risks to which they are exposed. Country-by-country financial reporting enables citizens in host countries to hold their governments to account on contracts, tax exemptions as well as on the use of received revenues.

Organisational transparency is necessary to shed light on the network of interconnected subsidiaries and affiliates that may be incorporated in diverse jurisdictions, including secret jurisdictions with low tax regimes. And finally, the disclosure of anti-corruption policies is key as it indicates a corporate commitment to protecting against corruption.

Corruption is a risk for multinational corporations as much as it is for governments and consumers. It distorts markets, undermines economic growth and perpetuates social inequality. This affects each of us. Companies may recognise this but must now more than ever unequivocally commit themselves to measures to prevent corruption.

The help of civil society and individual consumers can make an enormous difference. Most corporate reporting is purely voluntary and companies may not see the need to increase their transparency.

Therefore, we need to remind companies and governments that we, as consumers and tax payers, do indeed care and want access to information. Using the data from the Transparency in Corporate Reporting, we can demonstrate to companies that what they have been doing so far against corruption is not enough to ensure that consumers are protected.

Through tweeting, blogging and campaigning, we can show that we will hold companies to their commitments and monitor their operations. We can show that we will hold them accountable.

Angela McClellan, Senior Programme Coordinator in TI’s Global Outreach and Campaigns Department, coordinates TI’s advocacy work on issues relating to the Group of 20 leading economies.

2 comments:

  1. Thank you for your and your organization's effort to bring into light and expose shady deals going between government institutions and private businesses including bribery, kickbacks and payouts. As a native of Azerbaijan, I would like to indicate that your organization's reports were helpful to measure corruption level due to non-transparency of oil money flowing into pockets of government officials using offshore companies and banks for money laundering.

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  2. For what it is worth, I work for a dominant certified organic producer which supplies to a major national supermarket. My comment is that it is true that supermarket certification of production is lacking generally, but is robustly supplemented by a government or IFOAM endorsed organic certifier. This way as producers we are endorsed and AUDITED by a recognised certifier, and then, of all retailers, the supermarkets come under the most invasive scrutiny and certainly a significant breach would impact consumer sentiment - perhaps one of the most valuable assets of a retailer. Therefore the most secure supply chain for food, is one in which a certified organic producer, supplies a major supermarket directly (to avoid adulteration at any 3rd parties). Anything else really offers no guarantee or certainty as to content or care.

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