New report from Transparency International: corporate secrecy is alive and well

November 6th, 2014

2080966871_c08901a22d_zIn a new report released this week, Transparency in Corporate Reporting: Assessing the World’s Largest Companies, Transparency International (TI) analyzes the disclosure practices of the world’s largest publicly listed companies. This report is part of a series of studies aimed at evaluating the corporate world’s transparency and accountability practices. In this report, TI looks at 124 corporations and scores them on transparency according to three dimensions: reporting on anti-corruption programs, organizational transparency, and country-by-country reporting.

TI’s research finds that many companies are fairly transparent regarding their anti-corruption programs, but much less so regarding their organizational structures and country-by-country activities.

Despite new legislation dictating enhanced disclosure requirements for companies, much of the elite corporate world remains cloaked by insufficient reporting standards. In many instances, it is difficult for stakeholders and the public to hold companies accountable without open access to information about where they are operating and in what capacity. Most large companies have significant overseas operations but publish very little information about what they do abroad making them increasingly susceptible to corruption.

Although a relatively recent concept, public country-by-country reporting has gained prominence due, in part, to new legislation for multinational extractive companies introduced in the US and EU. Furthermore, the OECD has developed common standards for country-by-country reporting that are expected to be on the G20 Leader’s Summit agenda in November.

According to the report:

Country-by-country reporting provides a basic level of transparency needed for companies to be held accountable for their activities in a particular country. Disclosing key financial data enables citizens to evaluate whether the company is contributing in a manner appropriate to its level of activity and, in some instances, to provide entry points to identify potential cases of corruption.

Country-by-country reporting is therefore an important part of a company’s transparency initiatives, yet has had low implementation. The study found that companies scored an average of 6% on the country-by-country reporting aspect of the evaluation. In fact, not a single company scored above 75% in this area, and more than 50 companies actually scored a zero.

This was by far the lowest result of all three dimensions assessed in the report with anti-corruption programs and organizational transparency scoring 70% and 39% averages, respectively.

What accounts for this aversion to country by country reporting?

Coupled with being a new concept, businesses have resisted country-by-country reporting citing fears of diminished competitiveness and cost. But improved disclosure is easily achievable looking at the top performing companies in TI’s study. Norway’s Statoil tops the rankings in country-by-country reporting transparency with a comparatively high 66% score, followed by Spain’s Telefonica at 54% and the UK’s Vodafone at 51%. Clearly this demonstrates that country-by-country reporting is possible and not anti-competitive as the best performing industry in this reporting area was the highly competitive telecommunications sector.

Despite poor country-by-country reporting implementation, there were small gains in scores compared to the 2012 Corporate Reporting study by Transparency International. While they still have much ground to cover, the debate about corporate disclosure is evolving. For example, a survey carried out earlier this year by global accounting firm PwC showed that 59% of CEOs support making country-by-country financial information public.

Transparency International recommends that governments enforce requirements on all companies to publish financial account data on a country-by-country and project-by-project basis to promote effective monitoring, curb corruption, and tackle tax avoidance.

These powerful global corporations exert substantial economic and political influence but we largely know little about them. Demanding a common reporting standard for multinational business is a path to better accountability and a level playing field for all.

Image used under Creative Commons License / Flickr User Lorenzo G

Written by Alec Simpson

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