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 International’s 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.

Scope: BribesPolitical ContributionsCharitable Contributions and SponsorshipsFacilitation PaymentsGifts, Hospitality and Expenses

Implementation:Organisation and responsibilitiesBusiness relationshipsHuman resourcesTrainingRaising Concerns and seeking guidanceCommunicationInternal Controls and record keepingMonitoring and reviewExternal verification and assurance

BUSINESS PRINCIPLES FOR COUNTERING BRIBERY

TRANSPARENCY IN CORPORATE REPORTING3 DIMENSIONS

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

ORGANISATIONAL TRANSPARENCY: Is a neccessary pre-condition for:

• transparent company structure• transparent intra-company, cross-border financial flows

REPORTING ON ANTI-CORRUPTION PROGRAMMES:Demonstrates:

• basic preventive measure against corruption are in place• commitment to anti-corruption

THE BUSINESS CASE

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

20% 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% Corruption adds 25% to the cost of procurement contracts in developing countries.

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

THE BENEFITS OF BUILDING AN EFFECTIVE ANTI-CORRUPTION PROGRAMME

“Having an anti-corruption programme in place and publicizing it is seen as valuable or very valuable to a enterprise’s brand by 86% of respondents.”

PricewaterhouseCoopers, Confronting corruption – The business case for an effective anti-corruption programme, January 2008

“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

TRANSPARENCY IN CORPORATE REPORTINGMETHODOLOGY & RATIONALE

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

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

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

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

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

TRANSPARENCY IN CORPORATE REPORTINGMETHODOLOGY - 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 REPORTINGRESULTS – 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 REPORTINGRESULTS – 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 REPORTINGRESULTS – 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 REPORTINGRESULTS – SPECIAL FOCUS ON FINANCIAL SECTOR

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

TRANSPARENCY IN CORPORATE REPORTINGRESULTS – COMPLETE INDEX

TRANSPARENCY IN CORPORATE REPORTINGRESULTS – 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, L’Oréal, Merck & Co., Microsoft, Oracle, Pepsi Co., Philip Morris International, Roche Holding, Samsung, Sanofi Aventis, SAP, Siemens, Statoil, United Technologies Revenues/sales: StatoilCapital expenditures: 0Pre-tax income: 0Income tax: StatoilCommunity contributions: 0

TRANSPARENCY IN CORPORATE REPORTINGRECOMMENDATIONS

TO CIVIL SOCIETY ORGANISATIONS:• should monitor multinational business located or operating in their countries• should advocate for improved corporate reporting

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 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 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

TRANSPARENCY IN CORPORATE REPORTINGRESULTS

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 REPORTINGCHALLENGES

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 REPORTINGIMPACT / 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 RESOURCESBUSINESS INTEGRITY TOOLKIT

OTHER RESOURCESBUSINESS INTEGRITY TOOLKIT

STAY INFORMEDwww.transparency.org

Transparency International – Secretariat, BerlinPrivate Sector Team

Email: privatesector@transparency.org