Through a corruption glass darkly

10th July 2012

Barclays, Citigroup, JP Morgan Chase and Goldman Sachs are among the international banks which fall into the third division out of three in a new survey Transparency In Corporate Reporting from Berlin-based anti-corruption body Transparency International.

The only honourable banking exception is HSBC which achieved sixth place out of the 105 major companies in sectors from oil to retailing which were assessed in the study.

The report raises concerns over a lack of information at many companies, denying individual investors the ability to make informed decisions that are consistent with their ethical standards and strategies.

The report looked at top global companies giving a mark to each for how well or badly they reported on anti-corruption programmes, on their organisational transparency and on how well these multi-nationals revealed details of operations in the various countries where they had businesses. 

Oil and resources firms do well

It then added these three to give a global score.  Consumer facing companies were largely absent from the top firms, leaving the leading positions to oil and natural resources companies.  Norway's Statoil came first, followed by minerals firms Rio Tinto and BHP Billiton, with steels group ArcelorMittal and oil and gas explorer BG Group in the next positions.

HSBC was next with Tesco at 11th. The overall ratings show remarkable differences between companies with similar business models. Coca-Cola makes the top 40 while rival Pepsi is in the bottom 20.

Far East is transparency-lite – high techs are little better

Five of the bottom six are far Eastern with Bank of China, Bank of Communciations, Honda Motor, China Construction Bank and Nippon Telegraph and Telephone occupying the lowest reaches. The other transparent-lite firm is Berkshire Hathaway, the company controlled by legendary investor Warren Buffet.

High tech companies fare poorly. Amazon, the seventh worst, Google, Canon, Apple, Microsoft and Cisco Systems all make the bottom 25.

Organisation transparency takes in multinationals that operate through a network of subsidiaries and other connections in various jurisdictions including "secrecy jurisdictions."  The report says: "Critical issues such as inter-company financial flows can only be followed if corporate networks are disclosed. Local stakeholders need to know which companies are operating in their territories, bidding for government licences or contracts, or have applied for, or obtained favourable tax treatment."

This is linked to "country by country reporting" where stakeholders can discover the importance of a firm's activities territory  by territory.

Brown paper envelopes

The survey compilers say although there has been some advance in banning  bribery and other damaging practices, anti-corruption reporting standards show there "is significant room for improvement. Few indicate that facilitation payments are prohibited and reporting on monitoring procedures tends to be weak."

While the authors accept that failing to disclose a programme and indulging in bribery and other corrupt practices are not the same, good reporting "acts as a deterrent" to making false statements which could lay the company open to legal and reputational risks which can affect investors and other stakeholders.

It says: "The publication of anti-corruption policies by multinationals has a positive impact on employees worldwide as it confirms the parent company's commitment and support for ethical behaviour." Only one in five companies actively banned bribery.

Maximum and minimum anti-corruption reporting

BG Group, Statoil and German chemicals group BASF achieved maximum positive scores. Russia's state-owned oil group Gazprom, the Bank of China and the Bank of Communications all scored zero.

Pharmaceuticals and healthcare did well but could do better in programmes designed to deal with the issue political contributions from the industry.

Financial companies are the single biggest sector in the survey with 24 entries.  They have the lowest average anti-corruption score.

Banks lag other industries

The banks and other financial companies overall tended towards low scores – with HSBC and German insurer Allianz the star exceptions.

The report authors say: "The recent global financial crisis highlighted the need to broaden the discussion about regulation and oversight of the financial system. Transparency and related risk assessments have surged to the top of the agenda."

The report recommends:

·      Risk rating agencies should include transparency measures as an integral part of their evaluation process.

·      Accounting standards relating to financial accounting should include corruption-relevant disclosures.

·      Investors should factor transparency into their decisions.

 

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