A new report from Transparency International reveals that emerging market multinationals are far from responsible global citizens, with low transparency standards and weak anti-corruption policies that have barely improved over the last few years, if at all. In the organization’s latest assessment, 75 of the 100 assessed companies scored less than 5 out of 10 overall for transparency and scored an average of 48 percent for disclosure of their anti-corruption programs.
Despite Brazil’s massive corruption scandal, the accusations of missing funds involving Malaysia’s prime minister, and the release of the Panama Papers exposing industrial-scale use of shell companies and offshore tax havens, Transparency International’s report suggests that the emerging market multinational community is still largely ignoring the importance of transparency and accountability. What’s more, these companies hold an important place in regional and global markets; Brazil, Russia, India, China and South Africa (the BRICS economies) alone account for approximately 30 percent of the world’s output, meaning many of their firms can be considered “leading multinationals.” “And, like other multinationals, they must play their role in fighting corruption and raising standards of integrity and transparency in business,” Transparency International asserts in the report.
In Transparency in Corporate Reporting: Assessing Emerging Market Multinationals, the organization emphasizes that comprehensive public reporting is a key measure companies must take to address corruption and provide transparency, and demonstrates that legal and regulatory requirements can effectively foster related improvements. It argues that it is in emerging market multinationals’ self-interest to prepare for a new global era of transparency, and that governments and regulators must also play their part to build consistent demand for it.
The report assesses the public disclosure practices of 100 major emerging market multinationals headquartered in 15 countries and active in 185 countries based on three dimensions: the reporting of key elements of their anti-corruption programs; the disclosure of their company structures and holdings; and the disclosure of key financial information on a country-by-country basis. Researchers gathered the information for the report from publicly available sources such as corporate websites.
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The overall average score for the 100 companies assessed was 3.4 out of 10 (with 10 being the most transparent), a slightly weaker performance than in the previous two years Transparency International has conducted such research. Emerging market multinationals have also weakened in regard to disclosure of their corporate structures, with an average result of 47 percent – a seven-point slide from the average result of 54 percent (although this is due in part to a more demanding disclosure standard applied in the 2015 study). They have barely improved in disclosure of anti-corruption programs (from 46 percent in 2013 to 48 percent in 2015), and country-by-country reporting remained roughly on par with last year’s report, with an average score of 9 percent. The latter is considerably lower than the level of disclosure for domestic operations, which had an average score of around 30 percent.
As the report puts it, “Despite some scattered signs of improvement since 2013, the overall results of the assessed companies remain weak, a clear indication that emerging market multinationals still practice low standards of transparency.”
The report shows that high levels of transparency are not only achievable, but that regulation can effectively enhance transparency performance. Transparency International provides the example of India, where the Companies Act requires firms to disclose key financial information on all subsidiaries wherever they are located, resulting in Indian companies achieving the strongest score in that dimension: all 19 Indian companies scored 75 percent or more in organizational transparency.
At the same time, 72 of the 100 companies that were assessed disclose no information about tax payments in foreign countries, and 81 do not disclose an explicit policy prohibiting facilitation payments or bribes. Only one company scored 50 percent or more in all three dimensions (Fallabella of Chile), and only two companies scored full points in any of the dimensions (Bharti Airtel and Petronas, both for organizational transparency). Perhaps unsurprisingly, publicly listed companies performed better in all dimensions than state-owned enterprises and privately-held companies, which seemed to be especially prominent among Chinese firms. ZTE was the only Chinese company to rank in the top 25 companies overall.
Transparency International offers several recommendations for various stakeholders, with explanations within the report. For emerging market companies, the organization has six:
- Step up efforts to become more transparent;
- Develop best-in-class anti-corruption programs and make them publicly available;
- Prohibit facilitation payments;
- Apply anti-corruption program to agents and other intermediaries;
- Publish exhaustive lists of subsidiaries, affiliates, joint ventures and other related entities; and
- Publish financial accounts for each country of operation.
Transparency International recommends governments and regulatory bodies:
- Implement strong anti-bribery laws and provide the necessary resources to enforce them;
- Adopt rules for mandatory company reporting on anti-corruption measures;
- Require companies to disclose their corporate structures; and
- Require all companies to publish financial accounts on a country-by-country basis.
Furthermore, the organization suggests that both investors and civil society organizations should demand more transparency, and use public corporate information in investment decisions or to engage with governments, regulators and companies to improve standards.
“It is only a matter of time until mandatory reporting on key financial information will spill over to other countries and regions,” Transparency International stated. “Companies need to catch up or be left behind in the fight against corruption.”