In light of the “huge economic and political influence” that major companies can exert, Transparency InternationaI has recently assessed the transparency of reporting by the world’s largest publicly- traded companies. The results have led to four recommendations by TI. There appears to be a trend from different compliance perspectives towards motivating international companies to disclose more information about societal issues, such as human rights, tax compliance and corruption. Companies should consider this trend and look for ways to address it. TI’s recommendations may provide useful guidance.
In its report, TI states that it is important for large companies to foster transparency and accountability, and that they should disclose anti-corruption programs, company holdings and key financial information on a country-by-country basis. According to TI, the latter is necessary for these companies to be held accountable for their activities in the countries concerned. Moreover, corruption risks due to the use of opaque structures and secrecy jurisdictions may be mitigated by clarifying corporate structures and financial information on a country-by-country basis.
Results and recommendations
With the assessment leading to an overall index result of 3.8 out of 10, TI finds that companies are notably deficient in fostering transparency and accountability, specifically within the fields of organisational transparency and country-by-country reporting. Therefore, TI provides four key recommendations to global companies:
- Prohibit facilitation payments
TI considers facilitation payments bribes and believes that they should be treated as such.
- Publicly disclose all political donations
Direct or indirect contributions to political parties may constitute “obtaining an unfair advantage in business transactions”. According to TI, they should not be made or otherwise be made public.
- Publicly disclose exhaustive lists of subsidiaries, affiliates, joint ventures and other companies
TI recommends that all subsidiaries and holdings be disclosed, not only those that are material to providing an accurate overview of the company’s activities.
- Publish financial accounts for each country of operation
According to TI, this step would allow for the effective monitoring of corporate behavior, especially by national tax authorities.
Although these recommendations are not necessarily reflected in legislation yet, they do indicate that the issue of transparency – country-by-country reporting and organisational structure in particular – is gaining awareness. With the recent G20 declaration on financial transparency and the beneficial ownership of legal persons and arrangements, more can be expected to follow. Companies will need to respond to these changing expectations and consider the degree of transparency that they should strive for.