Multinationals and transparency

IN the post-panama papers world multinational companies operating in emerging markets are not faring well on transparency. Will consumers have to take a stand to make a difference?   

Transparency International studied 100 of the fastest-growing companies based in 15 emerging markets countries. The firms are active in 185 countries. Researchers evaluated their anti-corruption programs, disclosure of structures and holdings, and disclosure of key financial information, on a country-by-country basis.

They found that 75% of companies scored less than five out of 10, while 72 firms disclose no tax information in foreign countries. The overall average score was 3.4 out of 10, slightly worse than in 2013, when the last report was published, but almost on a par with the 3.8 overall score obtained in a 2014 Transparency International report assessing the world’s 124 largest multinationals.

“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 practise low standards of transparency,” the report said, adding that reform was critical as these economies sought to extend their footprint.

Overall, publicly listed companies did better than state-owned or privately held firms. On one criterion, organisational transparency, they outperformed the publicly listed firms in the 2014 report. Country-by-country reporting – a key demand of global advocates of tax reform – was the weakest area for most of the multinationals, but they still managed a higher average than the world’s largest multinationals achieved in the 2014 report. Of the emerging firms, 43 companies scored zero in this category.

Chinese companies were of particular concern, scoring an average of 1.6 out of 10 on the overall index, with just one making it to the top 25. The report noted that public statements on anti-corruption programs cannot be equated with actual performance. For example, 84 companies said they were committed to the law, including anti-corruption measures, but only 19 said they ban “facilitation payments” or bribes.

This is especially worrying for companies like Sri Lanka that are contemplating opening up to multinational Chinese companies at an unprecedented level for investment. What safeguards can a Government put in place and would they be followed by officials? 

Even so, Transparency International says public disclosure can drive improvement, and it called on all companies to pursue comprehensive public reporting, and make anti-corruption programs publicly available to stop bribery, and enable whistleblowers to report corruption.

The sometimes opaque workings of the world’s multinationals came into sharp focus after the leaking of the Panama Papers this year, which fanned public anger over the use by corporate giants and the global elite of legal loopholes to avoid taxes. 

The Panama Papers and other recent scandals have put the spotlight on the urgent need to end corporate secrecy, and add to the momentum towards corporate transparency that is already under way but individual countries will have to find a fine balance between attracting investment but protecting their citizens.