A new report from Transparency International shows just how little the world's biggest companies disclose about their dealings overseas. The organization's Ben Elers explains why businesses should come clean.
The "Transparency in Corporate Reporting" study ranks 124 of the world's biggest publicly traded companies based on how open they are about their business operations. In putting together the list, Transparency International analyzed measures taken to combat corruption, information provided about subsidiaries, and willingness to disclose tax payments in different countries. The organization found that Chinese companies were the worst offenders, while UK-based firms tended to perform best.
DW: How transparent are the world's most powerful companies?
Ben Elers: Not transparent enough by a long way. We've looked at the 124 largest publicly traded companies with a combined market capitalization of something like $14 trillion (11 trillion euros) - which dwarfs most countries' GDP - and the results are startling.
How is transparency in big companies linked to poverty and instability in the countries they operate in?
When companies behave ethically they can create jobs, they can help create economic growth, they can be a force for tremendous good in the world. But when they resort to corruption, and corruption becomes the competitive advantage of a company, they can destroy countries. They undermine economic growth, they can contribute to human rights abuses and to environmental destruction. It's estimated corruption adds something like 25 percent to the cost of procurement contracts in developing countries. It also adds something like 10 percent to the cost of doing business globally.
Can you give us examples of the best and worst companies you rate in your index?
There's quite a clear geographical divide. We see that European-based companies tend to perform better, with UK companies actually performing the best, and Chinese companies bringing up the rear - they're really far behind. And this is particularly problematic because you've got enormous Chinese companies operating all over the world. In our survey we've got companies that operate in some 70 countries and they're disclosing almost no financial information whatsoever in terms of the amount of tax they're paying or the profits they're making, so it's really quite a serious situation. In a lot of companies they don't even disclose which subsidiaries they own, so it's very difficult to even get a basic idea as to what their footprint is around the globe, when you don't even know basic things such as who owns what.
Does that mean that companies that don't disclose this kind of information are more likely to pay bribes in international business?
We don't know, but certainly when this information is disclosed then it enables civil society, regulators and the rest of the population to ask serious questions about why they're not paying more taxes or to question why one company is paying more than another company. It enables people to start asking questions and to hold these companies to account.
Technology companies including Google, Apple, Amazon and IBM also scored pretty badly in the report. Is it surprising that companies working to make information more accessible are actually among the worst when it comes to corporate transparency?
Absolutely. How depressing and how ironic. These are the companies which are providing the world with all these tools to enter a new era of transparency, and yet they disclose very little information about their subsidiaries. Hardly any of them provide any information on their foreign tax payments. Tech companies can really step up to plate here and practice what they preach in terms of transparency.
New regulations for greater transparency will come into force in the European Union in 2015. How effective are the current international rules against corruption and what else is needed to fight the problem?
The legal framework is fundamental. In the United States, for example, the requirement to disclose subsidiaries is much more limited than in some other countries, hence companies do not disclose the subsidiaries they own. And in the EU from July 2015, extractive industry companies which are registered in the EU will have to report their earnings and taxes on a country-by-country, and sometimes on a project-by-project, basis. Our report shows they've got a lot of work to do in the next seven to eight months. In the US a similar requirement under the Dodd-Frank Act requires extractive industry companies to provide more information, but the implementation has been delayed because of an oil lobby law suit which is currently going on.
Do you have an example where transparency is really important to a company?
We do see a stark difference between some companies. Norway's Statoil provides information on their tax payments in all of the countries in which they operate on a voluntary basis. And there are many other companies that provide absolutely no information whatsoever.
It sounds like there is a huge task ahead...
Yes, there is a huge task ahead. But while we continue to read about horrendous scandals and one thinks that there's just a cavalier attitude throughout the world, there's also been some real progress which has been made. For example, 20 years ago bribery in foreign countries was tax deductible in Germany. Now we have the UN Convention against Corruption and the OECD Anti-Bribery Convention - this was something that was very much promoted by businesses, because they realized that corruption is often bad for them and it's not in their self interest. The key thing is there needs to be a level playing field where your competitive advantage comes from improved products, and goods and services, not from bad behavior.
The top four companies on our ranking are Eni from Italy, Vodafone, Statoil and BHP Billiton. These companies all scored above six points, which is not enough, but it shows that progress can be made. Even the top company Eni, which scored 7.3, needs to do better. It does well on anti-corruption programs and organizational transparency, but terribly on country-by-country reporting. These companies have an impact on every country where they operate, and people have a right to know what they're up to and what that impact is.
Ben Elers joined Transparency International in 2003, and is currently based in Berlin as the organization's programs director. During his time at TI he has worked on Advocacy and Legal Advice Centers and Organizational Development. Previously he worked for CARE International, based in Ethiopia, Rwanda, Afghanistan and Tajikistan.