Can emerging markets lead the fight against corruption?

Multinationals from emerging markets lag behind their developed country counterparts in transparency and anti-corruption, according to a new report by Transparency International. Yet the top performers among them show that the so-called “Global Challengers” can potentially overtake their established rivals to become world leaders in corporate citizenship.

The report, Transparency in Corporate Reporting: Assessing Emerging Market Multinationals, looks at 100 leading companies from emerging economies which are making strides outside their borders. Last year, a similar report assessed 100 global companies based in developed countries.

Often subject to less stringent national legal requirements for disclosure, many emerging market multinationals still see the capacity to remain opaque as a competitive advantage. However, the report shows that some already take a more enlightened view. It offers hope that, as emerging markets grow in clout, their leading companies can be persuaded to drive global standards on transparency higher; new players can quickly assimilate lessons that have often been long and painful for established multinationals to learn.

The report assessed companies on three metrics.

• First, reporting on their anti-corruption work: for example, making documents such as codes of conduct publicly available. Although such reporting does not guarantee actual good behaviour, it is a useful proxy because it signals commitment and helps stakeholders to hold the company to account.

• The second metric is organisational transparency – how easy do companies make it for outsiders to understand how their business is structured, and to follow the intra-company financial flows among their various subsidiaries, affiliates and joint ventures in different jurisdictions. The more opaque this information is, the greater the capacity to hide corruption.

• Thirdly, the report assessed how well companies disclose their finances on a country-by-country basis – important in detecting when a company has made payments to national governments. Both the United States and European Union have recently required companies in the extractive industries to be transparent about their country-by-country finances.

It was on anti-corruption reporting that the emerging market companies fell furthest short of their developed country counterparts, respectively scoring averages of 46% and 68% of the highest possible score. Scores on organisational transparency were much closer, and the emerging companies scored better on country-level reporting, though at a very low level: 9% versus 4%.

Combining all three metrics, the average score among the 100 emerging market companies was 36%. That average hides wide discrepancies among individual companies – India’s Tata Communications topped the list with 71%, while two companies scored 0%.

There were stark differences between countries: Indian firms scored an average of 54%, while Chinese firms averaged only 20%. With the growing global influence of Chinese companies, this is a cause for concern. The report also found that companies publicly listed on stock exchanges scored much better than their privately-held and state-owned counterparts.

In the report, Transparency International calls on emerging market multinationals to see anti-corruption behaviour as an area in which they can challenge companies from developed economies. They need to go beyond legal disclosure requirements and embrace transparency, both as a basic responsibility and as a potential source of competitive advantage through its capacity to promote good governance and corporate reputation.

Transparency International works closely with the World Economic Forum’s Partnering Against Corruption Initiative (PACI). The chair of its board, Huguette Labelle, will represent Transparency International at the Annual Meeting 2014 in Davos, which will see the launch of the PACI Vanguard, a group of CEOs committed to leading the global fight against corruption.

Author: Elaine Dezenski, Senior Director, Head of Partnering Against Corruption Initiative, World Economic Forum and former Acting Assistant Secretary for Policy Development, US Department of Homeland Security.

Image: Chair of Transparency International Huguette Labelle speaks at the World Economic Forum Annual Meeting 2013.