Transparency is the antidote to corruption

A commercial company is not just a purely profit-seeking entity but also a social organism as well, closely interconnected to and interacting with the community.  Profits are tied to the wellbeing of the society that companies operate in.  Being transparent is increasingly seen by society as a prerequisite to becoming a good corporate citizen.  Lee Kok Leong, executive editor, Maritime Fairtrade, reports

The single-minded focus on profits caused shareholder capitalism to become increasingly disconnected from the real economy.  This form of capitalism is no longer sustainable.  Millennials and Generation Z no longer want to work for, invest in, or buy from companies that lack purpose and values beyond maximizing shareholder value.  Executives and investors have started to recognize that, as a social organism, their companies’ long-term success is closely linked to that of their customers, employees, suppliers and the community at large.

The World Economic Forum recently launched the Davos Manifesto 2020, aiming to re-define the purpose of a company from purely profit-driven to include a set of ethical principles to guide companies.  It states that companies should pay their fair share of taxes, show zero tolerance for corruption, uphold human rights throughout their global supply chains, and advocate for a competitive level playing field.

A transparency roadmap

This change in discourse towards more transparent, fairer and responsible business is a positive step. However, societies will need to see that companies take clear actions and openly report on their progress against the commitments they are making.

According to Transparency International (TI), a global coalition fighting against corruption, there are four ways to track the success of companies in running a socially-responsible business. This shift towards a broadened purpose of the company means that corporate anti-corruption measures also increasingly will need to expand their focus beyond their traditional emphasis on anti-bribery and compliance.

Leadership diversity and recognizing corruption risk exposure

For instance, a diverse management team can significantly enhance the openness of the leadership environment, and mitigate bribery and corruption risks.  Running a global business and supply chain is subject to significant corruption risks and existing Business Integrity tools can provide useful recommendations. 

However, if business goals do not take a specific business environment into account, these recommendations can underestimate the potential for tensions between conflicting goals for management and employees.  In other words, if you want to run a corruption-free business, you will likely have to adjust your respective revenue growth targets accordingly and design a long-term transformation plan.

Two key measures to track success in these areas are:

  • In order to enable all stakeholders to better understand a company’s progress to implement and maintain an open, diverse and fair leadership environment, a company should disclose KPIs measuring diversity including on gender at its various managerial levels.
  • To enable all stakeholders to better understand a company’s commitment to revenue growth targets, while taking specific regional corruption risks into account, companies should start adjusting business goals for risk, including corruption risk, and developing KPIs accordingly.

Taking care of society

Businesses have a responsibility for improving the societies in which they operate, such as fairly paid jobs, including for local suppliers, and paying local taxes while also respecting human rights. Overall societal vulnerability to corruption may increase if significant parts of society are unable to support themselves through a reasonable household income level, or if public finances are not sufficient to support public services.

TI’s third key measure for success is:

  • In order for people to understand a company’s progress implementing and maintaining its commitment to each of the communities it operates in, a company should disclose KPIs that demonstrate average staff pay levels and average executive remuneration. 

This would also mean dramatically accelerating the implementation of transparency measures such as the disclosure of detailed corporate ownership and public country-by-country metrics, in particular around tax payments.

Political engagement

Corporate political engagement can contribute to society, if it advances the interests of a broad range of stakeholders. 

TI-UK’s most recent Corporate Political Engagement Index highlights that ethical companies tend to outperform competitors by more than 10% over five years.  Companies with strong integrity infrastructures outperform competitors by 7% on their shareholder returns. On the other hand, companies involved in political corruption scandals face up to 20% fall in their stock prices. 

Responsible and transparent reporting on political engagement can lead to more investment-friendly and fairer market conditions.

A fourth and final key measure:

  • To enable stakeholders to understand a company’s progress implementing and maintaining a transparent and multi-stakeholder political engagement processes in a consultative way, companies should provide reporting and KPIs that disclose and justify political contributions and lobbying activities throughout their supply chain.

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Lee Kok Leong, our special correspondent, talks to Alexandra Wrage, president and founder of TRACE, who has provided anti-bribery consulting or training in over 120 countries.