Corruption curbs entrepreneurial activity and lowers economic opportunity and prosperity. It increases the risks and costs of starting and operating a business and undermines the security of investments. Highly publicised scandals and expectations of increased government enforcement have established corruption risk as an inescapable reality in the minds of executives. While there is firm commitment to tackling corruption, companies need to do more to bridge the gap between corruption risks and their anti-corruption programmes.

This trend was confirmed in a recent Transparency International (TI) study of publically available anti-corruption information disclosed by nearly five hundred listed companies.  The average company disclosed information on less than half of the 50 assessment criteria established by TI, categorized broadly into three main areas including, anti-corruption strategy, related policies and management systems. Only seven companies provided information on more than 40 criteria. 

Although the individual companies surveyed by TI were not disclosed, an average ranking was performed by country. Companies found to have the highest level of disclosure regarding their anti-corruption measures were from Canada, the United States and Switzerland, followed by The Netherlands. The least transparent companies were from Japan, Belgium, China, Taiwan and Russia.

The difference of course lies in the level of detail disclosed. Although many companies disclose high-level information on anti-corruption policies, not all give further details as to what risks a company faces with regards to corruption or what systems are in place to help prevent and detect violations of these policies. For example, some companies simply indicate that their code of conduct prohibits all employees from engaging in corrupt business transactions. Comparatively, other companies provide a much richer perspective including details on the number of compliance officers in the organization, the number of employees and business partners trained on related corporate policies, the number of cases or investigations arising from whistleblower hotlines and ombudsmen and any related disciplinary actions. Without labelling these as leading practices, as the circumstances and reasons for disclosure are unique and differ by company, the emerging ‘reporting gap’ raises a number of important questions, including whether or not companies should report this information and how to interpret the information when provided.

For example, Siemens AG is one of those companies that publishes on their website detailed information on training, compliance consultation, investigations, disciplinary actions, and other compliance aspects on a quarterly basis.  This is an important message to stakeholders about their commitment to anti-corruption measures.

Public Scrutiny
Recent high-profile scandals have placed corruption squarely on the social agenda and created pressure for companies to communicate how they manage compliance risks. Regulators worldwide are also proceeding with stricter enforcement on violations and have more resources and expertise at their disposal to investigate and prosecute offenders. Increasingly investors are looking for protection against the serious negative consequences of a compliance violation, including a drop in share price, exclusion from public tenders, and difficulty to attract top talent.

While an ability to report information does not render a company infallible to corruption risks or serve as a basis to assume that a company’s compliance framework is working effectively, the discipline to disclose information on a regular basis, serves as a strong indication that a company has methods to detect transgressions from policy. And that it may be able to properly deal with a breach should it occur. As with all forms of economic crime, effective prevention begins with the awareness that the subject is crucial to the continuity of the organisation.

This point is also raised in the TI study, as half of the companies with the high level of disclosures operate in industry sectors with high corruption risks, such as extractive industries, indicating that these companies recognize the benefits of disclosing information on their compliance systems to stakeholders. Companies with limited disclosures may risk being perceived as not properly monitoring their corruption policies and their compliance programs may be seen as ‘paper tigers’. Disclosure on compliance systems could serve as a way for organisations to use this sensitive issue to distinguish themselves from competitors.

In light of these trends, companies should consider increased transparency of their anti-corruption initiatives and evaluate what information to disclose to benefits themselves and their stakeholders.

If you would like more information on this topic, or anti-corruption compliance in general, please contact dennis.birekoven@nl.pwc.com or bettina.dolan@nl.pwc.com

1 Source: Transparency in Reporting on Anti-Corruption: A Report on Corporate Practices – Transparency International (June 2009). http://www.transparency.org