Care for it or not, any Transparency International (hereafter TI) report gets handsome media coverage in every country, even where it has no direct relevance. If a country is seen as having improved on its perceived performance recorded in the previous year’s report – as Mongolia has done in this year’s Corruption Perceptions Index (CPI) – it raises expectations of a rise in foreign investment. Since standings are always relative, one country can go up only if another has gone down. I have never understood how it is possible to systematically and credibly capture to a percentage point the scale and depth of the level of abuse of public office for private gain. One expects secrecy behind nefarious deals. Both sides must know how to have a smokescreen and not a smoking gun.
Berlin-based TI always introduces the CPI as “the most widely used indicator of corruption worldwide”. There is no doubt that countries marked as corrupt are indeed so, but the confident indexing is hard to accept, and I have always had reservations about the effectiveness of the CPI’s reliance on the opinions of a small group of experts and businesspeople. Now Alex Cobham, fellow at the Centre for Global Development, feels this practice “embeds a powerful and misleading elite bias in popular perceptions of corruption”. In an article titled Corrupting Perceptions, Cobham writes in Foreign Policy that TI should discontinue the CPI, and instead collect better evidence of actual corruption or information on how corruption does or does not impact citizens. His conclusion is, “The index corrupts perceptions to the extent that it’s hard to see a justification for its continuing publication.”
The Economist also believes it is downright impossible to give a single number to the scale and depth of a complex issue like corruption, and compare countries accordingly, an activity it once likened to running a “murk metre”. In a general defence and justification, TI says, “Corruption generally comprises illegal activities, which are deliberately hidden and only come to light through scandals, investigations or prosecutions. There is no meaningful way to assess absolute levels of corruption in countries or territories on the basis of hard empirical data. Possible attempts to do so, such as by comparing bribes reported, the number of prosecutions brought or studying court cases directly linked to corruption, cannot be taken as definitive indicators of corruption levels. Instead, they show how effective prosecutors, the courts or the media are in investigating and exposing corruption.” TI also acknowledges that the CPI cannot tell the full story and its contents should be read in tandem with its own other products, such as The Global Corruption Barometer and the Bribe Payers Index.
It was about another such recently presented TI product that I had planned to write about, but since the CPI was published I thought I would mention it. My chosen subject was a survey of public reporting practices in emerging markets, called Transparency in Corporate Reporting: Assessing Emerging Market Multinationals. Remarkably, the 33 Chinese multinationals surveyed there averaged a score of 2 out of 10 points, but to me the real surprise was that of the 100 companies surveyed, Indian ones were found to have the greatest commitment to fight corruption and the best internal systems in place to do so. They are also the most transparent in the way they report facts and figures about their businesses. Indeed, of the 20 Indian MNCs in the 100 surveyed, eight claimed a rank in the top 10.
The study ranked the 100 companies on the basis of publicly available data on three dimensions: reporting on anti-corruption programmes, organisational transparency and country-by-country reporting.“Results show that companies from China lag behind in every dimension with an overall score of 20 per cent (2 out of a maximum of 10). Considering their growing influence in markets around the world, this poor performance is of concern. In contrast, Indian firms perform best in the BRICS with a result of 54 per cent (5.4 out of a maximum of 10) and several occupy the top positions in the overall Index,” the report said.
TI said the information that a company reveals about its anti-corruption systems is an indicator of its awareness and commitment to combating corruption. “While robust disclosure practices do not reduce all risk of corruption, they are a sign of the right tone from top management, reflecting an awareness of corruption risks and a commitment to manage them effectively that is essential for companies operating across borders.”
With an average score of 46 per cent, performance in this dimension varied widely. Whilst some companies achieved a near-perfect score, others did not register a single point. Some well-known names like Emirates Airlines, Etisalat, and Chery Automobile (China’s largest passenger car exporter which has a 50:50 joint venture with Jaguar Land Rover) earned a score of zero in the anti-corruption dimension.
The report said although public reporting on anti-corruption programmes was only a proxy for actual company performance in this area, weak levels of reporting may indicate poor or non-existent anti-corruption programmes and a lack of commitment to countering corruption. But it felt there was ground for optimism as 15 companies --seven of them Indian -- achieved a score above 80 per cent “which demonstrates that strong performance is possible and that substantial improvement over the next few years is an attainable target”.
The study evaluated organisational transparency by assessing the amount of information companies disclose on their related holdings, particularly information on majority and minority holdings: names, percentages owned by the parent company, country of incorporation and countries of operations.
The average result for organisational transparency dimension was 54 per cent. On average, companies scored 4.3 out of 8 possible points.Five companies achieved a perfect score of 100 per cent: Emirates Airlines of the UAE, Johnson Electric and Shanghai Electric of China, Petronas of Malaysia, and UC Rusal of Russia
In measuring country-by-country disclosure of international operations, an industry-neutral set of criteria was used to measure the disclosure by country of financial reporting of revenues, capital expenditure, income before tax, income tax and community contributions. In this dimension, the average score was 9 per cent, more than twice the average score of 4 per cent thrown up by TI’s evaluation of the largest 105 global companies in a study in 2012. Thirty-eight companies had a score of zero including well-known Chinese companies like Haier, Lenovo, Sinochem and Chery Automobile. Petrobras of Brazil, Lukoil of Russia and Bumi Resources of Indonesia also had a score of zero.
The report draws attention to a Chinese business environment where corruption festers because of minimal public-reporting requirements. Eight of the 10 lowest ranking companies on the list were Chinese, including China National Chemical Corp. and China Shipbuilding Industry Corp. Along with Chery, Mexico’s Controladora Mabe SA scored zero points.
The 55-page report may imply but never clearly equates poor transparency with corrupt business practices. It also asserts its goal was not to discredit developing countries. “Global companies from developed markets have spent the last two decades learning, often at high cost to their bottom lines and their reputations, how to achieve improved levels of anti-corruption practice. Emerging market companies should make use of those lessons to raise their own standards and become world leaders in this area,” TI says in its summing-up.
The surveyed multinationals were based in 16 of the world’s fastest-growing nations, with 75 of them from BRICS nations -- Brazil, Russia, India, China and South Africa. In due course, a Mongolian company will certainly make it to the 100, but will it make the grade thereafter?