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emerging market firms lag on transparency

Transparency in Corporate Reporting: Assessing Emerging Market Multinationals examines the performance of 100 rapidly-expanding developing world firms against three criteria: disclosure of anti-corruption programmes, organisational transparency, and country-by-country reporting.

On anti-corruption compliance, the companies scored an average of 46%, compared with 68% for a Transparency International study of 105 mostly western multinationals in 2012. Indian groups fared best, with three Tata subsidiaries and mining group Vedanta Resources achieving 92%.

EM groups similarly lagged on organisational transparency, with an average of 54%, versus 72% for their developed world peers. Five firms – Emirates Airlines, Johnson Electric, Petronas, Shanghai Electric and United Company Rusal – scored 100% on disclosure of their ownership structures.

Chinese groups underperform

The average was dragged down by poor performance elsewhere, including the nine Chinese companies which scored zero on this criterion. These included telecommunications giant Huawei Technologies, which reportedly plans to open a research and development centre in the UK.

Regarding country-by-country reporting – which assessed the disclosure by country of financial revenues and expenditure – EM multinationals averaged 9%, with 38 scoring zero. Nevertheless, this represented an outperformance over western groups, which scored just 4% in the 2012 study.

Risk of ‘brand damage’

Taking the results in aggregate, Transparency International awarded EM companies an average overall score of 3.6 out of ten, compared with 4.8 for their developed world counterparts.

“Businesses operating globally without transparency risk damaging their brand and losing the trust of local communities,” wrote Transparency International chair Huguette Labelle. “People have a right to know what multinationals pay their government and how much taxes they pay.”

As Expert Investor Europe reported last month, UNPRI found a correlation between Transparency International’s Corruption Perceptions Index and the performance of government debt.

A copy of Transparency in Corporate Reporting: Assessing Emerging Market Multinationals can be downloaded from the Transparency International website, here.

tom@ybc.tv

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