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by David Lewis
First published in Business Day

The best protection against the risk of corruption at companies is a comprehensive, fully implemented, and continually monitored anti-corruption programme, a new study has found. Corruption Watch’s Transparency in Corporate Reporting study is the South African leg of a series of identical studies undertaken by selected Transparency International national chapters.

Using company websites as a proxy for public reporting, we surveyed 50 South African companies, 36 of which are the largest by market capitalisation, listed on the JSE. The remaining companies are large, unlisted entities.

We assessed the degree of transparency of each of the companies by examining their websites.

We determined what they told the public about their anti-corruption programmes, about the structure of their organisations or “organisational transparency”, and about the nature and extent of their activities in each country in which they are present.

We did not ask the companies for permission to conduct the research. We told them what we were doing, scoured their websites, scored them, and then invited them to respond to the results.

Mining companies a cut above the rest

Only three companies scored at least 50% in all three categories. The three highest-scoring are mining companies — Gold Fields, BHP Billiton, and Anglo American Platinum. Predictably, unlisted companies generally scored far lower than listed companies — but one unlisted company, the Hollard Insurance Group, scored the fourth highest of all the companies surveyed.

Only 17 companies surveyed publicly prohibit facilitation payments; 22 do not make their political donations public; 25 do not publicly prohibit retaliation for whistle-blowing, and 16 do not publicly identify a confidential reporting hotline.

Reporting on anti-corruption programmes was scored using 13 criteria including whether there was, indeed, a publicly stated commitment to anti-corruption; whether the anti-corruption policy or code applied to all employees, directors, suppliers and contractors; and whether there were training programmes in place.

We also examined whether whistle-blowing was explicitly enabled and encouraged; and whether the company had a stated policy on gifts, hospitality and expenses. BHP Billiton, FirstRand, Glencore, Gold Fields, SABMiller, and the Vodacom Group scored 100% in this category, with a 76% average score for listed companies.

In the reporting on this category, the highest scores were recorded in response to the question about whether the companies publicly committed to complying with all relevant laws, including anti-corruption laws.

Some of the lowest scores were in response to questions seeking to assess whether the company prohibited facilitation payments, and whether its anti-corruption programme extended to persons who are not employees, but are authorised to act on its behalf.

There were also low scores in response to questions about anti-corruption training programmes — while most companies publicly commit to training programmes, these are not explicitly mandatory for board members.

Organisational transparency is important for many reasons, not least because company structures can be made deliberately opaque to hide the proceeds of corruption, but more fundamentally because transparency allows local stakeholders to know which companies are operating in their territories, which are bidding for government licences and contracts, or have applied for or attained favourable tax treatment. Transparency gives stakeholders, including investors, access to more complete knowledge of financial flows, such as intra-company transfers and payments to governments.

To assess organisational transparency, we consulted public documents such as annual reports and stock exchange filings for information about company subsidiaries, affiliates, joint ventures, other holdings and about the countries in which they operate.

Woolworths, Hollard, and Anglo American Platinum scored 100% in this category. However, some large multinational companies listed on the JSE scored less than 40%, including Aspen Pharmacare Holdings, Glencore, Investec, Old Mutual, Sanlam, Sasol, Steinhoff International Holdings, and Vodacom.

The third assessment category concerned country-by-country reporting, first recognised in the extractive industries as an important mechanism for ensuring that natural resource revenues are used for economic and social development rather than to line the pockets of kleptocratic elites or fill bank accounts in tax havens.

The category enables citizens to better understand the activities of a particular company in their countries and to monitor the appropriateness of their payments to governments. It is a potentially powerful tool for countering tax avoidance and evasion. New reporting requirements that will, when fully in force, compel multinational extractives to report on a country-by-country and project-by-project basis have been introduced in the US, the UK and the EU.

Although it has not yet been put into effect, a new reporting requirement will oblige EU-based credit institutions to disclose the geographical sources of their turnover and profits.

Of the 36 companies in our survey to whom this requirement applied, only 12 reported on a country-by-country basis and only one, Gold Fields, scored 100%.

Results not the last word in anti-corruption

These results should not be used to impute levels of corruption, or even tolerance for corruption, at a company.

Some of the best-scoring companies have been involved in recent controversies that suggest that a deeper examination is required to verify their public claims – particularly the quality of their anti-corruption programmes. By the same token, some of the worst-performing companies enjoy better reputations than their public reporting suggests.

We are cognisant that it is wholly possible to contrive impressive public reports that do not reflect lived reality, just as it is to act impressively without shouting it from the rooftops.

Accordingly, we do not pass judgment on actual company practices, other than on the quality of their public reporting.

But what public institutions say may be as important as what they do. When institutions do bad things, but publicly claim otherwise, it enables their stakeholders – their employees, customers, suppliers, governments, the millions who are concerned about the environmental consequences of their activities, and their shareholders (who are, mostly, ordinary people) – to expose them and hold them to their public claims.

When good institutions tell these stakeholders about their positive contributions to public wellbeing, such as combating corruption, it sets a standard that more self-centred institutions will be compelled to emulate if they are to retain the support of their stakeholders.

The simple act of engaging openly with the public transforms a good corporate citizen into an active corporate citizen.

The private returns are considerable. Just as corruption and other malfeasant conduct erodes trust in the public sector, so does it generate mistrust in the private sector. And just as a society can ill-afford mistrust in its parliaments, town councils, police, public hospitals, and schools, so too is its cohesion threatened when it mistrusts those who bake its bread, build its houses, and employ its children.

We are all in trouble if the conduct of the Gupta family and their ilk represent the ethics of the private sector.

Public sector not the only one which must be accountable

Just as we demand accountability from the public sector, so are we entitled to expect the same from business organisations. To hide behind the myth that they are “private” does not pass muster when they rely upon the savings, labour, and the custom of the public.

There are role models for this approach. Corporations that refused to invest in apartheid helped hasten the end of that hated regime. They set a standard that made it impossible for their competitors to sustain their presence in apartheid South Africa.

Corporations that publicly refused to engage with suppliers who employed child labour made it impossible for their competitors to ignore this pernicious practice. Corporations that publicly advocate and practice environmentally responsible business help impose similar standards on their competitors.

Our recommendations to South African companies are clear and unambiguous.

They should convey a clear message to clientèle, partners, suppliers and contractors on their stance on corrupt practices and the rollout of anti-corruption programmes. Companies should ensure that the anti-corruption programmes, particularly anti-corruption training programmes, are directed not only at employees, but also at executives, directors, agents, suppliers, and contractors.

They should assure whistle-blowers that their reports will be acted upon and that they will be protected by the company.

It is not good enough simply to comply with the law.

Companies should strive to set a precedent in transparency by observing global trends and proactively reporting to their stakeholders on their projects, revenues, taxes, and corporate social investments in the countries in which they have a presence.

And, above all, companies that follow these recommendations need to tell the public what they are doing to combat corruption. This will expose and isolate those who refuse to follow their example, thus setting new standards in corporate responses to combating corruption.

This then, is the purpose of our modest research project: it is the quality of some of our public and private sector institutions that stand between us and those who — like our Brics partners (Brazil, Russia, India and China) — confront endemic, irreversible corruption.

But there are too few good institutions. They need to act as role models for other corporations. The way to achieve this is by galvanising the respect and support of their employees, customers, suppliers, shareholders, and the public.