Which businesses are the least transparent?
July 11, 2012: 6:51 AM ETNonprofit Transparency International ranks sectors' disclosure records. Its results may surprise.
FORTUNE -- Big Energy is the most "transparent" industry when it comes to corruption-fighting, according to Transparency International, a global anti-corruption watchdog.
The might sound surprising. But those who prefer predictability can take heart in the fact that the finance sector is the least transparent, says the group's latest report, issued on Tuesday. That result is weighted by the fact that four of the "least transparent" companies on the overall list are Chinese banks. But the organization says that, nevertheless, "the remaining financial companies were also below average."
On a scale of 0-10, the finance sector averaged a score of just 4.2. The organization examined the world's largest 105 companies. Only two-thirds of them voluntarily report on their corruption-prevention policies, but that's better than the last time Transparency International issued a report, in 2009, when less than half of them did.
Only 78 of the 105 fully disclosed information about where all their corporate subsidiaries were registered. That makes it "difficult to know how operations in locations such as developing countries or secrecy jurisdictions [tax havens] feature in company earnings," the report states. Many companies on the list also do not report what taxes they pay in foreign jurisdictions.
Why did the oil and gas sector score so high? "Hopefully, it's a sign that pressure from investors, governments, and society encourages businesses to become more transparent," according to the report. Companies in that sector "have long been targeted for the opacity of their operations, but have improved noticeably in this regard since Transparency International first evaluated them in 2008."
One outlier is Russia's state-controlled Gazprom, the largest extractor of natural gas in the world and Russia's largest company. It scored just a 2.8. Still, that's better than Berkshire Hathaway (BRK.A), which scored only 2.4. And it's on a par with Amazon's (AMZN) 2.8. Indeed, the tech/Internet sector in general doesn't fare well in the findings. Apple (AAPL) scored 3.2 and Verizon (VZ) 3.3. This might be yet another area where tech is given something of a pass.
Topping the list was Norway's Statoil (STO), which got a score of 8.3.
Corporate Responsibility and Financial Transparency
In addition to reading about corporate social responsibility, this week's readings also focused on understanding financial reports and the importance of financial transparency. This new era in transparency was a direct result of the under handed dealings of Enron which placed transparency at the forefront of media coverage and in the minds of investors. The article referenced above published by Fortune magazine addresses this new concept of transparency and follows the findings of a new watchdog organization which reviews anti corruption with companies world wide (Mitchell, 2012). Interestingly enough, the article indicates that the industry that appears to be the most transparent seems to be the oil and gas industry. This no doubt is due in large part to Enron and its evasive nature in terms of its earnings.
The article further confirms information from this week's readings by acknowledging the one outlier from the oil and gas industry which is headquartered in Russia. As indicated in the reading from the Economist the up and coming countries are Brazil, Russia, India and China. Of the four emerging countries according to the economist Russia is the "least interested in corporate citizenship" (Franklin, 2008). This is reflected in their low transparency and anti-corruption score from Transparency International (Mitchell, 2012). While their score is low, it is surprising at how low internet based and technology companies scored in terms of anti corruption. With their technologically based medium, it would seem that information on companies such as Amazon, Apple and Verizon should be more readily available. An article published earlier this year by Forbes magazine give hints as to why Apple's and perhaps Amazon's scores are so low. The article indicates a lack of social responsibility on Apple's part in terms of working conditions in its manufacturing plants in China. Denning (2012) maintains that Apple needs to take more than a mere piece meal approach if it is to be considered socially responsible.
The content in these three readings indicate that corporate responsibility and financial transparency while impactful when done alone, are more effective when executed in combination.
References
Denning, S. (2012). Does Apple really care? Forbes, Retrieved October 28, 2012 from
www.google.com/urlsa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CDYQFjAC&url=
http://www.forbes.com/sites/stevedenning/2012/01/27/does-apple-reallycare/&ei=
cQuOUPWkEY_SiAKXroD4CA&usg=AFQjCNGEeMjswxD9p1KeqVhQN2dt32v6yQ&sig2=
eQ795LI9raGH2Kn4voKHig.
Franklin, D. (2008) Just good business: a special report on corporate social responsibility, The Economist,
pp.1-14, Retrieved from
McLean, B., (2006, January 19). Is Enron overpriced? Retrieved October 28, 2012, from
http://money.cnn.com/2006/01/13/news/companies/enronoriginal_fortune/index.htm
Mitchell, D. (2012). Which businesses are the least transparent. Fortune. Retrieved from http://tech.
fortune.cnn.com/2012/07/11/transparency/.
Ramona,
ReplyDeleteGreat article choice for this week's readings. As I read through the article I wondered, is Transparency International a US based organization? It is interesting that the oil and gas companies scored as the most transparent in the scale. Both industries continues to be controversial with how dependent we are on oil products. Another interesting fact from the article you chose, is how many companies doing business overseas are not reporting tax information they are subject to outside the US. It is hard to believe that more regulations on these practices are not currently in place.
Hi Ramona,
ReplyDeleteI'm glad you brought up transparency along with social responsibility. I agree that transparency is a necessity when it comes to social responsibility. There is no way you can have one without the other. Transparency is especially important in government entities and businesses that work with or for the government. People want to know where their money is going especially after Enron. You could also look at the Bernie Madoff situation as an example for the transparency case.
What do you think is the role of culture and social responsibility? It is not uncommon to hear of American companies whine about the safety and environmental standards in the US as threat to their ability to compete globally--legitimate concern?
ReplyDeleteHi Ramona,
ReplyDeleteI was thinking the same thing as Dr. B!! When I saw that Russia was low on transparency, my next thought was why should they be high? Russia's private sector is likely not nearly as scrutinized as ours in the United States, lending itself to explain itself less to stakeholders. It does make me realize how much Enron really impacted not only our business expectations, but our cultural expectations of what makes a "trustworthy" company. It was interesting to see you relate this to the commercial sector that seemed to be lacking. It reminds me of my article with Apple and when I found that they don't disclose certain information because they consider it the "secret ingredient" like in Coca-cola. I think if Enron called their processing a "secret ingredient" we'd have laughed at them...
Great article!
Hey all,
ReplyDeleteGreat feedback! I'm right there with each of you this article had my head turning with thoughts.
Brad,
Working in healthcare and in a district hospital no less, we are inundated with regulations and a constant push to be transparent and responsible to our community as is humanly possible. riWhile at times it is frustrating and daunting, I don't know if I would want the tables turned. I think it is our countries culture and sense of social responsibility that makes me feel safer and empowered in my choices. Could I buy a blood diamond because it looks pretty, absolutely! However, knowing how they are acquired and the atrocities that are linked to them would prevent me from ever taking that leap. I feel that at some point someone has to step forward and speak up for those who can't speak for themselves so while transparency and social responsibility are tough, it is a price we paid as a country for certain freedoms that others just don't have.
With that said, I'll get off my patriotic soap box and just say thanks to everyone for the insightful feedback.
Ramona