Companies Bigger than Countries: Transparency needed for all

Jul 31st, 2012 6:07 PM UTC
By Michaela Gaziano

Transparency International (TI) recently published “Transparency in Corporate Reporting: Assessing the World’s Largest Companies”, a report reviewing the transparency of 105 of the world’s largest publicly traded companies. In total, these 105 companies are worth over $11 trillion, and have business relations in 200 countries. In an era of globalization, multinational companies are gaining more and more public influence and political traction. While TI and other organizations have been working on government transparency for years, the ubiquity of these multinationals has made it increasingly important to know how they operate and where the money is flowing. Many of these companies’ annual profits are higher than some small countries’ GDPs, so the role they have to play in development is immense.

The report gauged the practices of these companies through three dimensions: anti-corruption programs, the transparency of the corporations’ subsidiary relationships, and reporting financial data for each country. The TI report evaluated these companies based on 5 criteria: the reporting of revenues, capital expenditure, income before tax, income tax, and the companies’ contributions to the surrounding community. Though these companies pay taxes in the countries where they have operations, the study found 85 do not divulge income tax for any country in which they have operations. In the past, multinationals have used bribes and political contributions to avoid paying the full cost of taxes in developing countries. Without knowing how much these corporations pay to each country’s government, it is easier for governments to misappropriate the funds they are receiving from the corporations.

Looking at the corporations covered in the report I can already pick out more than a dozen that I have interacted with this week alone. In the past five minutes, I’ve used Google to get to Transparency International’s website on an Intel computer, and checked my email on my AT&T Apple iPhone. As we use these products and services, it’s easy to forget that we know little about their financial operations abroad. From their scores on TI’s index, it is clear that these corporations have a long way to go to improve their transparency abroad. Some of the companies post financial data on a few select countries, and many post information for all the criteria domestically, but none make the financial data for all of their country locations available. The highest ranking company, Statoil, scored a mere 50%.

All of the information used for TI’s report was taken from what was already published on the companies’ website, and was not verified individually by TI. Though this report is valuable, some of those reviewing this report are unhappy with its analysis because TI only took the companies’ website information at face value and did not look for examples of malpractice in countries of operation, the report seems to be missing some essential information. Questions will be asked about TI’s index – with some arguing that it’s too demanding and others that it’s too lenient –but if it stimulates a discussion about corporate transparency that will be a very useful contribution.

TAGS: Transparency