Does corporate reporting help the fight against corruption?

Too often when it comes to how the public perceive corruption in Sri Lanka, the primary focus is on the State, the public sector and political actors. Whilst this attention is by no means unwarranted, it does not grasp the total scale of corruption in a society. The fight against corruption cannot be the sole prerogative of law enforcement and the State if there is to be meaningful change, and requires a society-wide change in attitudes and perceptions. Towards this end, the private sector in Sri Lanka can play the role of an important torch-bearer and pioneer.

Earlier this year, Transparency International Sri Lanka (TISL) for the first time, conducted a Transparency in Corporate Reporting (TRAC) assessment of the reporting practices of Sri Lanka’s top 50 listed entities (by market capitalisation as at 28th February 2019). 

The report, ‘Transparency in Corporate Reporting (TRAC): Assessing the Top 50 Listed Companies in Sri Lanka’, scores companies on their 2018 or 2018/19 annual reports (and any other publicly disclosed material) across three thematic sections broken down into 26 questions, ranging from stated policies on facilitation payments or the practice of ‘gift giving’, to disclosure on corporate holding structures. These scores are aggregated, and companies were ranked to illustrate the performance of each of the top 50 listed entities. 

But why does this matter?

The corporate sector can be a leader in driving improved standards of governance. Transparency is crucial for ensuring that companies are accountable for their activities, enabling the prevention, detection and prosecution of corrupt practices. If the assessed companies where necessary, incorporate and strengthen already existing anti-corruption practices and make the information publicly available, it will lead to increased monitoring by stakeholders and the public at large, thereby making companies more accountable, which would additionally mitigate the risk of corruption. Furthermore, private sector leadership in the push for greater transparency and accountability also sends an important message to the public sector and society at large.

What does Transparency in Corporate Reporting (TRAC) mean?

The TRAC assessment analyses a company’s reporting practices through publicly available information in three areas that are crucial to fighting corruption: their anti-corruption mitigation procedures, transparency in reporting on their organisational structure and the key financial data disclosed on their national operations. Overall, company scores were calculated by taking the average of the three thematic scores and then rebasing the scores on a scale from 0 – 10 where 0 is the least transparent and 10 is fully transparent. The companies were then ranked from 1 – 50, based on their overall scores. Companies with equal scores were ranked equally and ordered alphabetically.

What do the findings show us?

The research found that the average Top 50 listed company in Sri Lanka is moderately transparent with a score of 6.73 out of a maximum of 10. Encouragingly, amongst the key findings of the assessment was the fact that the companies reviewed had an average score of 86% in reporting on company holdings, which is considered significantly transparent. Furthermore, 31 companies were found to be fully transparent in terms of their domestic financial reporting.

It is important to note that a low score does not mean there has been any wrongdoing, but rather illustrates an opportunity for improvement in disclosure practices. Likewise, a high score may illustrate strong disclosure systems, but this may not reflect operational and implementation success. The assessment provides a basis upon which a broader discussion can commence on normalising transparency in corporate reporting. It is important to note that it is beyond the scope of the TRAC report to judge levels of integrity within companies. 

So how can corporate reporting be adapted to measure integrity?

The TRAC report marks TISL’s first foray into assessing transparency in the private sector. The report is not an end in itself, but an opportunity to take stock of current disclosure practices, with a view to starting a conversation on potential innovations for the future. 

Sri Lanka has a long way to go in engaging the private sector in the fight against corruption as there are currently no laws to hold companies accountable on issues related to bribery or corruption. The inclusion of private sector bribery to the Bribery Act is an integral part of the Commission to Investigate Allegations of Bribery or Corruption’s (CIABOC) National Action Plan, but their appears to be no meaningful progress in the implementation of this plan as yet.

So does corporate reporting actually help the fight against corruption? 

Yes, but not in the grand scale that one would hope for. The TRAC report allows companies to assess the transparency in their reporting and also in how they perform in comparison to other companies, which would result in healthy competition to uphold integrity. Although the TRAC report is the first step in engaging the private sector in the fight against corruption, it certainly won’t be the last.

*The TRAC report and detailed scoring can be accessed via www.tisrilanka.org/TRAC.

The writer is a Transparency International Sri Lanka Program Officer (Research and Policy).