- Local report finds minimal voluntary disclosure and continued opacity from pvt. sector companies on anti-corruption related structural and operational commitments and policies
Despite the serious implications associated with private sector corruption, public limited companies continue to publish too little information about their commitments to comprehensive anti-corruption programmes, their widespread operations, and corporate structures. Continued opacity in company operations contributes towards the creation of an environment in which corruption is not only the norm, but also thrives. The failure to transparently disclose commitments and policies on anti-corruption also creates an impression of companies being corrupt or of companies being willing to turn a blind eye to corruption.
Noting this, a report issued by Transparency International Sri Lanka (TISL) said that in such a context, in a business and political context where corruption is increasingly becoming the norm, it is vital not only to have a zero-tolerance approach to corruption, but to also be seen as being free of corruption. The report, titled ‘Transparency in Corporate Reporting 2023: Assessing the Top 125 Public Limited Companies in Sri Lanka’ was issued this week in Colombo.
Transparency in SL’s corporate sector
The assessment is an independent assessment of corporate disclosure practices among the top 125 public limited companies in Sri Lanka. The assessment methodology assessed three key sections, namely, reporting on anti-corruption programmes, organisational transparency, and country by country reporting. Taking into account the domestic corporate landscape, the report had also included three additional sections, namely domestic financial reporting, reporting on policies relating to gender and non-discrimination, and reporting on procurement related to Government contracts and tenders.
The overall average of the companies has indicated that the top 125 public limited companies in Sri Lanka are only partially transparent. The overall average score for the companies was 5.85 out of 10, which indicated a marginal increase from 5.42 recorded in the previous year (2022). The companies were only partially transparent in their reporting on anti-corruption programmes with an average score of 4.05, which the report said is a significant improvement from the previous year where companies were only slightly transparent in their anti-corruption reporting. A similar improvement has been observed in the section on organisational transparency, where companies were significantly transparent in their disclosures in the current assessment with an average score of 8.05, as opposed to being moderately transparent in the previous year with an average score of 7.86. Companies have been significantly transparent in the domestic financial reporting section with an average score of 9.60. The report explained that as with previous assessments, since 2020, the results of 2023’s assessment show the importance of legally mandated disclosures and the limitations of voluntary disclosure. Noting that Sri Lanka has in place regulations which prescribe disclosures pertaining to organisational transparency and domestic financial reporting, the report said it may be the reason for the higher scores observed in these sections as opposed to the reporting on anti-corruption programmes score, which is a voluntary disclosure.
Thirty-two companies were either significantly transparent or fully transparent in corporate reporting, which shows a 9% increase compared to the 2022 assessment. Twenty-eight companies were either slightly transparent or least transparent in corporate reporting, which shows a 5% decrease compared to the 2022 assessment, while only five companies have obtained the full overall score in corporate reporting. Eight companies were fully transparent in reporting on anti-corruption programmes, while 20 companies were significantly transparent in reporting on anti-corruption programmes. Only 39 out of 102 companies have full scores in the organisational transparency category which shows a 9% increase compared to the 2022 assessment. While 94 companies have obtained full scores in domestic financial reporting, 33 companies have obtained full scores in the reporting on gender and non-discrimination policies section which shows a 7% increase compared to the 2022 assessment. Eight companies have scored 100% in the country by country reporting category, while seven out of 25 companies have obtained a full score in the procurement related to Government contracts and tenders’ section which shows a 23% increase compared to the 2022 assessment.
The report said that the telecommunications industry was the highest ranked industry, which was significantly transparent, while no industry was fully transparent.
The report noted: “A low score does not necessarily mean that a company does not have strong anti-corruption programmes, nor does it indicate any wrongdoing on the part of the company. Conversely, a high score may not always reflect operational and implementational success of anti-corruption programmes, but merely reflects strong disclosure mechanisms pertaining to anti-corruption, organisational transparency, domestic financial reporting, and policies on gender and non-discrimination.”
Improving transparency and accountability
In order to improve corporate reporting in Sri Lanka, a number of recommendations were presented for several parties including companies and the Government based on the report’s findings.
The report recommended that companies develop best in class anti-corruption policies and report on them publicly, and regularly review and revise these policies to meet changing standards. It further said that companies should take steps to publish their policy documents online. The publication of such documents sends a strong message to the public that the company is transparent in its dealings and is willing to abide by its policies, and reiterates that policies are not mere paper documents, but reinforceable rights and obligations.
With regard to carrying out due diligence of non-controlled entities, the recommendations read: “Companies should ensure that their anti-corruption programmes or codes of conduct which includes anti-corruption provisions, should apply to non-controlled entities as well. Companies should also carry out regular due diligence of such entities, not only as a vetting process when selecting such entities, but throughout the working relationship to ensure that they continue to abide by the company’s anti-corruption programme or code of conduct.”
Regular trainings on anti-corruption or the code of conduct was another recommendation, regarding which the report noted that policy documents are only as strong as the extent to which they are implemented, and that therefore, to ensure that internal policy documents do not become mere rubber-stamped papers, companies should ensure that they carry out regular trainings on such policies, thereby ensuring that all staff are aware of their rights and obligations to the company. Adding that such trainings should also focus on policy elements such as gender, sexual harassment, public procurement, among others, the report added that regular review sessions will ensure that such policies are meaningful to both the staff and the board of directors of companies.
Notably, the report further recommended the establishment of robust whistleblowing policies: “Companies should publish their whistleblowing policy on the company website to instil confidence in whistleblowers. The policy should clearly articulate that whistleblowers may remain anonymous, will be protected from any form of reprisal, and that the company will follow up with the whistleblower after an independent investigation is conducted.”
It was also recommended that companies disclose that they adopt a zero-tolerance approach to sexual harassment and discrimination on the basis of gender. Companies should also highlight that such commitments continue throughout the employee’s lifecycle with the company from recruitment to promotion. With regard to disclosing Government contracts and tenders and audited accounts of the same, the report recommended that companies should take steps to publish the contracts that they enter into with Government entities.
Inculcating a culture of voluntary disclosure was also among the recommendations.
In addition, the report presented several recommendations for the Government. Regarding regulations on public disclosure for public limited companies, the report said that regulations on public disclosure relevant for public limited companies should be introduced, covering both financial and non-financial information such as anti-corruption policies and programmes, and that this would place a mandatory reporting obligation on companies to disclose such vital information. The report further recommended that Government regulatory bodies should set a requirement for companies to supplement their accounting with country by country reporting on the company’s sales, investments, tax payments, profit and charitable contributions. TISL recommended that the requirements for country by country reporting should be introduced for all multinational companies, regardless of materiality.
The report paid attention to allowing companies to disclose contracts signed with the Government, adding that State entities should encourage companies to publish the audited financials of any contracts held with the Government.
On putting forward recommendations for investors, the report said that investors and shareholders should intervene to ensure that companies adopt robust and holistic anti-bribery and corruption policies. Once such rules come into effect, shareholders should act as a watchdog to ensure that companies continue to abide by the rules. The report recommended that shareholders should call for the publication of such policies on company websites and call for necessary amendments to policies if they are seen to be lacking in any way. The TISL report said that shareholders should use the rights granted to them to request access to policy documents and assess the effectiveness of such documents. In the event companies fail to voluntarily publish such documents, it added, shareholders should call for the disclosure of the same, and ensure that they hold companies accountable to the standards set out in their policies.