ES_CT_8-3 20/3/07 10:47 Page i Corporate Truth The Limits to Transparency Adrian Henriques London • Sterling, VA ES_CT_8-3 20/3/07 10:47 Page ii First published by Earthscan in the UK and USA in 2007 Copyright © Adrian Henriques, 2007 All rights reserved ISBN: 978-1-84407-390-0 Typeset by MapSet Ltd, Gateshead, UK Printed and bound in the UK by Bath Press Cover design by Nick Shah For a full list of publications please contact: Earthscan 8–12 Camden High Street London, NW1 0JH, UK Tel: +44 (0)20 7387 8558 Fax: +44 (0)20 7387 8998 Email: [email protected] Web: www.earthscan.co.uk 22883 Quicksilver Drive, Sterling, VA 20166-2012, USA Earthscan is an imprint of James and James (Science Publishers) Ltd and publishes in association with the International Institute for Environment and Development A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Corporate truth : the limits to transparency / Adrian Henriques. p. cm. ISBN-13: 978-1-84407-390-0 (hardback) ISBN-10: 1-84407-390-4 (hardback) 1. Business ethics. 2. Social responsibility of business 3. Industries—Social aspects. I. Title. HF5387.H465 2007 658.4'08—dc22 2006101422 The paper used for this book is FSC-certified and totally chlorine-free. FSC (the Forest Stewardship Council) is an international network to promote responsible management of the world’s forests. ES_CT_8-3 20/3/07 10:47 Page iii Contents Boxes, figures and tables iv Acknowledgements v Acronyms and abbreviations vi 1 Approaching Transparency 1 2 Case Studies 9 3 Coming to Terms with Transparency 17 4 What is a Company, Exactly? 33 5 The Right Perspective 49 6 The Ethics of Personal Transparency 59 7 Reporting: Talking Your Walk 69 8 Reporting Challenges 89 9 The Story of the Media and the Honest Truth 101 10 The Certainty of Tax 113 11 The Crisis in Confidence 125 12 Corruption 137 13 Lobbying and Complicity 149 14 A Future for Integrity 161 Bibliography 169 Index 179 ES_CT_8-3 20/3/07 10:47 Page iv Boxes, Figures and Tables BOXES 7.1 The breadth of sustainability issues 75 7.2 Boundaries of completeness: A case study in auditing 83 8.1 Reportalot plc 90 8.2 What the directors’ report should cover 95 8.3 Conditions of use of the Rio Tinto website 98 13.1 Practical complicity 160 FIGURES 3.1 The ring of truth 19 7.1 The global trend in non-financial reporting 77 7.2 Non-financial reporters by region in 2005 78 7.3 Audited non-financial reports 82 TABLES 10.1 Offshore financial centres 119 10.2 Operating with a tax haven 120 13.1 The goals of lobbying 149 13.2 US lobbying expenditure 152 ES_CT_8-3 20/3/07 10:47 Page v Acknowledgements The chapter on corruption was based on research originally commissioned by the DfID. I should like to thank the following for their support, comments and sugges- tions in the course of preparing the book: Brendan O’Dwyer, Stephen Walker, John Christensen, Chris Marsden, Helena Paul, Rob West, Rob Gray, My-Linh Ngo, Jorgen Randers, Richard Murphy, Geoffrey Chandler, Jonathon Porritt, Oliver James, David Nussbaum, Paul Scott, Roger Adams and Mary-Jane Rust. ES_CT_8-3 20/3/07 10:47 Page vi Acronyms and Abbreviations 3G third generation mobile phone technology ASB Accounting Standards Board CEP Council for Economic Priorities CFS Co-operative Financial Services CSO civil society organization ECPHR European Convention for the Protection of Human Rights EITI Extractive Industries Transparency Initiative EMAS Eco-Management and Audit Scheme FDA Food and Drug Administration (US) FDI foreign direct investment FRC Financial Reporting Council FSC Forest Stewardship Council GAAP generally accepted accounting principles GRI Global Reporting Initiative ICAEW Institute for Chartered Accountants in England and Wales ICCPR International Covenant on Civil and Political Rights ICESCR International Covenant on Economic, Social and Cultural Rights ICSTIS Independent Committee for the Supervision of Standards of the Telephone Information Services ICT information and communications technology IGF-1 Insulin-like Growth Factor 1 ILO International Labour Organization IMCB Independent Mobile Classification Body IMF International Monetary Fund ISO International Organization for Standardization NDA Nuclear Decommissioning Authority NGO non-governmental organization OECD Organisation for Economic Co-operation and Development PCC Press Complaints Commission POS point of sale PR public relations rBGH recombinant bovine growth hormone RFID radio frequency identification SRI socially responsible investment UDHR Universal Declaration of Human Rights UNEP United Nations Environment Programme WTO World Trade Organization ES_CT_8-3 20/3/07 10:47 Page vii ‘I am convinced not only that what I say is wrong, but that what will be said against it will be wrong as well. Nonetheless, a beginning must be made …’ ROBERT MUSIL (1880–1942), TR. BURTON PIKE AND DAVID S. LUFT ‘The truth is rarely pure, and never simple.’ OSCAR WILDE (1854–1900) ES_CT_8-3 20/3/07 10:47 Page viii ES_CT_8-3 20/3/07 10:47 Page 1 1 Approaching Transparency Companies and the potential of transparency Today’s world is characterized by increasing concentrations of power through economic growth and globalization. We have larger and more dominant compa- nies affecting a greater and greater part of our lives, in both the developed and developing worlds. We also have political processes which, while technically democratic, seem at times to operate in dealings with companies well beyond the margins of propriety. Over 70 years ago, Berle and Means wrote that: Corporations have ceased to be merely legal devices through which the private business transactions of individuals may be carried on. Though still much used for this purpose, the corporate form has acquired a much larger significance. The corporation has, in fact, become both a method of property tenure and a means of organizing economic life. Grown to tremendous proportions, there may be said to have evolved a ‘corporate system’ – as there once was a feudal system, – which has attracted to itself a combination of attributes and powers, and has attained a degree of prominence entitling it to be dealt with as a major social institution. […] We are examining this institution probably before it has attained its zenith. Spectacular as its rise has been, every indication seems to be that the system will move forward to proportions which stagger imagina- tion today […] they [management] have placed the community in a position to demand that the modern corporation serve not only the owners […] but all society. (Berle and Means, 1933, p1) Corporations clearly now have a huge impact on our lives – who does not work for one or buy their products or negotiate their way around their lorries in the street or see their factories or offices? Many of us will also ‘own them’ through pension plans. Yet how many of us feel it possible to control them? Or even perhaps, more modestly, that they are under someone’s control? So they appear to suffer from a democratic deficit. Whether their impact is good or bad, we 1 ES_CT_8-3 20/3/07 10:47 Page 2 CORPORATE TRUTH have little control over them. In remedying that deficit, the first need is for knowledge – for companies to be transparent about what they do and what effect they have on us and the world. In more recent years we have seen corporations challenging our assump- tions and values in many ways: from the placement of soft drinks in schools to the implications of cabinet ministers and political parties receiving funds from companies; from corporate scandals involving the collapse of huge multination- als to the European Commission sponsoring the idea of ‘corporate social responsibility’; from the cautious support of some non-governmental organiza- tions (NGOs) for corporate self-regulation to vigorous attacks on it from other NGOs; from the development of courses on corporate responsibility in univer- sities to the enactment of new legislation. It may not be a surprise that we hear about most of these issues, which affect almost all of us, from newspapers rather than from companies. And some may feel that there is enough information available already. We have the media: we have newspapers; we have the internet; we have television; we have radio. If we have information coming at us from all sides, is there really a need for more transparency? The problem with the media is twofold: first, the media for the most part are themselves large companies with powerful interests which can preclude an unvarnished access to truth. And second, the media have to sell their informa- tion. Routine misery does not usually constitute a story, so the truth has to be ‘sexed up’. If today, as the sayings go, the media are treacherous friends and reporters the whores of truth, how do we move beyond what stands in for truth? What is to be done and what kind of transparency or truth should we legitimately expect from companies themselves? To move beyond the media story we need to recognise that transparency cannot be purchased wholesale. One thing it requires is painstaking attention to detail. Yet transparency is not just a technical issue of communication, but a moral issue for us all. The fundamental argument of this book is that trans- parency is required wherever power is exercised. And where power is abused, transparency is doubly necessary. In the world of public life, a misdeed hidden is twice the crime. To wrongly accept money or gifts for yourself or your family may be bad; but to lie about it subsequently will be far worse.