, Transparency International
Sweden was the first country in the world to introduce freedom of the press as a constitutional right in 1766. This long tradition included the principle of freedom of information, giving both the general public and the mass media access to public records. Their national attitude towards disclosure and transparency has a positive impact on business and especially on corporate governance, ethics and compliance.
Openness and transparency are considered as “vital parts of Swedish democracy” and all those principles of freedom are reflected in some fundamental laws which govern the Swedish constitution.
These values are not only on paper: statistics from international organisations confirm the point: Sweden is ranked third out of 168 countries in Transparency International’s Corruption Perception Index, with scores of 2.25/2.50 for control of corruption, 12/179 for press freedom, 83/100 for its open budget index and a percentile rank of 99% in voice and accountability.
Sweden, together with Denmark and Finland, has historically always ranked among the least corrupt countries in the world. In fact, in a recent report, the Rule of Law Index 2016 issued by the World Justice Project, the Nordic countries have the best integrity levels in the world. It has been found that control of corruption is associated with other key characteristics which these countries share, including strong commitment by political leaders, freedom of the press, high GDP per capita, low inequality rates, literacy rates close to 100%, freedom of information and government openness and effectiveness.
Sweden also achieved excellent results in the Global Competitiveness Index issued by the World Economic Forum, with a rank of 6/138 and a score of 5.53/7 in their most recent, 2016-2017, report. The World Economic Forum highlights the importance of openness and states that “declining openness is threatening growth and prosperity” and “harming competitiveness”. Likewise, in the Ease of Doing Business ranking of the World Bank, Sweden obtains an outstanding 8th position in a list of 189 countries.
Impact on business
These statistics lead to the conclusion that transparent and open national culture directly correlates with competitiveness and a business-friendly environment.
The largest Swedish companies (Tele2, H&M, Atlas Copco, Ericsson, among others) obtain better results than the world average in transparency reporting. According to a study conducted by Transparency International Sweden, following the same methodology used by Transparency International in their worldwide study, Swedish companies receive high scores in the following indicators:
- Reporting on anti-corruption programmes: the average for Swedish companies is 80% while the average in the international study was 70%. To get high scores in this subject, it is necessary “that the company's code of conduct or anti-corruption policy expressly applies to all employees and board members, that the policy contains clear-cut rules and restrictions for gifts and hospitality, and that the company has a reporting channel through which employees can anonymously report suspected violations of the anti-corruption policy (whistleblowing) without risk for repercussions.”
- Organisational transparency: here there is a significant difference since Swedish companies have a score of 75% compared to the average score for the international study which was only 39%. This related to disclosures in respect of and the following issues give higher scores: “a complete list of all wholly- and partially-owned subsidiaries, the percentage the company owns in each respective company, data on where the companies are registered as well as data on the countries within which the companies operate.”
- Country-by-country reporting: the average score in the Swedish study was 16% whereas the average of the largest companies in the world is just 6%. This indicator measures the companies’ level of disclosure of “revenues, investments, income before tax, income tax and donations to charity” and it represents “a way of ensuring that the companies pay taxes in the countries in which they operate and that the companies' money goes solely towards legitimate objectives and projects in society”.
The substantial difference between the Swedish and the international scores, especially in the last two sections above, appears to be associated with the Swedish culture of openness, transparency and access to information.
As we see in the Swedish example, there appears to be a positive connection between transparency and competitiveness in business. One key factor here is trust. In the current globalised and hyper-networked business environment, regulators, shareholders, members of the board, customers and business partners— in summary, all stakeholders, demand transparency in order to give their trust to a business entity. They all want to know how companies earn and spend their money, who manages them, how much is paid in salaries to senior managers and how diligent they are on environmental or social issues.
Companies risk serious negative consequences if information, even potentially untrue information, spreads externally. This can happen in just minutes because we have seen real cases. For example, in September 2008, “a six-year-old article about the 2002 bankruptcy of United Airlines' parent company resurfaced on the Internet and was mistakenly believed to be reporting a new bankruptcy filing by the company. This episode caused the company’s stock price to drop by as much as 76 percent in just a few minutes, before NASDAQ halted trading. After the “news” had been identified as false, the stock price rebounded, but still ended the day 11.2 percent below the previous close.”
To prevent or at least mitigate such situations, it is vital to create a company culture based on trust and transparency, giving all possible access to records so that stakeholders can verify any relevant information.
Linking transparency to resource allocation and profitability
There are clear advantages of corporate transparency in terms of investments and profitability. This is important, as it helps to make the business case for transparency as a key element of your corporate governance infrastructure as well as essential element of your compliance and ethics programme.
The study “Corporate Transparency and Resource Allocation” provides valuable insights about how transparency drives investments:
- Business opportunities can be better exploited by companies operating in more transparent business environment such as Sweden. This is because investors are better able to recognise the opportunity and direct their resources towards the specific market where the company is operating.
- Corporate transparency is also associated with industry-specific growth rates. This is consistent with the notion that corporate transparency helps to channel resources to those more transparent industries.
But transparency not only helps to relocate scarce resources more efficiently. It also increases long-term profitability. As Martin Lipton says in a Harvard Law School Forum on Corporate Governance, “recognizing that the incentive for long-term investment is broken, leading institutional investors are developing a new paradigm for corporate governance that prioritises sustainable value over short-termism, integrates long-term corporate strategy with substantive corporate governance and requires transparency as to director involvement.”
It is clear that companies will benefit by embedding transparency into their corporate governance framework as well as into their compliance and ethics culture. This is not only because it is the “right thing” or because the organisation must comply with local rules or international best practices. More importantly in the long run, it is because competitiveness and corporate growth are directly impacted by transparency. This example from Scandinavia is an excellent demonstration of this. To borrow from Eurovision: Douze points a la Suède, Twelve points to Sweden!
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