How good corporate governance, transparency and profitability fit together

As well as wiping trillions of dollars off the value of stock markets, the global financial crisis delivered a serious blow to levels of public trust in companies, banks and governments.  At the same time, the internet revolution has radically changed how quickly information is communicated. So how can businesses – including EBRD clients – regain the confidence of stakeholders who are increasingly sceptical and ever hungrier for real-time data?

Good corporate governance and a commitment to sustainable growth are key to reversing this trend and to future profitability, according to the panellists at a discussion on Good Corporate Citizenship at the EBRD’s Annual Meeting and Business Forum on Saturday, 19 May. The debate, organised as part of the Civil Society Programme at the Annual Meeting, also emphasised the need to communicate those attributes in a clear, accessible and timely way.

“Corporate social responsibility is clearly part of every business or company’s licence to operate,” said Marie Baumgarts, Head of Corporate Responsibility at Swedish telecoms operator and EBRD client Tele2 AB. “It’s about keeping out of trouble, risk mitigation and risk management, but it’s also about improving business and finding long-term strategies and new opportunities.

“And even though it is still considered partly intangible, it has an impact on a company’s bottom line in its annual report,” Ms Baumgarts added.

For Karen Egger, Senior Programme Manager at anti-corruption NGO Transparency International, the financial crisis was closely linked to a failure of corporate governance and in particular “remuneration that promotes short-term gain over long-term sustainability”.

The financial sector, which was at the source of the global downturn, fared badly in a recent Transparency International survey of the world’s 105 biggest companies, Ms Egger revealed. Although the report will only be officially published in June, she announced that the financial sector had ranked below average in each of the three areas covered by the survey: anti-corruption measures, organisational transparency and reporting.

“A crisis is a terrible thing to waste,” Ms Egger said. “This is a fantastic climate to promote change. Reforms that were inconceivable a few years or months ago are now centre of the play.”

Ilia Fedosov, Chief Financial Officer of the Russian division of paper and packaging company Mondi Group, gave a concrete example of how good governance can help a business.

“In north-west Russia we work with the local authorities and discuss every move of our forestry operations with them as each one has an impact,” said Mr Fedosov, whose company is another EBRD client. “There were some rumours about pollution coming from one of our operations. We built a laboratory next to our plant. This was run by the government and provided information on emissions that was made available to all. This ended the speculation.”

Mr Fedosov added that there was an appetite for “real-time feedback. People want an answer right now. We should do as people want.”

The Global Reporting Initiative is a non-profit organisation whose guidelines for sustainability reporting are becoming increasingly widespread around the world.

“Transparency affects the economic part of a company,” said GRI’s Policy and Advocacy Manager Pietro Bertazzi. “From a company perspective, it’s a management tool that helps it to do an assessment of risks. From a civil society perspective, transparency enables stakeholder dialogue and accountability.” He added that GRI was in the process of revising its reporting guidelines and urged interested parties to get in touch with any suggestions for improvements.

Gian Piero Cigna, Senior Counsel within the EBRD’s Legal Transition Team, underlined that corporate governance was an essential part of the Bank’s mandate and that his team was working to improve the situation in the EBRD region of operations. 

“The crisis has shown how much corporate governance has been considered a luxury. Attention focused on the legal framework and the letter of the law, not on accountability or proper implementation,” Mr Cigna said. “We need to concentrate on bridging the implementation gap and make sure standards are well implemented.”

Mr Cigna’s colleague Elizabeth Smith from the EBRD’s Environment and Sustainability Department outlined the Bank’s requirements for clients regarding environmental and social due diligence, noting that it was a “moderate and flexible approach depending on who is affected an interested”.

In response to her request for feedback on the EBRD’s information sharing, one audience member urged the Bank to consult with civil society to find ways of engaging with stakeholders in Egypt, Morocco, Jordan and Tunisia where it is planning to start investment operations.

Another member of the audience stressed the importance of providing regular updates on projects, instead of just yearly assessments; of making this information available to the local communities affected; and of not waiting for things to go wrong to evaluate a project’s impact.

A third audience member voiced her opinion that the EBRD does not always react to the information it gets from NGOs on the ground about how a client is performing, for example in regards to working conditions, and suggested that the Bank relies on clients to provide data.

Ms Smith, however, said that as well as getting information from companies, “we also listen to civil society organisations, we do site visits, we have independent audits and we have an independent evaluation department. After each Annual Meeting, we see what has been said about our projects and there may be a flurry of site visits. It’s not just company reports we look at, there are lots of different sources.”

By Mike McDonough

Last updated 19 May 2012