The world’s largest companies have never had a reputation for showering investors with information about their financial situations and operations. The rules that might make them do so are too lax. Government authorities largely have not pressed the issue enough.
The problem may be worse than usually thought, according to a study by Transparency International. The research focused on reports of corruption and financial data at 105 of the world’s largest public companies. But the trend is not much different in other aspects of corporate reporting, whether it is the information given out by JP Morgan (NYSE: JPM) regarding its trading problems or Duke Energy (NYSE: DUK) on why it suddenly and without warning changed its chief executive.
”Transparency in Corporate Reporting: Assessing the World’s Largest Companies” ranked companies on a scale of 1 to 10, with 1 as the lowest score. Many corporations based outside the United States scored well, with oil and mining companies near the top. These included BHP Billiton (NYSE: BHP), Rio Tinto (NYSE: RIO) and BP (NYSE: BP). BP’s disclosures probably were made necessary as it pushed out reams of data about the Deepwater Horizon disaster.
Ironically, Walmart (NYSE: WMT) received good scores. Either the survey was taken before the Walmart Mexico bribery scandal or these problems were somehow ignored. The latter would give the impression that the results of the study are flawed.
Many of the corporations at the bottom of the list are banks, including the Bank of China and China Construction Bank. Banks often are criticized for incomplete balance sheets. Chinese companies frequently are accused of hiding data about their operations. But China’s banks were not alone. Bank of America (NYSE: BAC), known for poor disclosure about a range of issues from the details of its buyout of Merrill Lynch to its mortgage practices, fell near the bottom. So did Goldman Sachs (NYSE: GS).
For reasons that may be hard to understand at first, America’s largest tech companies were also at the bottom of the list. These include Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Cisco Systems (NASDAQ: CSCO), Google (NASDAQ: GOOG) and Amazon.com (NASDAQ: AMZN). None has been charged with corruption or bribery. Their public documents filed with the Securities and Exchange Commission usually are clear and complete. It may be that their habits of secrecy about product development and launches damaged their ratings.
It is not fair to ask most companies to disclose the inner workings of their operations, particularly if they are core to their ability to compete. Transparency International ignores that, at least as far as it includes tech giants. The makes the entire exercise of its study a bit flawed.
Douglas A. McIntyre