Twenty-one investors representing US$1.7 trillion in assets under management engaged from March 2010 until January 2013 with 20 companies in a variety of sectors.
The engagement was based on the belief that a robust programme for managing anti-corruption risk positively impacts the long-term performance of a company, while the absence of such a programme, or even its disclosure, has the potential to create financial, operational and reputational risks.
The investor group identified a select group of companies that, on the basis of publicly available information, appeared to have poor anti-corruption systems although they faced high corruption risk. Building on a baseline analysis of these companies’ anti-corruption systems, and using global reference standards, a broader group of investors sent letters to all companies requesting further information on their anti-corruption strategies, policies and management systems.
Based on initial written responses, an independent research provider completed an analysis of companies’ performance. Using the same methodology and publicly available information, they then analysed companies that had not responded to the investors’ requests. Six months later, the group sent letters to the non-responding companies to present the new research and request further information on anti-corruption management. The letter reiterated the content of the initial communication, but also highlighted notable zero scores and included a copy of the company’s full scorecard.
In aggregate, 85% of companies responded and engaged or indicated willingness to engage with investors. Feedback from management was positive, with companies acknowledging investor concerns, and committing to improve practices and transparency. The majority of companies also welcomed follow-up dialogue with investors when this was proposed. Based on the initial benchmark, approximately one-third of companies that responded to the group’s letter demonstrated significant improvements in their anti-corruption systems and transparency. Most importantly, following another letter from the group in April 2012 which included the results of the analysis, more than 60% of the nonresponding companies reacted and provided either a formal, comprehensive response, or indicated willingness to meet with investors to discuss the issue further. The final benchmark analysis in early 2013 revealed that overall 16 of the companies had improved their performance against the indicators, with ten companies improving their score by four-fold, and the leading company improving its score by six-fold.
Benchmark analysis provided a good framework for dialogue and an efficient tool for measuring corporate performance. Highlighting notable zero scores and including a copy of each company’s full scorecard within the investors’ letter proved successful in triggering a reaction from companies. Reference to a key guidance statement on managing anti-corruption risk developed by an investor organisation and UN-developed reporting guidance increased both the legitimacy and relevance of the investors’ request, while providing a guide for companies’ responses and follow-up discussions.
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Case study: Anti-corruption