Much like transitions to democracy over the past four decades transformed governments from mostly authoritarian to mostly democratic, we are currently witnessing a transformation of global corporations from a more or less opaque shareholder-centric model to a more transparent multi-stakeholder model.
The 1970s witnessed the beginning of a global trend toward the democratization of authoritarian and totalitarian regimes. This first appeared in Greece with a coup that led to democracy, continued in Portugal and culminated in Spain with a paradigmatic transition from Franco to democratic government. To this day all three countries continue to be thriving democracies.
The trend continued into the next three decades. Starting with the Polish Solidarity movement and epitomized by the fall of the Berlin Wall in 1989, democratization swept through the former Soviet bloc. Likewise, today most of Latin America can claim the democratic mantle. Successful transitions occurred in such diverse places as South Africa, the Philippines, Indonesia, Mongolia and even Iraq.
The yearning for greater political transparency and accountability continues sometimes tragically, as Iran currently exemplifies. The case of China remains a unique experiment in the liberalization of economics but not politics. Despite some business-related legal reforms, China may remain the exception that proves the rule.
As to global companies, increased government pressure and stakeholder demands for accountability (from employees, investors, customers, non-governmental organizations and others) are creating a similarly catalytic turning point that is beginning to yield a more transparent business model.
Will greater corporate transparency evolve from this turning point in a manner similar to the democratization that began in the early 1970s? We think so.
Governments are lending a hand. Global anti-corruption efforts provide a clear example. In the past month alone, governments around the world have stepped up the pressure. Dec. 9 was International Anti-Corruption Day; among other activities, the 38 signatory nations of the Organization for Economic Cooperation and Development Anti-Bribery Convention reaffirmed their commitment to expanded enforcement efforts around the world. In November, the Obama administration provided business with additional carrots and sticks. In a major speech, Lanny Breuer, chief of the Criminal Division of the Department of Justice, promised to deliver on an aggressive Foreign Corrupt Practices Act enforcement agenda “in the months and years ahead,” noting that the Justice Department “will be intensely focused on rooting out foreign bribery.” He emphasized that the department will focus on the investigation and prosecution of executives, stating that “culpable individuals must be prosecuted and go to jail.” Mr. Breuer counseled businesses to have a “rigorous F.C.P.A. compliance policy that is faithfully enforced,” to “seriously consider voluntarily disclosing” discovered violations, and to remediate the source of any violations. He noted that smart companies already have these measures in place.
The anti-corruption example shows how strong government incentives, good governance and corporate citizenship can be mutually reinforcing factors and how they are playing a key role in shaping important issues in the growth of corporate transparency.
There are other critical global business issues — human rights, anti-fraud, environmental compliance — that all point in the same direction: For their own good and that of their multiple stakeholders, companies are trending in the inevitable direction of adopting greater transparency and integrity programs.
Whether they do so voluntarily or by regulatory mandate, companies are beginning to embrace the new transparency imperative in five key ways:
Adopting better governance with stronger shareholder rights, board rules, director accountability and pay for performance.
Integrating corporate integrity programs into business strategy and leadership development.
Pursuing dialogue with multiple and increasingly vocal stakeholders.
Engaging proactively with regulators intent on trans-border cooperation and enforcement (especially regarding anti-corruption, anti-money laundering, antitrust and anti-fraud).
Catering to two critical constituents — employees and customers — who have shown greater willingness, and ability, to “vote with their feet.”
Over 2000 years ago, Aristotle, in his seminal work the Nicomachean Ethics, nailed it: the pursuit of virtue and happiness is the essence of the human condition. “Ethos” and “demos.” Are these two words that apply a similar principle to two different contexts? Is ethics to business what democracy is to politics? Is the role that transparency and integrity play in the private sector similar to the role that democracy plays in the public sector? We think so.
Enlightened companies are recognizing the value of integrity and transparency in business in the same way that political actors and constituents discovered the value of democracy in government over the past half century. Less enlightened entities will come along under the pressure of increasingly proactive stakeholders and regulators. And the irreversible Internet revolution that now “outs” what previously could be hidden will only further the irreversible progress to greater transparency that is already underway.
Andrea Bonime-Blanc is general counsel and chief compliance officer of Daylight Forensic & Advisory and author of “Spain’s Transition to Democracy: The Politics of Constitution-making.” Mark Brzezinski is a partner at McGuire Woods and author of “The Struggle for Constitutionalism in Poland.”
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