Someone emailed me a link to a report by The Edge Markets about Transparency Internationals’ latest report on their assessment of emerging markets largest multinationals. He said that he thought it was interesting so I had a read through.
Then of course I just had to follow up with all the related reports to get an overall perspective of the issue that was brought up by The Edge and TI Malaysia.
These reports are relevant reads if you are interested:
- Transparency in Corporate Reporting: Assessing Emerging Market Multinationals (2016).
- Petronas Anti-Bribery and Corruption Manual
I think it is only fair for me to actually give my opinion on the matter, as I disagree with the angle taken by The Edge and rather confused by some of the statements by TI Malaysia.
The first thing I noticed about the actual list of multinationals on the list is that, even though Petronas is 9th on the list, all the 8 multinationals ahead of it are Indian, which got me curious enough to actually go through the entire report.
Interestingly, Petronas scored higher than all 8 Indian companies in the Anti-Corruption Programme dimension and equals Bharti Airtel to top the Organisational Transparency dimension.
That means Petronas was let down by its adherence, or lack of, to the third dimension of the assessment, Country-By-Country Reporting of which Petronas scored a mere 2%.
I do not have access to Petronas’ responses, but these were the questions by which the assessment of that particular dimension was made, at least according to the report.
III. COUNTRY-BY-COUNTRY REPORTING
22 Does the company disclose its revenue/sales in country X?
23 Does the company disclose its capital expenditure in country X?
24 Does the company disclose its pre-tax income in country X?
25 Does the company disclose its income tax in country X?
26 Does the company disclose its community contribution in country X?
This is really where all 8 Indian multinationals scored considerably higher than Petronas – Tata Communications at 45%, Mahindra & Mahindra at 40%, Bharti Airtel at 30%, Tata Motors at 31% and the rest at 30%.
I guess there must be some kind of legal requirement in India for companies to disclose specific financial details for every country they operate in or something like that.
As for TI Malaysia’s opinion that Petronas need to have country basis financial disclosure in order to penetrate American and European Union markets because of their stringent legislation, my thinking is, it is really up to Petronas to decide which markets it wanted to penetrate, and surely they would operate within the legal requirements of those markets including the provision for detailed financial disclosure.
But sure, it doesn’t hurt to have a country-by-country breakdown of everything, it is just a matter of financial accounting, but does it make much of a difference to Petronas other than getting its annual report thicker?
However, Petronas scored 90% for domestic reporting, second only to Gruma of Mexico at 100%. So there you are.
Petronas is one of the only two companies who scored 100% on the Organisational Transparency assessment, the other being Bharti Airtel of India.
Perfect score there, so nothing to add.
Under the dimension of Anti-Corruption Programme, Petronas scored 88% with only three others scoring higher, Sabanci of Turkey, Embraer of Brazil, Grupo Bimbo of Mexico. By the way, all three were ranked below Petronas overall.
The TI report even commended Petronas with the following statement “Petronas, a Malaysian state-owned company, scores 88 per cent, and sets a positive example for the other state-owned companies.”
However, The Edge report’s focus was on “Say ‘no’ to political funding, TI-M tells Petronas”?
The exact wording of TI Malaysia statement that confused me was the following
“Petronas’ policy allows political contributions with certain disclosure, yet it remains ambiguous and opaque without specifically naming the politicians or parties and the amount involved,” he said in a statement yesterday.
“TI-M opines that Petronas, as the caretaker of national resources, should be neutral and non-partisan in managing the assets and revenues.
“It is unjustifiable to provide contributions without any favour in return,” he added.
Weird, especially the last one.
So I dug in further by looking up Petronas’ Anti Corruption Handbook in reference to political funding – for those interested, that is Part 5 of the handbook.
As provided in Part IIG Section 29 of the CoBE (PETRONAS Code of Business Conduct & Ethics), as a matter of general policy, PETRONAS does not make or offer monetary or in-kind political contributions to political parties, political party officials or candidates for political office.
PETRONAS may, in very limited circumstances, make political contributions in countries where such contributions are permitted under the law. The authority to approve such political contributions is with the President/Group CEO or the respective Board of Directors.
If any contribution is made, it must be permissible under applicable laws and must not be made with any promise or expectation of favourable treatment in return and must be accurately reflected in PETRONAS’s books and records.
Good faith payments to a government entity such as payments to the host country’s federal treasury required by contract or law, are not prohibited, so long as they are made with due care to the government entity and not to any individual official.
So that explained the first para of that confused me.
From the handbook excerpt, however, I think it was very clear that Petronas is strictly not into handing out political contributions.
The second and third paragraphs of that part in the handbook, which I think were what TI Malaysia was referring to, I believe were there to handle exceptions – in countries where such contributions are unavoidable and only if permissible under the law of the country in question.
So if Petronas were to make any kind of contribution of this nature, it would have been recorded and can be made available for scrutiny.
Was there anything in Petronas financial statements that alluded to it having contributed to any particular political entity anywhere in the world for TI Malaysia to call for Petronas to be neutral and non-partisan as in the second para?
I am just not that much into Petronas to dig through all that to look for it.
As for “It is unjustifiable to provide contributions without any favour in return,” duh, that’s the whole reason why Petronas as a rule wouldn’t indulge in contributing to political funds or other similar forms of contributions, and the reason for that third paragraph in its anti-corruption handbook was to make sure that it won’t do it.
For the record, the Unaoil allegation brought up by The Edge was Unaoil allegedly to have offered bribes to unnamed Petronas executives through a named third party on behalf of a named client for contracts in Iraq, not Petronas contributing to political funds or bribing someone to get preferential treatment or favors, so the linking of TI report to the Unaoil allegation was actually out of context.
So that was that.