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SUMMARY: OPEN BUSINESS CULTURE IN LATVIA

On 21 August 2021, Transparency International Latvia (Delna) organised a public discussion “Why should a company be open?” at the conversation festival “LAMPA”. During the discussion experts discussed current anti-corruption disclosure practices among Latvian companies, explained the reasons why companies avoid disclosing information and stressed the importance of business transparency in the development of the business environment.

Research shows that most companies around the world have experienced corruption or corruption attempts in the course of their operations, yet many companies still lack effective anti-corruption programmes and the skills to assess them. Weak anti-corruption programmes risk exposing companies to further instances of corruption in the future, undermining their reputation and competitiveness, hindering the attraction of foreign investment and negatively affecting public perceptions of the business environment in general. 

Anti-corruption issues are particularly important in the context of Latvia. Eurobarometer data indicate that more than three quarters (76%) of Latvians believe that disproportionate links between business and politics lead to corruption in the country, while more than 7 in 10 Latvians (71%) believe that favouritism and corruption hinder business competition. Similarly, a majority (51%) think that the only way to succeed in business is through direct political connections and almost half (46%) see corruption as part of the business culture.

In order to improve companies’ internal anti-corruption systems and increase public trust in the business environment, it is important for companies to communicate with stakeholders. Public disclosure of anti-corruption measures and data is one of the main ways to facilitate such communication. Proactive reporting shows that a company has nothing to hide and that it cares about public opinion, while giving stakeholders the opportunity to review and comment on its practices. 

 

DISCUSSION

In the light of the situation described above, Delna invited the participants of the discussion “Why should a company be open?” to share experiences and pool knowledge in order to promote the development of an open business environment in Latvia. The discussion was moderated by Miķelis Zondaks, economist at the Bank of Latvia and co-founder of the association “Datu skola”, as panelists participated:

  • Māris Vainovskis, Senior Partner at Eversheds Sutherland Bitāns
  • Linda Šedlere, Member of the Board of SCHWENK Latvia, Director of HR and Administration
  • Agnese Strazda, Member of the Board of the Swedish Chamber of Commerce in Latvia
  • Artūrs Evarts, Member of the Board of CSR Latvia, Chief Legal Officer of Amber Beverage Group 
  • Laura Tvardovska, Project Assistant at Delna

 

At the beginning of the discussion, we introduced the Delna project “Towards an Open Business Culture in Latvia”, which aims to encourage companies to disclose business integrity data (including data on anti-corruption policies and procedures, organisational structure, beneficial owners, political involvement), to help companies understand best practices in disclosing information and to promote the implementation and improvement of anti-corruption measures in companies in general. As part of the project, we carried out an analysis of existing disclosure practices in companies in Latvia, which revealed that a large proportion of Latvia’s most influential and valuable companies have not yet paid sufficient attention to anti-corruption issues. 

 

Why be open?

Experts agreed that business transparency plays an important role in preventing corruption and building public trust, and that although the situation in Latvia is not encouraging, more and more companies are aware of the risks posed by corruption. The panellists pointed out that it is important for companies to take responsibility for promoting business integrity in their own organisations, rather than just following the regulatory framework. By communicating with stakeholders and talking to employees about corruption and ethics issues, by providing training on anti-corruption programmes and improving them, companies themselves can reduce or eliminate the risk of corruption in the future. Proactive reporting also helps to create a dialogue with stakeholders, as the principles of cooperation that the company follows become clear to all. As a result, the company does not have to explain its internal culture and others are less likely to test whether the company’s ethical principles are working in practice.

 

Why do companies avoid proactive reporting?

Many companies are reluctant to talk about corruption and do not disclose relevant data because they do not have robust internal anti-corruption programmes. Disclosure would in such cases open the door to more criticism, as it would allow anyone to examine their activities. Specifically, it would allow others to identify weaknesses in existing policies or, in the case of a company deliberately acting unethically, to expose real cases of corruption. 

Others only disclose isolated, superficial information in order to give the impression that the company has capable anti-corruption systems. In this case, companies’ websites may contain, for example, ethical principles or anti-corruption guidelines, but lack information on how these are implemented in practice – how they are monitored and reviewed. 

Still other companies may have internal anti-corruption systems but are reluctant to report on them. This may be the case if the company believes that disclosure may jeopardise the functioning of these systems or data confidentiality and/or if the company does not see the point of disclosing information.

Several experts pointed out that when considering what information to disclose, it is important for companies to first develop robust internal systems. If a company publishes policies, principles etc. to give the impression of openness but has not carefully developed them, they can easily be challenged by third parties.

 

What would promote openness?

Tone from the top plays a key role in fostering an open business culture in companies. Experts pointed out that senior managers need to make their position on corruption clear and lead by example. It is up to each company to decide how to do this, based on the resources available to them and individual risk factors. If people believe that the management cares about these issues, employees and business partners will feel confident that management will listen to them and be prepared to speak up about possible corruption attempts or unethical practices. In turn, such an environment of openness will help to prevent corruption from recurring in the future. 

If companies do not address these issues themselves, regulation, which has long been moving towards stricter requirements, can set the tone. For instance, Latvia already has rules in place on disclosing beneficial owners, has a whistleblowing law, and is working on a lobbying disclosure framework. Several Latvian companies are also subject to the EU’s Non-Financial Disclosure Directive, while companies listed on stock exchanges have higher disclosure requirements.

 

How to choose where to invest?

Profit is important for companies, but developing new measures and transparency (including collecting information, publishing it, answering questions) brings extra costs. When thinking about expenses, companies need to realise that being open and honest will pay off in the future. While it may seem more cost-effective in the short term to ignore these questions or turn a blind eye to unethical practices, doing so puts a company at high risk of experiencing corruption crises in the future, which can be much more costly than implementing preventive measures. If a company has already experienced corruption, it is important for it to speak up about its mistakes. Communicating why corruption may have occurred in a company is a way for a company to learn and improve its anti-corruption programmes. In addition, experts pointed out that third parties also appreciate such communication as it shows that the company is not trying to hide anything. It is important to look at demand in order to balance costs with benefits and understand where it would be most worthwhile to invest. This means that a company needs to identify the individual risks that it is most exposed to. 

Businesses need to think about their long-term growth and invest resources through a future lens. Implementing and normalising open business requirements is a long process that may take several years, but if a company does not think about these issues now, it will not be able to grow and will lose competitiveness as the demand for openness continues to grow. When thinking about future developments and the introduction of new policies, businesses should feel a sense of responsibility not only for their company, but for the business environment in Latvia and Europe. By making changes, companies will not only impact their own operations, but also the wider business environment. 

 

Video of the discussion “Why should a company be open?” at the conversation festival LAMPA (in Latvian).

 

 

This entry has been prepared with the support of the Embassy of the Kingdom of Sweden in Latvia, the Swedish Institute and the Transparency Fund. Transparency International Latvia is solely responsible for the content. 

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