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SUMMARY: TOWARDS AN OPEN BUSINESS CULTURE IN LATVIA

In September 2021 Transparency International Latvia (Delna) invited representatives of the Latvian business community to a closed roundtable discussion on the disclosure of anti-corruption data in Latvian companies. The participants pointed out that the demand for business transparency is growing not only in Western countries, but also in Latvia, and noted that large companies are increasingly feeling the need to disclose more and more data. Overall, business integrity is becoming an important part of the sustainability agenda of companies, which promises to bring benefits in the long term. In November 2021, Delna will publish specific guidelines for business transparency.

Research shows that most companies around the world have dealt with 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 indicates 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.

The discussion

The attendees were invited to reflect on the current business transparency practices in Latvian companies and to offer their recommendations and changes to the transparency guidelines that Delna is currently working on.

The discussion clearly indicated that the demand for business transparency is growing not only in Western countries, but also in Latvia. Several participants mentioned demand as the main driver for disclosure, noting that there is increasing pressure to disclose non-financial information from both investors and business partners (other companies, suppliers, customers). Companies can lose funding if they work with the wrong client, so it is important to provide full information about oneself so that business partners feel safe working with the company. Representatives of state-owned enterprises indicated that they also feel an obligation to be open with the public.

“The increasing demand for transparency is only natural and you have to respond to it – otherwise you will be left out of the game.”

Nevertheless several company representatives had concerns about the accessibility and the content of the information to be made public. While the existing demand encourages companies to be more open, it was argued that the information disclosed should depend on the target audience. Several participants pointed out that although some anti-corruption data regarding their companies is not wholly public, it is made available to certain groups. Many company representatives also pointed out that disclosure requirements should vary depending on the specific nature of each company. The largest and most influential companies should be subject to the highest requirements, as they have more resources to successfully comply with them. State and municipal companies, as entities of public importance, should also focus on the implementation of disclosure practices. Participants were sceptical about the availability of business integrity data in small and medium-sized enterprises in Latvia and saw difficulties in changing the situation in the future. Problems were seen both in the limited resources of these companies and in the lack of external pressure.

While demand encourages companies to disclose information, it does not come from everyone. Several company representatives pointed out that Latvian consumers generally are not interested in business integrity data. The average Latvian customer first looks at price when choosing traders, while company policies, including anti-corruption policies, are not among the main factors of choice and in most cases are not read. At the same time, others pointed out that pressure for transparency from younger generations is already rising in Latvia. Moreover, although customers are unlikely to read all published policies, the fact that they exist in itself creates both an external impression of a company and helps companies understand their internal culture.

“The information you publish creates a general impression of what your company is like. Perhaps the average client won’t pay attention to the minutiae of your policies, but seeing that you are open will raise your clients’ trust in you, as well as your reputation.”

Participants emphasised that an open internal culture should be the bedrock for any further action companies take. Before companies think about publishing data, they need to understand whether their internal anti-corruption mechanisms are effective in the first place: whether their programmes are sufficiently monitored and reviewed, whether there is full training for employees concerning these policies, whether the company is thinking about business integrity issues in the long term, etc. If internal systems are in place, companies have no reason not to talk about them.

Experts also pointed out that problems sometimes arise when companies try to define acceptable and unacceptable behaviour, for example, when setting thresholds for approving gifts. In order to address these problems, they need to be discussed both internally and externally, sharing experiences with other experts. Several participants mentioned that the companies they represent deal with problem situations using the four-eyes principle: when an employee is unclear whether a certain action is acceptable, it is reviewed by at least one other person.

“The most important question is about who we fundamentally are. That’s where we start – Are we transparent? Does being transparent matter? There’s no point in talking about it if we’re not.”

Overall, participants did not see significant risks to disclosing information. The costs of maintaining and compiling data were mentioned as the biggest hindrances to disclosure. However, some pointed out that these practices pay off in the long run and provide tangible long-term benefits, such as helping to avert future reputation crises stemming from new instances of corruption and improving the internal transparency culture in companies, which, in turn, encourages reporting and whistleblowing. Some expressed concern that the published information could be used against them by competitors, as well as saw problems with revealing certain types of personal data (for instance, details about minority shareholders). However, these risks did not apply to the data categories that TI LV suggested as best practice. It was also mentioned that some categories of data (for example, the number of reports received) are not disclosed due to the possibility that they could be easily misunderstood, with people interpreting them to mean that there are more instances of corruption in the said company as opposed to the ones that are simply not transparent.

The business transparency guidelines developed by Delna will be published in November 2021 and will reflect more fully the issues discussed in this discussion.

 

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

 

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