Submitted to; School of Accounting and Corporate Governance, University of Tasmania. Thusitha Dissanayake M. Azizul Islam* Steven Dellaportas

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1 Corporate Disclosure on Combating Bribery: A Study of Two Global Companies in the Telecommunication Industry Submitted to; The 10 th Australasian Conference on Social and Environmental Accounting Research (CSEAR) 5-7 December 2011 School of Accounting and Corporate Governance, University of Tasmania by Thusitha Dissanayake M. Azizul Islam* Steven Dellaportas School of Accounting Economics and Finance Deakin University Abstract This paper examines the influence of media scrutiny and International Governmental Organisation (IGOs) on the extent of voluntary corporate disclosure in the global telecommunication sector in response to incidents of corporate bribery. Corporate annual reports and standalone sustainability reports of two global telecommunication companies [Alcatel-Lucent a French based global company; Siemens AG a German based global company], were examined over a period of 16 years (from 1995 to 2010) to understand the motivations behind performance disclosures on combating corporate bribery. The result shows that the changing disclosures on combating bribery are associated with the negative media attention and the movement of IGOs in combating corporate bribery in global businesses. In the context of the accounting literature, this is believed to be the first known study to document and understand the trends in antibribery related performance disclosures and the influence of external stakeholders on such practices. *Corresponding author School of Accounting, Economics and Finance, Deakin University, 221 Burwood Highway, Burwood, Victoria 3125, Australia: Ph: ; Fax:

2 1. Introduction There is growing international concern over the ethical practices of companies operating globally. Recent empirical evidence suggests that bribery has a major impact on developing countries in which resources and opportunities are limited compared with developed countries (Apke, 2001). Bribery in particular has broad social and economic implications that have the potential to bring great harm to society as evidenced in highly corrupt activities in countries in Central and Easter Europe, Asia and Africa (Buscaglia, 1996; Gray & Jarosz, 1995; EIRIS, 2005). Whilst Apke (2001) argues that corruption is a problem and has significant implications for for the developing world, the data in this study suggests that bribery is practiced by corporations domiciled in developed nations. It is generally accepted that corporations operating in developed nations will participate in bribery activity by offering inducements (financial or non-financial) to public officials to conduct business or gain an advantage (Sanyal, 2005), particularly when all other options to conduct business have been exhausted. In a society where bribery is accepted, a bribe can speed up work-in-progress or the issue of licenses, or it can be create a monopolistic market position (Shahabuddin, 2002; Argandona, 2007). Combating bribery as a core part of corporate ethical initiatives has become a major concern for national governments, international governmental organisations (IGOs), nongovernment organisations (NGOs), trade associations and business organisations (Sanyal, 2005). In recent years a number of international organisations and NGOs have focused on the need to combat bribery and corruption and on the underlying need to improve standards of corporate accountability, ethics, transparency and integrity (EIRIS, 2005). IGOs and NGOs are implementing initiatives to combat bribery directly by soliciting Multi-National Corporations (MNCs) to disclose adequate information in relation to corporate anti-bribery policies (including accounting policies) and to disclose how such policies are implemented (see for example: Organisation for Economic, Corporation & Development (OECD), 2009; Transparency International, 2009). Despite growing international concern on this issue and the proliferation of international guidelines on combating corporate bribery, there is limited research on how global MNCs incorporate 2

3 or adopt such guidelines, if at all, and how anti-bribery practices are disclosed. Furthermore, within accounting literature, whilst Parker (2005) calls for further research in social and environmental accounting, he also emphasises accountability in relation to corporate ethical practices. Hence, corporate bribery is believed to be a core part of ethical practices in business. Prior research on corporate bribery has focused on the economic, social and ethical impacts of such behaviour (see for example, Shahabuddin, 2002; Apke, 2001; Sung, 2005; George et al., 2000; Mauro, 1995; Hamra, 2000; Rose-Ackerman, 1999; Argandona, 2007; Sanyal, 2005). Despite growing interest on the social and ethical implications and related discourse on corporate bribery, there is a lack of research that examines how global corporations adopt measures to combat bribery and how such measures are disclosed through their external reporting mechanisms. In social accounting, research has considered various social and environmental issues (see for example: Deegan et al, 2002, Guthrie & Parker, 1989; Islam & Deegan, 2008; Deegan & Blomquist, 2006; Parker, 2005), however there has been little research on specific social issues such as corporate bribery. In social accounting, prior research has focused on both general (see Deegan et al, 2002, Guthrie & Parker, 1989; Islam & Deegan, 2008; Deegan & Blomquist, 2006) and specific social issues that includes: child labour (Islam and Deegan, 2010), climate change (Hague & Deegan, 2010), and human rights (Islam & McPhail, 2011), to understand how corporations respond to social issues through their disclosure strategies. This study seeks to add to the existing literature by focusing on corporate bribery and broadening the scope of emerging research in social accounting. This paper centres on the global corporate response to bribery and their anti-bribery and corruption policies and procedures, an area of research that has yet to be investigated within the context of social accounting research. Corporate bribery is a serious economic, social, political and moral blight, especially in emerging countries. It is a problem that affects companies, especially companies involved in international commerce, finance and technology transfer (Argandona 2001, 2007; Elliott, 1997; Jain, 1998; Rose-Ackerman, 1999). 3

4 This paper specifically focuses on two global telecommunication companies: Alcatel- Lucent, French based MNC; and Siemens AG, a German based MNC. The companies are among those of European origin that appear to be mostly affected from bribery related scandals within the past decade, resulting mostly from the rapid growth and expansion in the telecommunication industry [Experts in Responsible Investment Solution (EIRIS 2005). Unlike in the US which prohibits corporate bribery and deems bribery as a criminal offence, [Foreign Corrupt Practice Act (FCPA, 1977)], 1 European companies until recently have been regulated by a relatively soft and voluntary mechanism to combat corporate bribery to foreign officials for personal and corporate self interest. The evidence suggests (see for example, EIRIS, 2005) that European companies appeared to be more visible in terms of receiving bribe related allegations. A focus on the telecommunication sector is consistent with, Parker s (2005) call for research on industries beyond mining and chemical the areas that are the focus of research in social and environmental accounting. In relation to combating bribery, many IGOs and NGOs provide global companies with guidance on anti-bribery policies and procedures by issuing policies and guidelines. As such, this paper examines the extent to which the anti-bribery guidelines of IGOs and NGOs have influenced the MNCs corporate disclosure reporting on combating bribe. The global media similarly acts as an intermediary role in coordinating and communicating the global concern between the companies and stakeholder groups including the community and other international organisations. Therefore, it is in the public interest to understand the role of global news media in influencing corporate reporting practices in relation to bribery. In order to identify the corporations for examination, this study examined media articles relating to bribery incidents within the telecommunication industry over a period of the 16 years using the Dow-Jones FACTIVA database. Two global telecommunication companies, Alcatel-Lucent, and Seimen AG, were identified 1 The FCPA (1977) was the first national legislation designed to address the bribe in international business (Sanyal, 2005). 4

5 has having attracted significant media attention in relation to bribery activity. Additional data sources for this study included: annual reports and sustainability reports of both companies for the period 1995 to 2010 and archives of NGOs and IGOs working on anticorruption and anti-bribery. The data was then used to determine the influence of global organisations (NGOs and IGOs) and the media on corporate reporting practices on combating bribery by two MNCs in the telecommunication sector. The theoretical framework for this paper was derived from multiples theories that relied on a combination of legitimacy theory, responsive regulation theory and media agenda setting theory. The objective of this paper is to determine the influence of bribery related media scrutiny and the interventions of IGOs, on the extent of voluntary corporate disclosures by two global telecommunication companies on combating corporate bribery. The finding shows that media and IGOs have a direct and positive impact on the disclosures in relation to combating bribery. Whist disclosures increased with external pressures, the corporations in this study were reluctant to disclose negative information about the bribery incidents for which they were accused of. The findings suggest that the media and IGOs influence MNCs to maintain their legitimacy rather than create a substantive change in their (MNCs) accountability practices. The balance of this paper is structured as follows. The next section sets the environmental context in which this paper is based of by describing the two sample corporations (Alcatel-Lucent, and Siemens AG) that are analysed in this paper, the extent of corporate bribery within the Telecommunication Industry and the regulatory in which such companies operate. Section three provides the theoretical framework and literature review combining legitimacy theory, responsive regulation theory and media agenda setting theory. Section four explains the research method employed in this study. Section five provides the results of the study. The final section outlines the concluding remarks. 5

6 2. The Context of Corporate Bribery 2.1 Background to: Alcatel-Lucent and Siemens AG The first company selected for this study is Alcatel-Lucent. Alcatel was incorporated in France and is a leader in mobile communications, optics technology, communication solutions, and services more than 130 countries around the world including U.K., U.S.A. Australia, Canada, China, India, Russia, and Italy. Alcatel-Lucent has more than 27,900 active patents worldwide (http://www.alcatellucent.com/aboutus/companyoverview.html). In 2010, annual revenue was approximately 16 billion Euros derived from North America 36%, Europe 32%, Asia Pacific 18%, and rest of world 14% (Welcome- brief Alcatel-Lucent Overview, 2011). Alcatel-Lucent has been accused for allegedly bribing officials to secure contracts in several countries including Costa Rica, Honduras, Taiwan, Malaysia, Kenya and China. In 2004, the allegation of bribery in Costa Rica was one of the major bribery incidents in the company s history. The US district court pleaded guilty to violations of the FCPA by company officials including former president of Alcatel Latin America and sentenced to 30 months imprisonment; three years supervised release, the forfeiture of US $ 261,500, and a US $ 200,000 special assessment (Alcatel Annual Report, 2008, pp ). The second company selected for this study is Siemens AG. Siemens AG was incorporated in Germany. The company is listed in German, London, Swiss and New York stock exchanges and the company operates in more than 190 countries including US, UK, Australian, China, Swiss, France, Russia, Saudi Arabia, India. In 2010, the company had more than 405,000 employees and revenue amounted to 28 billion Euros. Green patents held by Siemens were 14,000 in 2010 (www.siemens.com). There is a significant number of ongoing investigations into allegations of public corruption and bribery involving the company, in countries around the world including Argentina, Austria, Bangladesh, China, Germany, Greece, Hungary, Indonesia, Israel, Italy, Malaysia, Nigeria, Norway, Poland, Russia, Switzerland, Vietnam and the U.S. (Siemens Annual report, 2008, pp ). According to the Munich district court s decision, 6

7 Siemens AG committed bribery of foreign public officials in Russia, Nigeria and Libya in 77 cases during the period from 2001 to 2004 for the purpose of obtaining contracts (Siemens Annual Report, 2008, p. 275). Siemens AG announced that it would accrue a provision in the amount of approximately 1 billion Euros in fiscal year 2008 in connection with ongoing discussions with the Munich public prosecutor, the SEC and DOJ for the purpose of resolving their respective investigations (Siemens Annual Report, 2008, pp ). 2.2 Corporate Bribery in the Telecommunication Sector The Telecommunication sector is one of most distressed industries with incidents of bribery (EIRIS, 2005). For example, the telecommunication sector in China is considered to be one of most corrupt sectors in the Chinese economy (http://www.china.org.cn/business). Similarly, in India the second most corrupt sector is telecommunications (based on survey carried by KPMG, 2011). The significance of telecommunications is explained in part by the high level of public procurement or public licensing which lends itself to bribery demands is from corrupt public officials or politicians (OECD, 2009). As a result of local community concern over bribery in the telecommunication sector, local government authorities seeks to control corporate behaviour in line with the guidelines of global organisations such as NGOs and IGOs. Such organisations provide anti-bribery policies and procedures for both local authorities and business groups. Local government authorities such as the Bangladesh Telecommunication and Regulation Commission (BTRC), monitors industry issues and investigates complaints against the industry (BTCR, 2002). The BTRC was reformed as a result of community concern over the bribery scandals in the Bangladesh telecommunication sector, such as the Siemens bribery scandal in 2008 (http://www.btrc.gov.bd). The Learning Initiatives on Reforms for Network Economies (LIRNEaisa) is a regional ICT policy regulation provider across the Asia Pacific. They take various actions to control the problem of bribery within the region such as the launch of the productivity program where the government, private sector and civil society representatives participate to support the development or enhancement of regional 7

8 countries telecommunication policies and regulation (http://lirneasia.net/projects/rapidresponse-program). The International Telecommunications Union (ITU) is a specialised agent of UN responsible for developing adequate and safe infrastructure in telecommunication and information networks and (http://www.itu.int/en/pages/default.aspx). According to the ITU, competition is a major reason of bribing in the international telecommunication sector. In 1990, only three countries worldwide (Japan, UK, & US) allowed competition in international telecommunications, but in 2005, this increased to more than 48 countries that have more than two or more players offering telecommunication services that expanded form developed to developing counties (ITU, 2008). With time, increasing competition led corporations to search for new markets in order to gain a competitive advantage. With low-cost developing countries creating opportunities for quick returns, it also created a high number of bribery scandals mostly occurring in the last two (ITU, 2008). As a result of global concern over bribery, regulating authorities teamed-up with IGOs to launch various activities to protect the telecommunication industry and individual businesses from bribery induced activities. IGOs invited corporations to implement and adopt IGOs guidelines and develop effective internal controls, ethics, and compliance programs or measures for preventing and detecting foreign bribery Regulatory Response to international Corporate Bribery The fight against global corruption by IGOs (Wang and Rosenau, 2001; Mccoy, 2001; Scott, 2003) and media scrutiny of such events have equally placed pressure on corporations to become increasingly socially accountable. IGOs have become actively involved in the fight against corruption by implementing and developing various anti- 8

9 bribery movements. 2 Such movements have also occurred on a regional basis. 3 In spite of the very impressive global anti-bribery movement the problem of corruption still exists. Table 1: Major IGOs in anti-bribery activities Organisation for Economic,Co-operation, & Development (OECD)- OECD Anti-Bribery Convention and the 1997 revised recommendation In 2000, Anti-Briber Convention recommendation on export credit and credit guarantee which state that government are obliged to take action to deter and sanction bribery of foreign public officials in international business supported by official export credit. The Stability Pact Anti-Corruption Initiative (SPAI) was launched in February 2000 at the call of the stability pact for South Easter Europe recommendation for further combating bribery of foreign public officials in international business transactions United Nations- Tenth Principle of the United Nations Global Compact launched on July 2000 In 2003, the General Assembly adopted the UN designated 9 December as International Anti-Corruption day UN Convention against Corruption entered into force on 14 December World Bank- adopted new Governance and Anti-Corruption strategy in March include seven principles guide to fight global corruption World Economic Forum- Partnering against Corruption Initiative (PACI) International Chamber of Commerce- ICC Rules of Conduct to Combat Extortion and Bribery in International Business Transactions (1996 edition) TRACE International Anti bribery compliance program and Anti-bribery risk assessments 2001 Transparency International (TI)- Introduced the Corruption Fighters Tool Kit - civil society experiences and emerging strategies in 2001 and later in 2002, and 2004 make some edition. TI Six steps implementation process to support the business principles for countering bribery in 2003, then 2009 edition with greater emphasis on public reporting of anti-bribery system and in recommending that external verification and assurance of their ( business) anti-bribery program. TI first launched Annual Corruption Perception Index (CPI) in 1995 but in 2010, TI introduced more advance CPI which measured the perceived level of public sector corruption in 178 countries around the world. Bribery Payers Index (BPI) was introduced in 1999 which evaluate the supply side of corruption Global Corruption Barometer (GCB) was launched on 9 December 2010 which is a survey that assesses general public attitudes toward, and experience of corruption in dozens of countries around the world. Partnership for Transparency Fund (PTF)- PTF s Citizens Against Corruption Program (CAC) 2 These include the OECD-country reports on the implementation of the OECD Anti-Bribery Convention and the 1997 revised recommendations, the UN declaration against Corruption and Bribery in International Commercial Transaction 1999, World Bank-Governance and Anti-Corruption 2007, World Economic Forum- Partnering against Corruption Forum 2010, International Chamber of Commerce- Anti-Corruption Commission, TRACE International Bribe Line, Transparency International, and Partnership for Transparency Fund (PTF). 3 For example, within the China and East Asia like Asia Development Bank, Asia Monitor, china.org.cn, China CSR, and within South Asia like Association of Southeast Asian Nations (ASEAN), South Asian Association for Regional Corporation (SAARC), Pacific Island Forum Secretariats, and TI-Asia and the pacific and within the Middle East and Central Asia like corporation council for the Arab Stated of the Gulf (Gulf Cooperation council), Asian Co-Operation Dialogue (ACD), New Eurasia, Central Asian Union and within Russia, like Moscow Launches Major Anti-Corruption Drive, within Africa like The Africa Governance Monitoring and Advocacy Project (AfriMAP), The New Partnership for Africa s Development (NEPAD) and the World Bank - Africa (OECD,2009). 9

10 As Pacini et al. (2002, p.401) argue, no one expects that any set of rules will totally eliminate efforts to seek or accept bribes, this would require a fundamental change in human nature, however there is an expectation that a uniform set of rules could significantly curtail corrupt behaviours, as long as those rules are both enforceable and enforced. Various international and regional organisations (IGOs), regulatory authorities and groups that are actively involved in implementing and developing various antibribery movements are documented in Table 1. IGOs are the active actors and guideline providers for corporations to adopt anti-bribery policies and practices. The broader roles of these organisations are to protect public interest by exerting pressure upon corporations to be ethically accountable. There are a number of IGOs that have as there agenda to fight corporate corruption. One of the largest IGOs to fight corruption and bribery in corporate and public area is Transparency International (TI). TI is a non-profit organisation formed in 1993 by former World Bank officials with vision of the supporting global community by curbing global corruption and bribery. As TI mention (TI, 2009): Transparency International is the global civil society organisation leading the fight against corruption. Through more than 90 chapters worldwide and an international secretariat in Berlin, Germany, TI raises awareness of the damaging effects of corruption and works with partners in government, business and civil society to develop and implement effective measures to tackle it (p.17). TI publishes annually a Corruption Perception Index (CPI) and a Bribe Payers Index (BPI). These indices are based on surveys and impound a number of factors. A key factor in the CPI is the extent to which bribes are accepted by public officials. According to the most recent TI survey the most corrupt countries are: Somalia, Haiti, Iraq, Myanmar, Afghanistan, Zimbabwe, Sudan, New Guinea and Bangladesh (TI, 2009). Along with TI, the OECD is the leading global IGO who has taken various steps to control this issue for the benefit of the global society. As OECD mention: The OECD Anti-Bribery Convention establishes legally binding standards to criminalise bribery of foreign public officials in international business transactions and provides for a 10

11 host of related measures that make this effective. It is the first and only international anticorruption instrument focused on the supply side of the bribery transaction. The 34 OECD member countries and four non-member countries - Argentina, Brazil, Bulgaria, and South Africa - have adopted this Convention (OECD, 2011, home page). A total of 38 countries have agreed to put in place measures to prevent, detect and investigate foreign bribery with the adoption of the OECD recommendations against corruption (OECD, 2011). Organisations have put in place a monitoring mechanism to ensure the thorough implementation of the international obligations that countries have taken on under the convention (OECD, 2011). Since the late 1990s, the OECD s movement has played an important role since the signatory countries accounted for over 70 per cent of the world s exports and over 90 per cent of foreign investment (Aronoff, 1998). The OECD has adopted various forms of legal and ethical instruments in order to fight global bribery and corruption such as the 1998 recommendation on improving ethical conduct in the public service, the 2003 recommendation for managing conflict of interest in the public service, the 2006 recommendation on bribery and export credit and the 2008 recommendation on enhancing integrity in public procurement. In 2009, OECD recommendation on tax measures to further combat the bribing of foreign public officials in international business transactions was a key strategy introduced in order to fight global bribery with many countries amending tax law to disallow deductions for bribes. Additionally domestic laws have been amended to set up better enforcement of existing law and regulation prohibiting domestic bribery of domestic officials (Apke, 2001).In 2010, the OECD council approved Principles for Transparency and integrity in Lobbying. This is first international policy instrument to provide guidance for policymakers on how to promote good governance principles in lobbying (OECD, 2011, home page). 11

12 Another group of actors that are active to create change in corporate accountabilities is the media. The media plays a significant role in changing public perceptions and corporate behaviour in relation to corruption and bribery (Stapenhurst, 2000; Heimann, 1997; Burnham, 1977). A free and open press can reinforce the demand public accountability against corruption and bribery and as such the media provides a form of protection (Heimann, 1997). The media not only raises public awareness about corruption and bribery but also investigates and reports incidents of bribery aiding other investigative agencies. As Stapenhurst (2000) mention: The media can act as a force against corruption in ways that are both tangible and intangible. The tangible, readily identifiable, ways in which the news media perform this function include those in which some sort of visible outcome can be attributed to a particular news story or series of stories for instance, launching of investigation by authorities, the scrapping of a law or policy that fosters a climate ripe with opportunities for corruption, the impeachment or forced resignation of a crooked politician, the firing of an official, the launching of judicial proceedings, the issuing of public recommendations by watch dog body, and so on. Intangible effects, by contrast, can be characterised as those checks on corruption which arise from broader social climate of enhanced political pluralism, enlivened public debate and a heightened sense of accountability among politicians, public bodies and institutions that are inevitably the by-product of a hardhitting, independent news media (p.3) Reporting, for example, may prompt public bodies to launch formal investigation into allegation of corruptions (p.4). Organisations appear to become responsive to the bribe related allegations when they find such allegations are sensitive to the wider community. Some managers, eager to become pre-emptively responsive to media attention, react to such pressures to protect public image of themselves and their organisations. As Stapenhurst, (2000, p. 4) mention: And even before anything has been published, mere inquiries by reporters (journalists) about apparent wrongdoing (bribery) can elicit pre-emptive responses by authorities eager to protect public image of their institutions before any allegations have been aired. 12

13 3. Theoretical Framework The influence of media and IGOs over the anti-bribery and accountability and disclosures practices of corporations can be underpinned by a joint consideration of legitimacy theory, media agenda setting theory and responsive regulation theory. An overview of these theories are provided next. 3.1 Legitimacy theory Legitimacy theory is useful for understanding and providing insight into the motivation for social disclosures such as disclosures on combating corporate bribery. Legitimacy posits that the value system of organisations is congruent with the value system of the society in which organisation operates (Lindblom, 1994). In other words, the theory provides an insight that an organisation conforms to the expectations of the community in which it operates. Legitimacy theory suggests that organisations are constrained to act in strict compliance within the terms of their social contract (Deegan et al., 2002). The social contract in turn represents the multitude of explicit and implicit expectations that society expects from organisation in the way they conduct their operations (Donaldson, 1982; Deegan & Blomquist, 2006). Societal expectations on business operations are not constant and change occurs when corporate executives feel they need to respond to changing community expectations in order to maintain their legitimacy (Deegan & Blomquist, 2006; Islam & Deegan, 2008). Corporate executives become responsive to the community expectations via different types of strategies including disclosures related strategy (Deegan et al., 2002). Prior accounting research confirms that organisations respond to the community expectations by disclosing social and environmental information within their reporting media such as annual reports ( Deegan & Blomquist, 2006; Islam & Deegan, 2010; O Donovan, 2002). Consistent with legitimacy theory, public statements of many corporations appear to conform to the expectations of the community. In the values statement within Siemens 2010 Annual Report, appears to be congruent with the value systems of the larger community. As Siemens mentions: 13

14 We're committed to acting responsibly in everything we do. For our customers, we're a reliable partner. For the societies in which we do business, we're a good corporate citizen. For our employees, we're an attractive, long-term employer. And for our shareholders, we generate sustainable growth in our company's value. Not only do we act in accordance with the highest professional and ethical standards; we also demand that our business partners, suppliers and other stakeholders meet these standards as well (Annual Report, 2010 p.7). Similar statements can also be found from Alcatel-Lucent, the CEO CEO mentioned: Corporate Responsibility is our business imperative. It defines our organization. It is based on respect for our fellow citizens and the value we bring to those communities where we operate (Corporate social Responsibility report, 2010, p. 04). Growing research in social disclosures includes among other things, disclosures relating to the interaction between an organisation and its physical and social environment. In a US study, Patten (1992) utilised a legitimacy theory framework to evaluate the effect of the Exxon Valdez oil spill on the annual report disclosure practice on North American petroleum firms. This study reported a significant increase in corporate disclosure in relation to environmental issues. The result was therefore consistent with legitimacy theory as it showed an increase in the corporate disclosure of positive information in the wake of a legitimacy crisis. In an Australian study, Deegan & Rankin (1996) examined the social and environmental disclosure made by firms prosecuted by the New South Wales and Victorian Environmental Protection Authority for breaching various environmental protection laws during the 1990 and The findings confirm previous studies in that, in the absence of disclosure regulations pertaining to environmental issues, Australian companies only provide environmental information which is favourable to their corporate image. Recent research on legitimacy theory confirms that managers disclose social and environmental information in order to maintain legitimacy in the society in their organisations operate (Deegan & Blomquist, 2006; Deegan & Islam, 2009 ). Consistent with prior research, we would expect if organisations fall into a legitimacy crisis via the incidents of bribery and corruption (which is sensitive to stakeholder groups), organisations will take corrective actions including disclosures on performance information in relation to combating bribery. For example, in the Siemens sustainability report states that 14

15 Our compliance program based on the two pillars prevents, detect and respond. This system is the basis of all measures against corruption in the company. In fiscal 2008, we extended our compliance organisation, raised our employee s awareness of the risks of corruption and established control system which enable weak point to be detected and eliminated to regain the trust of our stakeholder (Siemens Sustainability Report 2008, p.170). Such disclosures provide some evidence of a commitment to fighting bribery and corruption in order to maintain or regain the trust of their stakeholders. In applying legitimacy theory, the expectation in this study is that companies within the telecommunication sector will increase their corporate disclosure in regard to the antibribery practices in order to maintain or regain their legitimacy. 3.2 Media agenda setting theory Media agenda theory is the second theory this study relies upon. While legitimacy theory posits that organisations respond to community expectations, media agenda setting theory explains how the media shapes community expectations. Media agenda setting theory grounded in journalism and mass communication literature posits that the media shapes public awareness and public concern for particular issues (McCombs & Shaw, 1972). Ader (1995) investigates pollution-related issues and found that the media agenda and the public agenda were positively related to the extent that a change in media emphasis on a particular issue, led to a similar change in the public agenda. When the media has an influence on community concerns for an issue concerning particular corporations, it also has an influence on corporate communications (Carroll & McCombs, 2003; Deephouse, 2000). Prior research shows that the media plays a key role in shaping community concerns and influencing community expectations (O Donovan, 2002; Brown & Deegan, 1998; Islam & Deegan, 2010; Deegan et al., 2000). Islam & Deegan (2010) examined the media pressure and corporate disclosure on social responsibility performance based on two global clothing and sports retail companies operating in low-cost developing country. The findings suggest that media attention influenced the community s concern, and in response to such concerns, corporations increased their disclosures on social 15

16 responsibility performance against poor labour practises in order to maintain their legitimacy. This study relies on a combination of legitimacy theory and media-agenda setting theory to understand corporate disclosures in relation to combating bribe. Based on these theories, increasing attention by the media on corporate bribery and corruption, given its sensitive nature to stakeholder concerns and its perceived legitimacy threats, the corporations involved is expected to respond by disclosing information in relation to combating bribery. 3.3 Responsive regulation theory This paper also relies upon responsive regulation theory to understand how and whether regulatory inventions by IGOs change the anti-bribery reporting behaviour of the multinational companies. Responsive regulation posits that the regulatory environment become responsive to perceived deficits in accountability (Ayres and Braithwaite, 1992; Braithwaite, 2002a, 2000b, 2006). Responsiveness is demonstrated as a democratic ideal in which each participant holds each other to account. In an environment where the state escalates regulation due to a perceived deficit in corporate accountability, corporations become responsive to these regulatory escalations (Braithwaite 2006). According to Braithwaite (2006), in a responsive environment, empowered civic engagement (engagement of IGOs, NGOs, media, consumers and community) check abuse of power in business self and state regulatory processes. Responsive regulation theory posits that the deficits in accountability and lack of responsiveness are resolved through new strategies of networked governance. This theory therefore assumes that abuses of power, corporate bribery or corruptions is best tackled via a plurality of disparate powers in a network of governance where IGOs have strong networks with NGOs and media to discipline the corporations involved. The vigilant visibility and actions of IGOs and their strategic collaborations with NGOs and the media as a significant part of global regulatory environment are positioned to form a 16

17 networked governance to eliminate corruptions and bribery. This network governance creates a sense of regulatory mechanism that disciplines MNCs socially and ethically. The insight provided within responsive regulation theory is that if you [regulated actors] keep breaking the law, it is going to be cheap for us [regulators] to hurt you because you are going to help us hurt you (Ayres & Braithwaite, 1992; Braithwaite, 2006, p.888). Therefore, regulatory intervention escalates if the regulated actor is not a responsible citizen. The regulatory intervention is not only directed at individual regulated corporations but is also applied to entire industry (Baldwin & Black, 2007). While a wide range of actors including states, industry associations, trade unions, professional bodies, IGOs may become regulators, the role of NGOs and IGOs as regulators becomes fundamentally important (Braithwaite, 2006). The ability IGOs to escalate strikes and networked naming and shaming via their network governance, drives the company down to the restorative justice (Braithwaite, 2006, p.893). In recent times, there have been various enforcement, commitment and anti-bribery actions to control and minimise bribery related activities and protect international businesses as well as stakeholders in host countries. These include regulatory changes such as the US Foreign Corrupt Practice Act (FCPA) 1977, UK anti-bribery and corruption act 2010, and network governance systems taken by NGOs IGOs such as United National Convention against Corruption, OECD Convention against bribe and corruption over the past decade. Based on responsive regulation theory, it appears that IGOs networked enforcement with investigative journalists create regulatory pressures and generate demand for greater accountability by multinational corporations in relation to corporate bribery. Multinational corporations are arguably responsive to the network of enforcement system when fighting bribery. This notion appears to be consistent with legitimacy theory except that responsive regulation provides an additional mechanism such as regulation and networked governance (networking between stakeholders IGOs, NGOs and Media) to create a pressures on corporations to be responsive and to maintain legitimacy. While legitimacy theory essentially argues that increased disclosure is a 17

18 response to crisis, the correlating argument to legitimacy, based on responsive regulation we would also argue that increased disclosure prevents (or attempts) to prevent further regulatory intervention. Embracing responsive regulation theory, this study seeks to investigate how two telecommunications corporations respond to anti-bribery movements and regulatory escalations. Following the discussion above, the expectation in this study is that the media and IGOs and its networked governance will influence community concerns on bribery related issues as well as increase community expectations to be informed of the company s response to bribery issues. Broader stakeholder concerns have raised expectations of corporations so that they not only take corrective measure to combat bribery but also disclose these measures in order to survive in the countries in which they operate. The implication of policies and procedures on anti-bribery programs within a company and the related disclosure patterns as well as volume is expected to change with the advent of a legitimacy crisis as evidenced by increasing media attention and regulatory enforcement or escalations of IGOs. Based on the discussion above, the following questions are addressed in this paper: 1. What is the nature and extent of disclosures on combating bribe by two telecommunication companies under investigation and whether the extent of disclosures by these companies has changed over time? 2. How do bribery scandals or accusations alter the reporting behaviour of telecommunication companies under investigation who are directly involved in bribery over time? 3. Whether media and IGOs have an influence on the disclosure practices in relation combating bribe by the companies under examination. 18

19 4. Research Method Two global telecommunication companies, Alcatel-Lucent and Siemens AG, were selected among a group of high profile European companies that were highly connected to incidents of bribery. The companies selected were directly or indirectly involved in a bribery incident as well as admitting guilt in a court or a commission. As discussed above, both companies are leading global telecommunication giants, operating in more than 100 countries and showing rapid expansion and growth in recent years. This study primarily relies on content analysis of published data to investigate the research questions. Corporations rely on a variety of media vehicles to disclose information to the public such as annual reports, special purpose social and environmental reports, and other forms of corporate communication such as web-based and media-based disclosures. This study reviewed annual reports and sustainability reports, which were regularly produced throughout the sample period from 1995 to As prior literature suggests, social disclosure content in annual reports is limited, therefore this study also relies on disclosures in sustainability reports in order capture maximum content of disclosures (Unerman, 1999). This study analyses company annual reports and sustainability reports for each company over the sixteen years period. that were primarily obtained from the company s website. Some reports were collected from the OSIRIS database. This study also relies on news media attention towards companies bribe related incidents within the telecommunication industry. The media news in relation to bribery incidents was collected from the Dow Jones FACTIVA during the sample period (January 1995 to December 2010). This study used key words such as bribery, corruption, court case bribe, foreign official developing country, prosecution, in order to filter the number of media articles for each company in each year from 1995 to

20 Bribery in this study is defined as an inducement (financial or non-financial) to public officials or others with the purpose of obtaining some financial advantage that may include money, property, or rights (Sanyal, 2005). In a society where bribery is regularly practiced, a bribe can facilitate more speedily bureaucratic processes such as the issue of licenses, or it can create a monopolistic market position (Shahabuddin, 2002; Argandona, 2007). Keeping the meaning of bribery in mind, globally, there are various IGOs including OECD, UN, TI, WB that are actively involved in implementing and developing various anti-bribery movements and guidelines (see Table 1). These IGOs anti-bribery guidelines were considered as an integral part of this research. This research developed an anti-bribery disclosure categorization scheme or index to allow the researchers to classify and measure corporate disclosure practices. In undertaking the development of an index, reference was made to a number of documents and guidelines released by various IGOs (see Appendix 1). This study relies on this index to collect data on corporate disclosures in relation to combating bribe. The index developed from various guidelines were categorised according to five general themes with a total of 44 sub categorizations. The general themes include: (1) Accounting for combating bribe; (2) Board and Senior Management Responsibility; (3) Building Human Resource to Combat Bribe; (4) Responsible Business Relation; and (5) External Verification and Assurance. This study relies on this categorisation scheme to collate and analyse data extracted from annual reports and stand-alone sustainability reports on combating bribery. Prior social accounting literature has employed a variety of approaches to measure corporate disclosures including the number of disclosures, amount/extent of disclosure or combination of both (Deegan & Rankin, 1996; Islam & Deegan, 2008; Haque & Deegan, 2009). In order to measure the amount of disclosures, prior literature relied on the number of sentences, the number of words, or the number of page. This study employed the amount of disclosures technique in capturing the extent of corporate disclosures. In measuring amount of disclosure, this study relied on a count of the number of sentences. Nonparametric statistical tests were also used to support our research findings where appropriate. 20

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