Corporate scandals have hurt public confidence: TI

Corporate scandals have hurt public confidence: TI

Agence France-Presse, Berlin

Public confidence in big business has been damaged by scandals like those at Enron and WorldCom and new codes of conduct are needed to restore faith, international corruption watchdog Transparency International (TI) said on Wednesday.

Announcing the launch of TI's Global Corruption 2003 report, chairman Peter Eigen said the scandals had "jolted shareholders and pension fund managers into reality."

"The public no longer has any confidence that a given corporation's books show a true and fair statement of its finances," Eigen said, adding that "the implications for the efficient operation of capital markets are far-reaching."

The chief of the global corruption watchdog said that to restore trust, companies would have to re-write the conduct rulebook and that governments would have to ensure that those found guilty of irregularities were punished.

"Companies must establish codes of conduct, including detailed rules designed to combat bribery at home or by their subsidiaries abroad," he said.

"Bribery will be stopped only when companies know that bribe- payers will incur fines and blacklisting, and executives will be put behind bars."

The report also said that public confidence in politicians had been shaken, with trust in political parties lower than in any other public institution.

"Restoring trust in public and private institutions must involve access to information to promote transparency, perhaps the most important weapon against corruption," Eigen wrote in the report's introduction.

"Only by insisting on both access to information and greater transparency in every sphere... can civil society, business and government hope to forestall and expose corruption, and ensure that the corrupt will run out of places to hide."

In a contribution to the report, former French investigating magistrate Eva Joly called for justice budgets to be boosted. She noted that public expenditure on such line items in countries like France, Germany and Spain amounted to only 1 or 2 percent.

"In the current international climate, it is appropriate to reconsider this allocation of resources since, without a functional and well-endowed justice system, no major investigation can be successful," Joly said.

Enron filed for bankruptcy in December 2001 after its use of a series of off-the-books partnerships to hide debt and inflate profits came to the attention of regulators, forcing it to re- state its financial accounts.

"The Enron scandal sent shock waves through the global corporate sector and severely damaged public trust in the integrity of business," Eigen wrote.

"Enron and the scandals that followed heightened the perception of collusion between auditors, tax advisers, lawyers and bankers and their corporate clients to massage accounts for the short-term benefit of managers -- in defiance of the trust placed in them by shareholders, employees and the public at large."

WorldCom's application for bankruptcy protection on July 22 was the largest in U.S. corporate history, and came after the group, with 60,000 employees, restated $7.68 billion in questionable accounting figures.

WorldCom has said it aims to emerge from bankruptcy by mid- year.

At the report's presentation Wednesday, Eigen also called on banks to help send assets back to countries where they were stolen by former dictators and squirreled away abroad.

"The banks in Liechtenstein, London, New York and Zurich must work with democratic governments to ensure that these funds are returned to the citizens who were robbed under past regimes," he said.