State-Owned Enterprises Operate as the Hungarian State Does: Often Non-Transparently

Transparency International Hungary (TI) looked at 66 state-owned enterprises in terms of their compliance with the law. Only a few of them performed well: on the scale of 1 to 100, merely two companies scored more than 90 points. The average score was 46 points, and no company achieved the maximum possible score. There is not a single state-owned enterprise in Hungary that discloses all of the data that is prescribed by law. Companies usually do not disclose on their website their annual budget plans or important laws relevant to their operations, while organizational charts are also missing from their home pages. These companies operating from public funds are not very transparent and difficult to hold accountable. This is problematic not only from the viewpoint of informing the public, but also because it is more difficult for the government to keep track of the operations of its own companies and thus more difficult for it to make the right decisions, it was said at an event held in Budapest by TI.

For the first time in Hungary, a comprehensive study has been conducted of state-owned enterprises, with TI thus establishing a tradition. Over the following years, the organization will repeatedly survey these companies, using the same methodology. Next year the public will already be able to see the position each company holds on the list, as well as how their results have changed compared to this year. Based on the objective methodology, their development or worsening performance will be clearly visible.

Polarized field

The scoring system used by TI took into consideration various factors. In addition to the general transparency of companies, the study also examined the integrity of corporate governance as well as the adaptation and adaptability of organizational solutions for promoting integrity. They used the information that was available – or not available – on the websites of the companies. Furthermore, structured interviews were conducted with the key executives of 7 state-owned enterprises, in which they were asked about the prevalence of transparency as a value, organizational and regulatory solutions promoting integrity, as well as how these operate or whether they are missing at the company.

State-owned enterprises differ greatly in terms of how transparent they are and to what extent they implement integrity systems, such as a code of ethics, an ethical hotline, a compliance department, etc. Companies dealing with financial services or transport are more transparent than agricultural or public service companies.

“The relative monopoly of state-owned enterprises will decrease further, and they will increasingly face competition on their traditional markets. Citizens also have an increasing need to see how and from what funds state-owned enterprises operate. This will inevitably increase the need for better and more comprehensive disclosure,” Elemér Terták, principal adviser at the European Commission’s Directorate-General on Internal Market and Services, said in his opening address of the conference.

Formal action, the use of traditional tools

The experiences of organizing the interviews for the TI study, primarily the high rate of rejection encountered, indicate that the chief executives of state-owned enterprises are extremely prone to declining such approaches, and are not very open to commenting on this topic. But even among cooperating companies, the institutions and tools promoting corporate integrity and transparency can be found at only a few places — it is mostly state-owned enterprises where management is decidedly progressive where this is the case. The most widespread tools used are procurement rules and regulations and confidentiality agreements, while the tools that are most rarely used are ethical hotlines and having a dedicated compliance department.

Roland Nátrán, the CEO of EXIM, commented: “The objective of the compliance program that encompasses the complete organization of EXIM is for the company to carry out its strategic tasks through prudent and transparent operations and thus contribute to the further successes of Hungarian exporters.”

One of the important lessons of the study is that a lot depends on the attitude of a company’s chief executive. The majority of executives define ownership and political expectations as that establishing integrity and transparency is limited to compliance with existing laws; beyond this, they do not concern themselves with questions of transparency. Modern regulatory tools for promoting integrity are absent, and the majority is unfamiliar with the advantages of these tools and the positive effect they have on a company’s efficiency.

TI Hungary believes that the foundation of the fight against corruption is transparency and accountability, in the public as well as the private sector. In accordance with international norms, adequate guarantees are needed to protect against market-distorting behavior, unfair competition and conflicts of interest. It is important for the state’s regulatory, control and ownership roles to be fully separated. State-owned enterprises should be able to be held accountable to all stakeholders, including taxpayers, so that they can monitor how their tax forints are being used.

Compliance with laws should be a minimum requirement for companies. Information relevant to operations, corporate governance and ethical business practices should be disclosed on the corporate website in a unified, clear and easily searchable form. Compliance with transparency requirements should be monitored by control and oversight bodies, and deficiencies should be penalized.

“Most Hungarian state-owned enterprises first have to be made to realize the problems that can be caused by the lack of transparency and integrity. This should be followed by compliance with the law, and subsequently a shift in attitudes. Transparency as a value should permeate every element of a company’s operations. This requires the active commitment of the chief executive,” said József Péter Martin, the executive director of Transparency International Hungary, summarizing the lessons of the study. In order to improve transparency, TI Hungary recommends that the companies surveyed should achieve an improvement of at least 20 percent in their transparency measures over the next two years, thus demonstrating their commitment to transparency.

The full report, the detailed methodology, as well as the presentation on the study titled “Hungarian state-owned enterprises: Their transparency, integrity and compliance with disclosure requirements” can be found here.

The research was conducted by the associates of the Corruption Research Center Budapest, based on a commission from TI Hungary.

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Annex

We have examined the information found on the websites of the 66 state owned companies based on 4 indices. These are:

TTI – Compliance with Law Index: shows the extent to which the given company complies with mandatory legal requirements for state-owned enterprises, based on the information and data available on its website
KII – Hard Information Index: goes beyond information disclosure that is required and stipulated by law, and includes variables that are numerical and/or provide measurable data
EII – Economic Indicators Index: shows the financial, economic and numerical data of the company
AII – Access to Information Index: the indicator for general access to information

Looking at the four indices for 2013, we can see that in neither case was the group of companies that showed the best performance the largest group. The company group showing moderate performance was the largest group in one case (32 out of 66 companies). In the case of two indices, the group of companies showing “poor” performance was the biggest group (31 and 35 out of 66 companies), while in the case of one index, the company group showing the worst performance turned out to be the largest (33) out of 66 companies). In the case of two indices, our survey showed 7 and 10 companies scoring 0 points.

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