European Companies Keep Business Opaque

Financial News, October 20, 2002 | Go to article overview
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European Companies Keep Business Opaque

Byline: Kit Bingham

Continental European companies are less transparent than their US, UK and Japanese rivals, according to a comparative analysis of 1,500 companies by Standard & Poor's, the rating agency.While European groups' financial disclosure matched their international peers, they were much less open about how they were structured and run.

George Dallas, managing director of S&P's governance services, says: "Continental Europe is somewhat behind, mainly in non-financial areas such as ownership structure, investor rights and board processes."

S&P's transparency and disclosure rankings, published last week, place UK companies in the lead. American company annual reports scored poorly for quality and quantity of disclosure. Leo O'Neil, president of S&P, says: "By looking at annual report disclosure alone, we found US companies don't provide an abundance of information."

When regulatory filings such as proxy statements and 10Ks were taken into account however, US groups emerged as among the most transparent in the world.

Latin American companies and those from Asian emerging markets offer the least information.

S&P's analysis identifies nearly 100 disclosure items, including financial and non-financial information. Companies are ranked according to whether they provide information on each of these points.

For example, the analysis asks whether the annual report contains a description of share classes, a review of shareholders by type and a description of voting rights. It seeks information on a company's accounting policy as well as disclosure on directors, board committees and executive pay.

"We think transparency is something that can be measured objectively," says Dallas.

Mark Hynes, director of PR Newswire, a business news dissemination service, says S&P's study is overly optimistic about the quality of European financial reporting. "European financial disclosure is a mess. Investors are saying they don't get enough information and they don't get it fast enough," he says.

Analysing whether particular disclosure items are found in annual reports does not paint an accurate picture of a company's transparency, says Hynes.

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