The Carillion scandal shows it’s time to end the stitch-up of ‘commercial sensitivity’

To spot disasters before they occur, we need to reform our laws on corporate confidentiality.

Confidentiality has become a fig leaf for covering up regulatory failure and anti-social practices – and on Tuesday we saw the latest example of that.

At a Parliamentary hearing on the collapse of Carillion, chief executive of the Financial Reporting Council (FRC) Stephen Haddrill claimed that FRC had been monitoring some aspects of Carillion since July 2017 – but would not reveal anything because of ‘confidentiality requirements’.

Of course, if the FRC was fully monitoring the situation, it should have started an investigation of KPMG audits weeks ago. But it did not – instead they announced investigation just 24 hours before grilling by Parliamentary committees.

Previously, the House of Commons Public Accounts Committee (PAC) conducted inquiries into the crafting of tax avoidance schemes by big accountancy firms and multinational corporations such as Google, Starbucks – and received less than full cooperation because the information was somehow confidential.

We know that HMRC entered into sweetheart tax deals with Google, Vodafone, Goldman Sachs and others which arguably shaved the tax bill of companies. The same deals were not available to others. Yet HMRC and companies avoided scrutiny by the PAC by sheltering behind claims of confidentiality.

In that case, PAC noted:

“It is absurd that we have been forced to rely on information in the media to find out about cases that raise concerns, and of course we only know about cases on which information has been published in the media…

“This approach fails to give proper regard to HMRC’s duty to assist the Public Accounts Committee in examining whether or not the Department is giving best value for money.

“There is less justification for keeping tax information about large corporations confidential than information about individuals.”

Of course, this is nothing new. Governments have long sheltered behind secrecy and confidentiality to shield ministers, civil servants and wrongdoers.

A classic example is the fraud infested Bank of Credit and Commerce International BCCI) which was forcibly closed in 1991, but which is still awaiting an independent investigation. Millions of people suffered financial losses.

A document secured in 2011, after a five and half year legal battle, showed that the government went to extraordinary lengths to conceal the names of wrongdoers. The UK’s freedom of information law grants public bodies twenty-three public interest exemptions – including ‘commercial sensitivity’.

The corporate world is wedded to secrecy – but what about the people’s right to know?

Employees are routinely gagged and prevented from the telling the world anything about anti-social practices even after they have left the company. This is where confidentiality and human rights begin to clash.

And companies say that secrecy is necessary to protect trade secrets and sensitive processes. But the same processes affect the contents and quality of food, water, air, medicine, the safety of our pensions, our savings and much more. Are we not entitled to know what is being forced into our bodies, or of major corporate decisions which affect our chances of life and death, or can erode our financial security?

Some corporate products do inflict premature death and disease. Cigarettes and asbestos are good example of such products, but for years companies hid details of the products. Union Carbide carefully guarded the secrets of its manufacturing processes.

But in 1984 a leak from its pesticide plant in Bhopal (India) exposed 600,000 people to a deadly gas cloud. Some 15,000 people may have died decades later the survivors have given birth to physically and mentally disabled children. It is possible that internal warnings beforehand would have been protected under ‘commercial confidentiality’.

In pursuit of competitive advantage, companies want to keep contracts and pricing details secret, but the same might be ripping off people. A good example is the overpricing of drugs supplied to the National Health Service (NHS). In one case a company overcharged the NHS by £100m for thyroid drugs, with the price per pack rising from £4.46 to £258 in 10 years.

Wherever we turn, the blanket of secrecy and confidentiality provides escape from public accountability. It provides cover for rip-off practices, obstructs Parliamentary inquiries and inflicts diseases and premature death. We know so little about what goes on inside corporations even though their practices affect us from cradle to grave.

The light of a ‘right to know’ is the biggest antidote to dark practices. The solution? The shield of secrecy and confidentiality for corporations, governments and regulators needs to be rolled-back.

It is time for a general presumption of openness privileging the public’s right to know when it comes to major corporations and major bodies.

Rather than having a presumption of secrecy, corporations, governments and regulators should be required to demonstrate why something needs to be secret. Who knows how many scandals and crises it could prevent before disaster strikes.

Prem Sikka is Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex. He tweets here.

See also: The role of accountancy firms in Carillion’s collapse is bigger than we thought

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