Why the Extractive Industry Should Support Mandatory Transparency: A Shared Value Approach

• Author: Julien Topal,Perrine Toledano
• DOI: http://doi.org/10.1111/basr.12011
• Date: 01 September 2013
• Published date: 01 September 2013

Why the Extractive Industry

Should Support Mandatory

Transparency:1A Shared

Value Approach

JULIEN TOPAL AND PERRINE TOLEDANO

ABSTRACT

The Transparency Amendment, included in the Dodd-

Frank Wall Street Reform and Consumer Protection Act,

can be an important tool in curtailing the resource curse

that so heavily burdens resource-rich developing coun-

tries by shedding light on opaque payments between the

extractive sector and host countries. From the get-go,

however, extractive industry companies have fiercely

opposed the new mandatory disclosure requirements as

set out in this regulation. The corporate opposition is for

the largest part motivated by the fear of a competitive

disadvantage that derives from the fact that the amend-

ment is housed with the Securities and Exchange Com-

mission (SEC) and thus only holds jurisdiction over

those that report to the SEC. Although on the one hand

watering down these corporate fears, this article draws

on the “shared value approach” and empirical evidence

Julien Topal is PhD-Researcher at the Department of Political & Social Sciences, European

University Institute (EUI), San Domenico di Fiesole, Italy and research associate at the Vale

Columbia Center on Sustainable International Investment, New York, USA. E-mail:

Julien.topal@eui.eu. Perrine Toledano is a Senior Economics and Policy Researcher at the Vale

Columbia Center on Sustainable International Investment, New York, USA, email: ptoled@

law.columbia.edu.

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Business and Society Review 118:3 271–298

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to argue that there is a business case for transparency.

This refreshing take on transparency regulation invites

corporate leaders to reassess their current oppositional

stance and to embrace new initiatives like the Transpar-

ency Amendment and to take a proactive stance in

building a convincing global regulatory system of

transparency.

“Publicity is the very soul of justice. It is the keenest spur to

exertion, and the surest of all guards against improbity.”2

INTRODUCTION

The Arab Spring forcefully made clear that citizen demands

for transparency and accountability are on the rise in our

ever more globalized world. No less so regarding the extrac-

tion of valuable natural resources in especially developing coun-

tries. Transparency demands in the extractive industries are tied

to the paradoxical correlation between large resource endowments

and endemic poverty as well as low growth in resource dependent

countries. As corruption has been observed to play a critical role

in this phenomenon generally termed the resource curse, two

international instruments were set in place to undo this curse:

antibribery law and regulation (such as the US Foreign Corrupt

Practices Act [FCPA])3and transparency-based approaches (such

as the Extractive Industry Transparency Initiative [EITI]). These

instruments have had successes but leave room for improvement

for they are either too limited in scope (antibribery instruments)

or leave too much leeway in their rule-setting (EITI). Pressured by

civil society, these have moved stock exchanges (in London and

Hong Kong), the US Senate, and the European Commission (EC)

to initiate laws and disclosure demands that utilize corporate

transparency as a means to improve on corruption and gover-

nance most explicitly in developing countries. These initiatives,

especially in the United States and of the EC, have been con-

fronted with strong corporate opposition.

In this article, we will draw on the US case to exemplify this

opposition. The Cardin-Lugar Transparency Amendment, Section

272 BUSINESS AND SOCIETY REVIEW