Consultant to Launch Study on Effect of Cultural Corruption

PricewaterhouseCoopers LLP this week announced the launch of its "Transparency Project," an international study of the impact of corruption and other "non-transparent" forces on the costs and risks of doing business globally. The "Transparency Project," unveiled at The Carter Center in Atlanta with former President Jimmy Carter as keynote speaker, is a collaborative effort by PricewaterhouseCoopers, international industry leaders, capital markets experts, academics and the non-government organization community.

The centerpiece of the project is the "O" (Opacity) Factor Index, a new measurement tool designed to measure the cost of capital at the sovereign, market and corporate levels. Though existing studies document the cost of corruption and other non-transparent accounting and regulatory practices, few empirical tools exist that provide strategic decision-makers with a numerical indicator of the cost of capital.

According to PricewaterhouseCoopers CEO James Schiro, businesses are increasingly compelled to become global in today's competitive environment. He noted, however, that investing, exporting or selling into overseas markets invites risk, not all of which can be managed at the corporate level.

"Some components of risk are systemic, due to a culture of corruption that is ingrained in many areas of the world," Schiro said yesterday at The Carter Center. "And in certain countries, the lack of transparency is pervasive because there is little capacity or will for scrutiny. As a result, the cost of capital rises, business investment lags, people suffer and growth stalls.

"It is imperative that the international community, and our clients around the world, understand the degree to which corruption and non-transparent business practices can serve as a drag on local market economies, and on foreign direct investment," he added. "We think the Transparency Project, and specifically the O-Factor Index, will significantly add to the body of work that exists on this important subject."

Carter said, "We commend PricewaterhouseCoopers for initiating this public/private initiative. Moving from perception to empirical measures is vital to diagnosing corruption, designing strategies against it, and creating the willpower to improve transparency around the world."

More than 20 years ago, Carter signed into law ago the Foreign Corrupt Practices Act and other public integrity and business ethics laws.

Joel Kurtzman, PricewaterhouseCoopers' lead partner for Thought Leadership, heads the Transparency Project. Kurtzman is working with a team of economists and academics from organizations such as the IMF, the World Bank and private think tanks to finalize the O-Factor Index.

The first Index is expected to be released in the fall of 2000 and will include nearly 50 countries. Ultimately, 80 countries will be included in the Index -- countries that already meet a certain threshold of transparency, including foreign direct investment, the existence of capital markets and other criteria.

To ensure that the O-Factor Index remains a useful and viable tool for the international business community to measure the cost of opacity, PricewaterhouseCoopers will establish a Global Technical Advisory Board. The board will monitor the development and use of the index and make recommendations for changing or updating its makeup.

Commenting on the level of support and interest in the O-Factor Index, Kurtzman said, "All of our discussions with economists, universities, non-governmental organizations and industry executives in developing the index indicate that such a tool -- and the strategic decisions it can help to inform -- is very much in need."