Disclosure of Beneficial Ownership after the Panama Papers

Abstract

The publication of the so-called “Panama Papers” has focused public interest on how elaborate corporate structures and offshore tax havens can be used by politicians, celebrities and other elites to conceal their beneficial ownership of companies and obscure their personal assets. Rather than taking the Panama Papers as an indication of the need for more and stricter disclosure and reporting rules, however, this paper advocates an alternative approach. We need to start by acknowledging that many companies are currently experiencing “disclosure and reporting fatigue”, in which the constant demand for “more” and “better” transparency and reporting is having the unintended effect of promoting indifference or evasiveness. Disclosure and reporting is widely perceived as an obligation to be fulfilled and not as an opportunity to add value to a firm.

This is confirmed by the findings of an empirical study that examines how disclosure rules operate in practice across various jurisdictions. The key takeaway of this empirical study is that – even in those jurisdictions that have a robust disclosure regime – the majority of firms engage in “grudging” or “boilerplate” compliance in which ownership and control structures are not adequately revealed in an accessible way and – perhaps more importantly – the impact of these ownership and control structures on the governance of a company are obscured.

Rather than focus on introducing more stringent and mandatory disclosure rules, the paper advocates an approach based on the current communication strategy of a minority of firms in our sample. Interestingly, a small number of firms engage in what we characterize as “open communication” in which information on control structures and its effect on governance are presented in a direct, accessible and highly personalized manner. Such firms seem to recognize the commercial and other strategic benefits to be gained from open communication, and the paper explores the implications of such an approach for both business and regulators.

Keywords: beneficial ownership, communication, corporate culture, corporate governance, disclosure, family businesses, investor relations, Panama Papers, scandals, state-owned enterprises, theory of the firm, transparency, trust

JEL Classification: D21, D22, G32, K22, L22, M14, O16