The anticipated listing of Alibaba, China’s rising corporate tech star, on a U.S. stock exchange is likely to be the IPO of the year. The business press is awash in speculations about the financial and economic impact of this much hyped IPO. Will this listing also create a big splash in the fight against corruption? What will be the impact on business integrity when this fast-growing Chinese tech company lists in the US and, as a result, directly subjects itself to the Foreign Corrupt Practices Act (FCPA) and other corporate governance rules?
With only a few notable exceptions, the possible anticorruption and business integrity implications of the Alibaba IPO have not been discussed. But there are reasons for optimism that Alibaba’s listing could represent a significant step forward for the fight against corruption in China.
One positive change seems to be in the making already: although Alibaba’s IPO prospectus explains that it is not required to have a code of ethics, in a later section of the prospectus the company nevertheless announces that it actually has (voluntarily) adopted a code of ethics for all employees and that it will publish it on the web.This is not unexpected: Our research at Transparency International on the disclosure practices of emerging market corporations shows that publicly listed companies are much more likely to be transparent about all elements of their anticorruption systems. Yet it also signals a significant positive development in the Chinese context, since our research also indicates that Chinese companies are typically the most opaque among corporations from the BRIC countries.
That last observation suggests an even more interesting question: Will Alibaba’s move into the public-listing limelight have any broader ramifications for transparency and integrity in China? After all, Alibaba is estimated to control 80% of e-commerce in the country, and accounts for as many as half of all packages shipped domestically. Moreover, through its market-making and payment services, Alibaba reaches deeper into the fabric of everyday business transactions in China than most other companies. There are at least two ways in which Alibaba’s public listing might have a more general positive impact on anticorruption in China:
- First, the “normative beacon” effect: the enhanced transparency and more substantive compliance efforts of Alibaba (presuming these actually occur) could make the company a corporate poster-child and trendsetter, raising public expectations and peer pressure for other Chinese companies to follow suit.
- Second, the “brute force” effect: As our colleagues at the CIPE Development Blog have recently argued, Alibaba may demand and police the anticorruption conduct of its business partners and affiliates in order to avoid liability under FCPA rules. And the risk of FCPA enforcement against Alibaba is real: The SEC has amply demonstrated that it does not hesitate to bring enforcement action against foreign issuers, including Chinese issuers, for behavior abroad. (The fact that Alibaba intends to not list directly, but via a Cayman Island entity, does not seem to pose a substantive impediment to active FCPA enforcement.)
Will these or other considerations mean that the Alibaba IPO will be a major impetus for anticorruption in China? Business integrity has for quite some time been a strategic focus of our programming here at Transparency International and the often unexpected impact of anti-corruption legislation in a globalizing world is one of the most interesting dynamics in this context. Any create thinkers and FCPA experts out there that would like to chime in and comment? We would love to hear from you!