The state of ethical and moral leadership in corporate South Africa
Former finance minister, Trevor Manuel, addressed the Unisa School of Business Leadership on 22 March 2018. This is his full speech.
I wish to thank the School of Business Leadership for the invitation to raise the issues of ethical and moral leadership with you. The context for this discussion is exceedingly important – six months ago many South Africans may have felt constrained in raising matters forthrightly, and, hopefully, six months hence the matters we raise today may appear to be old hat. But right now, we need to demonstrate a clarity of thought that compels action. What corporate South Africa needs is a huge cultural shift, and discussions such as these must contribute to raising the participation criteria in order to effect this cultural shift that so many of us desire.
The past six weeks have seen a significant shift in our political history – that, in the fullness of time, may appear to be just a short blur of events. We have to properly record these events because future generations will look to us as the custodians of the memory of change. I start counting with the ANC National Executive Committee meeting of 9/10/11 February 2018, that culminated in a delegation dispatched to meet with the then-still-President Jacob Zuma to request his resignation. They were told that he did nothing wrong and saw no reason to resign. The pressure intensified, and eventually the country received this Valentine’s Day gift, though not an act of love, when late in the evening Mr. Zuma announced that he was resigning. Then in a whirlwind, Matamela Cyril Ramaphosa was elected President of the Republic, and then inaugurated. He delivered his first State of the Nation Address on 19 February that lifted the spirit of the entire nation.
Just two months earlier, on 18 December 2017 he had been announced as elected President of the ANC by the slenderest of margins – a mere 179 votes. We know that both the NEC and the Top Six have many compromised members, yet we are entirely convinced that President Ramaphosa will introduce fundamental changes to our body politic.
Since 19 February 2018 we have already seen some of these changes – the somewhat delayed announcement of a major cabinet reshuffle on 26 February, when 10 Ministers were dropped from the Cabinet and more recently, the suspension of Tom Moyane as the SARS Commissioner. I have no doubt that in spite of the constraints of holding an awkward alliance of factions together, we are likely to witness more changes over the next few months. The signal that South Africa and the world now has is that of good governance premised upon collective responsibility and accountability. This bodes well for the topic ‘ethical and moral leadership’ because as the bar is raised in the public sector, so the private sector will have to respond. Already we have seen an enlivened parliament, where even individuals who are deemed to have done wrong in the private sector are ‘invited’ to appear before committees.
Suddenly, the old binary of public vs private sector, as a proxy for good vs bad, no longer seems to apply. The message is one which clearly articulates that all decision-makers, whether in the public or private sector, are collectively responsible for the well-being of all South Africans, and to this end we should demonstrate an intolerance against misbehaviour.
The general sense of the changes is that they are big and bold moves. Yet, we must understand and continually articulate a shared belief that what we are seeing is only the beginning of the reversal. The completion of this process is one that requires vigilance and strong, continuing directed action. The idea of “Batho Pele” must shift off those tired, dog-eared posters in government offices into the everyday lives of all, regardless of whether we are in the public or private sector.
Part of our vigilance must include an understanding of how the country descended into that awful dark place. Understanding how we got here is important to ensure that we will all see the signs of a turning point and act together to prevent it in future. In the past period, much attention has been focused on some, especially international, corporations. Much of what we know emanates mainly from two sources – firstly, Thuli Madonsela’s report titled, “The State of Capture”, and then the trove of information secured by journalists (by whatever means) called the “Gupta Leaks” that has provided a steady-stream of detailed information. Together these reports speak of a situation out-of-control, where state power shifted from elected representatives to the Gupta brothers and their lackeys, who were Ministers, senior public servants and the heads of state-owned corporations. It is in this regard that the names of some transnational companies tripped off our tongues – Bell Pottinger, KPMG, McKinsey, SAP and South China Rail. Then their SA acolytes including Multichoice, Trillian, Regiments all appear complicit. And then, of course, the State-Owned Corporations Eskom, Transnet, SAA, Denel, PRASA, the SABC and even SARS, appear amongst this disreputable list of entities.
Lest anybody believe, even for a moment that this is a complete compendium of those who appear likely to be charged with corruption for their dealings with the state, I advise you to think again. Today’s newspapers report on apparently corrupt dealings related to oil, last week it was water, but as we slice through all spheres of government that list will multiply in a very short space of time. To what we know will be added service suppliers in construction, energy, healthcare, transport, financial services, auditing, events, travel, catering, and even the testing equipment for forensic services. I await the information on procured religious services and then I will know that the spectrum is complete. And we need to know all of the detail of how this occurred so that we understand the loopholes in the system, the scale of the problem, that the punishment fits the crime in each case and that we will prevent the recurrence of any part of this mess.
In order to get to such a point, our vigilance over the next period must invite more whistle-blowing, more exposures, more investigations and charges, and please many convictions and sentences. We need to ensure that we can lead the healing process so that not even the traffic officer will feel that they are entitled to “cool-drink money”. Regrettably, the families of those who have been living way above their means, because of corrupt practices, will feel that they are being made to suffer. I am afraid that there will just be no other way to uproot the bad practices.
We are aware that there is a fault-line in the make-up of people. The authors Skidelsky (Robert and Edward) in their book “How Much is Enough” write, “Experience has taught us that material wants know no bounds, they will expand without end unless we consciously restrain them. Capitalism rests precisely on this endless expansion of wants. That is why, for all of its success, it remains so unloved. It has given us wealth beyond measure, but has taken away the chief benefit of wealth; the consciousness of having enough.”
We now know that the charges that the NPA is preferring against Jacob Zuma also involve the French arms company Thales and go back to the Strategic Arms Acquisition Programme. So, perhaps that decision back then marked a turning point. Undoubtedly, the situation in the run-up to Polokwane and whatever has happened since has dragged the country into the cesspit of corruption. It appeared that the cause of war was President Thabo Mbeki, his cabinet and the Scorpions and that everything possible had to be done to change the order of things. I recall that as early as 2005 I was almost lynched at an ANC NEC because the National treasury had produced (and published on 30 May 2005) regulations under the Municipal Finance Management Act for Supply Chain Management. I was confronted and bluntly asked what right we had to behave in this manner – I have looked at the regulations again and am saddened that they have not been implemented because their rigid implementation would have seen a sharper focus on the quality of services rendered to citizens by municipalities. I have no doubt that the intentions of those who sought a regime change were absolutely and unadulteratedly venal. The driving force was the removal of rules for corrupt ends.
There are some, otherwise serious, academics who hold a different view. Professor Francis Fukuyama writes (in Political Order and Political Decay), “Much of what passes for corruption is not simply a matter of greed but rather the by-product of legislators or public officials who feel more obligated to family, tribe, region or ethnic group than to the national community and therefore divert money in that direction. They are not necessarily immoral people, but their circle of moral obligation is smaller than that of the polity for which they work.”
Or Professor Ivor Chipkin who writes “We were trying to move the analysis away from endless stories of corruption. We wanted to make sense of the fact that this is not simply criminals who have seized state power and are looting for their own private interests. Rather we need to understand that there is a political project that creates the context in which some of this criminality happens that creates space for illegality to occur.”
He argues that much of the corruption happened “in good faith”, and that public procurement at SOC’s was used to incentivize local production. I respectfully disagree with both the distinguished Professors. To Prof Fukuyama I must say that there is no way that the Guptas are kith or kin of any of their collaborators and even their nationality is in question, so the intention must have been different all along. The same issues are true across all three spheres of government. To Prof Chipkin I say that you cannot plough your fields with an expensive German sedan if the intention was to advance domestic production, then the policy changes needed to be pre-announced and measurable.
When one examines the State-Owned Corporations, they are deemed to have higher levels of accountability than companies in the private sector. Most are governed by their own legislation as well as the Companies Act. They have a Cabinet Minister (and a Deputy) to provide oversight, and be the representative of shareholders’ interests. Most have boards that are either directly appointed or agreed to by Cabinet. Most have direct lines of accountability to their boards that have a full suite of committees. In addition, they have oversight by parliamentary committees for direct accountability, as well as to the Standing Committee on Public Accounts (SCOPA). They are audited, mainly by auditors from the private sector, whose audit reports are overseen by the Auditor-General.
And yet, we now know what we do. I do not believe that the processes can be any tighter.
My sense is that matters went awry for at least a few discernable reasons:
1. It appears that Ministers were appointed to deliver outcomes that were against the letter and spirit of the Constitution. They must have appeared pliable to those who wanted them appointed.
2. These Ministers appointed Boards of poorly-skilled individuals who, again, had to deliver particular outcomes.
3. The Ministers presented incorrect candidates as CEO’s and CFO’s of these large companies to create a web of complicit individuals.
4. The Boards, frequently on behalf of other agencies, saw to the establishment of strange practices and committees such as, for example, the Board Committee for Acquisitions and Disposals, which is a fancy term for a grouping of the board who decide on tenders and who violate every norm of corporate governance by their very existence. It was these kinds of manoeuvres that shoved the snouts of directors in the trough to the extent that they forgot what their purpose is or was.
These practices were at the epicenter of what went wrong in the public sector. Regrettably, despite the fact that there may have been hundreds of people involved, none among them ever called these out. We have to accept that those that may have wanted to do so, would have risked their jobs, their livelihoods, and possibly their lives.
There have been a number of further steps in the agenda to completely hollow out the capacity of the state to deter misconduct, including its ability to prosecute affected parties. The steps include, but are not confined to:
• the organs of state in the criminal justice cluster that were consciously weakened and repurposed. Who can forget the extent to which compromised individuals were inserted into the NPA and defended, even when their qualifications were found to be suspect. Or the effective annihilation of the Crime Intelligence capacity with Richard Mdludli who was left in a position of authority, despite being entirely compromised and incapable. Thank heavens for the judiciary who have been resolute but unable to initiate action;
• Parliament was euthanised and slept through most of the wrongdoing. Pause and reflect on the Nkandla report and the various other detailed reports by the former Public Protector. Even the stock-in-trade annual reports of government departments or agencies that, for all the world to see, had indications of advanced stages of decay. The wake-up call clearly arrived with the SABC enquiry at the end of 2016.
• Government supply chain management systems that were destroyed by the employment of incompetent individuals who frequently saw their responsibility as serving the interests of favoured bidders, rather than securing value for money in the interests of better service delivery;
• The opportunistic abuse of Black Economic Empowerment, pretending that no rules existed and that friends or parties who officials were instructed to favour were allowed to run rampant.
These matters relate only to the public sector. South Africa has yet to fully engage with the extent of malfeasance in the private sector. Obviously, at the front of that queue is Steinhoff where the scale of wrongdoing may prove to dwarf whatever has gone before. And while much attention has been paid to KPMG in the context of the Guptas and SARS, it is important to note that the authors of Steinhoff are Deloitte who have yet to explain their oversight of ABIL, a company that collapsed more than six years ago, and which matter is being heard by an IRBA disciplinary enquiry only now. There will be many other stories of corners cut or crude naked transgressions. An inescapable conclusion is that for every horror story in the public sector, there is an even more alarming story from the private sector.
It, therefore, it stands to reason that there were counterparts in the private sector, many of whom operated below the radar. The same opportunistic trends were used by larger firms who recognised that there were few consequences because the state was disinclined to act against its own. So, even large, listed firms took their chances. The questions that have to arise now relate to the extent to which non-executive directors were complicit. Where, exactly, were their audit committees? Had these companies shut down the internal audit function? How come nobody in the accounts departments noticed the aberrations? And why were the external auditors completely missing? Now it might be politic to beat up on a firm such as KPMG again, but I believe that the truth is rather more complex and the blinkers were donned for too many of these practices.
After a protracted period of corruption, such as we have lived through, it is necessary to arrest the processes of malfeasance, and embark on a period of healing. For the state, the consequences of the wrongdoing, of poor judgment and of operating without checks and balances, are observed in the poor quality of services, whether this be health, education, policing, water provision or infrastructure delivery. For the private sector, it is evidenced by large volumes of savings destroyed, leaving pensioners seriously out of pocket. Perhaps one of the worst lapses of judgement I observed was from a fund manager who advised clients that they suffered huge losses on Steinhoff because they were completely enamoured with the stars who served on the board. This is a great admission of incompetence and I have no doubt that if these were blue-collar workers on a factory floor who had messed up so badly, unlike the smooth-talking fund managers, they’d have been summarily dismissed. So, maintaining strong values by those in management are an integral part of remedy.
I am convinced that the remedies are not going to suddenly emerge from a raft of new legislation and regulation, but rather from the proper application of those that exist. For starters, non-executive directors need to be trained and retrained. The quality of Chief Financial Officers must be regularly assessed, and weaknesses addressed or replacements insisted upon. Thirdly we should encourage detailed enquiry and reward the curiosity of members of the audit committees. Fourthly, the internal audit function must be empowered and their outputs taken seriously everywhere. Fifthly, the norms of corporate governance should be insisted on and a ‘no-person’s land created’ between non-executive and executive members. Sixth, annual reports ought to report on more substance and less gloss – this means that analysts will also have to undergo very thorough training because frequently, they insist on the quick returns that tends to lead to cutting corners.
In addition, we should insist on higher standards from the professional and industry bodies. I have mentioned to SAICA that there are individuals either in, or on their way to prison, who still attach the four letters CA (SA) to their names. I am advised that SAICA has no original powers to act, and that they have to wait for a formal complaint and a disciplinary hearing. When I asked when last it was that a person was struck off their roll of honour, I receive a muttered reply. I find it hard to believe that the IRBA disciplinary enquiry into ABIL is only now being heard, six years later, when there have been so many reports of bad conduct by auditors since. The Law Society has still not been able to organize its affairs so that it is constitutionally compliant. In spite of the fact that we have regularised the High Courts to match the nine provinces, the Law Societies still haven’t reached this state of being. They are still organized in the North and South as a mask to what the divisions actually are.
And, as for the Bar Council, they have relaxed entrance criteria, so it is possible to attach the three letters ADV before one’s name without having undertaken pupillage or passed an entrance examination, or even joining the Bar Council because it is possible to be quite independent – and it is in these independent societies of advocates where malfeasance appears to be supported. I can, in similar vein, extend the same observations about too many other professional bodies. It appears that there is too little professional pride for the observance of ethical standards.
A consequence of all of this is that too few seem to care. Last week, the NDPP announced that they will prosecute former President Jacob Zuma. Regrettably, it is 12 years ex post facto. It also appears that nobody has called out the fact that the accused is given home ground advantage in KZN, this seems to encourage mobilization on the streets in support of the accused. So, who cares? Well, if there still hasn’t been the arrest of the murderers of Senzo Meyiwa, when there were a limited number of people in a house that night, what prospects do we have for the determined prosecution of those guilty, and that is a very long list, of corporate malfeasance.
But, this is a moment for new beginnings, and we should all together claim this moment. While in some senses it may feel like Spring with our renewed beginnings, it is, in fact, Autumn in South Africa now, and we should be reminded of the words of the poet John Keats:
Season of mists and mellow fruitfulness,
Close bosom friend of the maturing sun.
Let us siege that mellow fruitfulness. Let us, together, be heard. Let us do what society demands of us and live up to the promise of a new beginning.