For a number of years, South Africa has been dealing with an ethical crisis. The disclosures being made at the Zondo Commission of Inquiry have highlighted just how severe and far-reaching corruption was at state level.
State capture, is not, however a purely public sector problem. It has required the involvement of many private sector players – as beneficiaries, enablers and willing participants.
At the same time, allegations of fraud and other irregularities have been hugely damaging to the share prices of a number of JSE-listed companies, including Steinhoff, EOH, Tongaat Hulett and Choppies. As John Green, co-CEO of Investec Asset Management, told the Morningstar Investment Conference last week, this has forced asset managers to do some serious introspection.
Read: SA’s corporate meltdown
“In South Africa, for too long management teams and boards were given the benefit of the doubt, and the consequence of that is that we’ve seen some situations that have destroyed significant value for investors,” says Green. “As investment managers, we have reflected on that deeply, and that benefit of the doubt doesn’t exist anymore.”
There is no doubt that asset managers need to be more vigilant, and put boards and management teams under greater scrutiny. Their duty to investors requires them to ask tougher questions of the companies they invest in.
At the same time, however, asset managers are not going to be able to restore the ethical standards required across South African society. That is a responsibility that has to be taken up by the country more broadly.
As Professor Piet Naudé, director of the University of Stellenbosch Business School, told the Morningstar event, that has to start with understanding how we reached this point in the first place.
“Our research shows that people take bad ethical decisions not because they are greedy,” says Naudé. “It’s about social power.”
He explains: “We have built a culture among the privileged part of SA where your social approval does not rely on your knowledge or character, but what you have, the address where you stay, and what you drive. If you create a society that accords massive social power to material wealth, people learn that if they want to be accepted they must increase their private wealth.”
This calls into question whether we need to rethink our individual purpose. Why do any of us do what we do?
“Do not tell me your purpose is to make as much money as possible,” says Naudé. “Money can never be a purpose. It is a means to an end. The question is, what is that end?”
South Africa has unfortunately also fostered a perception that people can act with impunity. None of the major players in state capture has yet been arrested, and Jacob Zuma has still not faced trial 14 years after he was first charged in relation to his role in the arms deal.
“You cannot run a system where the consequences are so long deferred from the actual wrongdoing,” says Naudé. “If you create a culture of impunity you don’t stop corruption or wrongdoing.”
This has led to a lack of trust in the system, both among the general public and the international investor community. That has to be restored through arrests and prosecutions.
Unless and until that happens, says Naudé, everybody has to remain vigilant about their own actions, because in such an environment, it is easy to overestimate our own moral character. We may believe we wouldn’t engage in wrongdoing, until the opportunity actually presents itself.
“You know where corruption starts?” challenges Naudé. “With you. What kind of leader are you, what kind of organisation have you created? Let us first take personal responsibility and not point fingers at the Zumas, Tom Moyanes and Markus Joostes of this world, if they are guilty.”
This is not just about being susceptible to doing something unethical, but also standing up to and reporting those we see around us behaving inappropriately. As strategist and former partner at Bain & Company Athol Williams noted at a recent speech at the Finance Indaba:
“Most of us are prepared to do the right thing until our bonus is at stake, our career prospects, our job, our family’s livelihood.”
Once again, the question comes down to priorities and purpose. What are we telling ourselves, and those around us, about what is most important when judging a person’s status? Is it material wealth, or something more?
Naudé puts it this way: “Unless we inculcate in our children and society that the best people are those who benefit mankind, we will not stop corruption.”