Hadebe Hadebe
South Africa continues to experience higher than normal levels of scandals, both in the private and public sectors.
The country also prosecutes a lesser number of executives and directors who are involved in collapsing corporate governance. This demonstrates, despite all talk to the contrary, that South African organisations have a clear lack of ethics, something that has characterised the corporate sector for many years.
Closely connected to the abusive apartheid system, South African organisations have not really moved with times. They represent a devil in a brand-new suit who now pays lip service on matters of good governance and ethical conduct. In fear of being held to account for its sins, the corporate sector sponsored the self-regulating system in the King Code in 1994. The country was clearly naive in believing a wolf in sheep’s clothing.
This article looks at the modes of corporate governance and what South Africa needs to possibly deal with graft and wrongdoing in organisations. The Paris-based Organisation for Economic Co-operation and Development suggests that the purpose of corporate governance “is to help build an environment of trust, transparency and accountability necessary for fostering long-term investment, financial stability and business integrity, thereby supporting stronger growth and more inclusive societies”.
Nonetheless, companies in South Africa have in recent years show culpability in delinquency and have been reported for malfeasance traceable to poor corporate governance. South Africa has experienced a wave of fraud involving companies such as Steinhoff and Tongaat-Hulett. In both cases, the companies were implicated in acts of financial mismanagement and misreporting that led to massive financial losses and damage in reputation. What is interesting is that these cases involved large audit firms such as Deloitte and KPMG that were complicit in accounting irregularities.
Furthermore, the public sector, i.e. municipalities, government departments, SOEs and other entities are also embroiled in endless scandals. Much of the evidence that is presented at the Zondo Commission shows a broken system of corporate governance and ethics in a country that faces numerous socio-economic challenges.
Business Insider reasons that the scandals in the private and public sectors demonstrates “a clear lack of ethics, each fraudulent in their own way”. But the question that probably everyone avoids is: Why does South
Africa continue to experience so much rot despite all sorts of commitments to end corporate graft? The answer to this question lies in the Texan saying “big hat, no cattle”, which means it is all talk and little action.
In practice, countries have adopted different approaches to dealing with corporate governance issues. The choice depends on whether these matters should be dealt with using voluntary practices, or if they should be the responsibility of the law.
The first model of corporate governance is the rules-based system of corporate governance regulation. Like any law, this legalistic approach relies on written rules rather than norms, which are enforceable through provisions. In the US, the Sarbanes-Oxley Act (SOX) was adopted in 2002 to protect investors by making corporate disclosures more reliable and accurate.
Mihailis Diamantis and William Laufer say that “corporate prosecutions, convictions, and punishment continue to be rare events”. It is unsurprising to learn this about the US since the country is a corporatocracy – a society or system that is governed or controlled by corporations.
The second category of countries, including Canada, Great Britain, South Africa and Asian countries, follow what is called a principles-based model, which does not place any binding obligation on organisations in terms of legislation. Authors Linda Sama and Victoria Shoaf see principles-based approaches as normative because they “rely on agreed-to societal principles to guide corporate behaviour, and the establishment of trust between corporations and affected stakeholders …”
The much-vaunted King Code that is now in its fourth edition is a principles-based model. This means that the critical issues of corporate behaviour are left with clandestine organisations like the Institute of Directors in Southern Africa, which sets principles or guidelines for good conduct by corporations and public entities.
Besides the fact that the King Code represents a situation in which corporations regulate themselves, it is directly copied from the UK. Thatcherism and neoliberal-economics act in tandem to undermine state authority. Organisations and individuals are not interested in acting ethically.
Clearly, South Africa struggles to end corporate skulduggery and thievery because the King Code, among others, relies on decision-makers in the public sector and directors in companies to uphold ethics based on their own volition. Many people are now demanding a legal instrument to deal with problems of governance in both the public and private sectors.
South Africa needs a law that will enforce ethical conduct and corporate governance like SOX to target the financial services, as the biggest culprits. Banks, accounting firms and other financial service providers get a get a slap on the wrist for misconduct.
Siya yi banga le economy!
* Hadebe Hadebe is an independent writer and political commentator.
** The views expressed here are not necessarily those of Independent Media.