A country reeling from governance problems, while simultaneously facing massive economic and social challenges, needs to have governance systems people can believe in, says Dr Tim London.
IT'S not breaking news to note that South Africa’s state-owned enterprises (SOEs) are currently going through very tumultuous times.
Just in the past few months, Eskom, the Passenger Rail Agency of South Africa, South African Airways, the South African Social Security Agency and the SABC have all undergone a range of destructive events: head scratching leadership from top managers/leaders, financial brinksmanship, evidence of failed governance, allegations of corruption, and more.
The same could be said for other bodies, such as the Hawks and the National Prosecuting Authority. Given that these are all public entities, the focus for many of these failures has therefore extended to the government in its role as the provider of oversight and accountability for these organisations.
The failings in that process, and the allegations of corruption as reasons for these failures, have only added to the issues facing these key service providers.
In times where public governance seems to be failing, the private sector has often been called in to provide an objective and trustworthy evaluation of the situation to reassure stakeholders.
Reliant on their reputations to survive, consulting and auditing firms, along with law firms, often are brought in to review both public and private organisations to give them a rigorous check-up, free from the pitfalls of personal relationships and internal politics that can skew accountability systems.
Unfortunately, we have seen cases around the world where these auditing firms have failed to meet that high standard: a prime example was Arthur Andersen facing criminal charges for its role in the Enron scandal.
Events such as these in the early and mid-2000s led to increased regulation in the United States and Europe as well as challenges to the increasingly “cosy” relationships between auditors and the firms they were meant to objectively evaluate.
And if you can’t see how that relates to South Africa’s current situation, well, you just haven’t been reading the papers lately. Between investigative journalism generally, and the #GuptaLeaks specifically, there has been a tremendous amount of information released that shows a range of governance failures.
While this is bad enough when international companies such as SAP and Bell Pottinger are involved, more than a few of these issues have also seemed to feed into the wider issue of “state capture” that the country faces. The failures of public governance have been readily apparent for quite a while now; we’re now seeing increasing evidence that attempts at governance via private means, such as utilising the Big 4 accounting firms, are struggling in key moments as well.
Questions around McKinsey regarding its role related to Eskom and Trillian contracts were raised recently, leading to the suspension of one McKinsey leader to date, pending an internal investigation. Several relationships between key members of KPMG and its clients, the Gupta family have led to further questions, regarding just how strong the objectivity is between auditor and client.
In these cases, nothing has been proven regarding any wrongdoing; while that’s good for the firms, at issue is the perception of possible underhanded dealings. Not to understate the potential legal implications, but a similarly significant issue here is the question of trust and reputation.
If stakeholders (including the client and external stakeholders such as, in these cases, South African citizens) no longer believe that the work being done is credible, the value of that work is essentially nil. For the auditor, that can mean a loss of business; for stakeholders and citizens, it leaves us wondering who is left to provide accountability to the powerful in the public and private spheres.
The problem in all of this, it should be noted, is not really in the “written down” systems. On paper, just as the governance processes for the country’s SOEs are all above board; so, too, has been the use of well-established auditing firms such as KPMG and McKinsey. To put it succinctly: all of these organisations are saying they are doing the right things.
So, if the systems are set up properly and the correct pieces are being put in place, how are we left with a slew of corporate, public, and SOE scandals in the news? Quite simply, a governance system is only as effective as the people who are involved in it.
Note that the plural is used here: it takes many individual people to do their jobs properly to make a system effective. Removing one person, no matter their position in the organisation or the power they presumably wield, will not stop a system. It can help (or hurt!) a system to have one or two key people removed, but it is not a panacea.
For example, there remain significant issues at Eskom: removing four very senior people in 2015was a loud move, but obviously not a fix for all of their issues. The anger over the removal of finance ministers Nene, Gordhan, and (deputy) Jonas is sensible, but if the systems are operating well, the loss of these individuals alone should not stop Finance from doing good work.
The daunting challenge facing South Africa now is not just in the allegations of corruption, the fear of state capture, or the billions of rand of expenses by government labelled as fruitless/wasteful/irregular. The challenge is how we can understand the causes of these challenges (not just complain about the symptoms) and then treat them effectively, when we are running out of people and organisations we can trust to undertake such analysis.
South Africa is blessed with a strong Constitution, a robust public governance framework in the form of the Public Finance Management Act, and strong corporate governance guidelines in the form of Companies Act and King IV. On paper, we are in very strong shape.
Perhaps the upcoming elections will introduce enough people throughout government (not just the headline grabbing presidential race) to strengthen government’s efficacy as an accountability provider.
Maybe firms such as KPMG and McKinsey will reflect on the recent issues that have arisen and commit to deeper, wider investigations and improvements throughout their organisations. While the judiciary seems to be holding strong as a force of accountability, it cannot tackle all of the issues of oversight on its own.
A country reeling from this many governance problems, while simultaneously facing massive economic and social challenges, needs to have governance systems people can believe in. The ramifications of South Africans losing their trust in both public and private providers of oversight are likely to be profound; we must work harder than ever to ensure accountability systems are robust and deserving of that trust.
* Dr Tim London is a member of the Allan Gray Centre for Values Based Leadership at the Graduate School of Business, UCT.
**This article was first published in the News24 website, 18 July 2017