South Africa’s corporate sector is no angel when it comes to corruption. Numerous businesses were deeply implicated in the state capture era, and high-profile scandals like those of Steinhoff, EOH, VBS Bank, Bosasa, and Tongaat Hulett have severely tarnished the collective corporate reputation. The enablers of corporate corruption, such as legal and audit firms, have done their share of damage too.
Now, a new anti-corruption guide for corporates, published by Business Leadership South Africa (BLSA) and the Gordon Institute of Business Science (Gibs), aims to help South Africa’s business sector to counter the pervasiveness of corruption and crime.
“If the past decade has shown anything, it’s that in the absence of concrete policies designed to arrest the slide, this trajectory will continue,” the report notes.
“We’ve seen that corruption is becoming more sophisticated, involving multiple role players in related institutions,” says Auditor-General Tsakani Maluleke in the foreword to the report. “To improve our contribution to the fight against corruption, we must continuously revisit our audit strategies, invest in ongoing training, use sophisticated fraud data analytics and collaborate with other institutions that play distinct roles in the accountability ecosystem — including the judiciary, civil society, law enforcement agencies and higher education institutions.”
An improvement in service delivery, free from fraud and corruption, can only be enabled by stable, capable, cooperative, accountable, and responsive institutions, says Maluleke. “It’s clear that service delivery failures are happening because of failures in behaviour — and the behaviour of institutions flows entirely from the prevailing culture.”
One thing the Zondo commission into state capture highlighted was the clear violation of ethics and integrity in both the public and private sector, when dealing with the affairs of state, Maluleke says. And the Auditor-General’s own yearly audit reports show the breakdown in management standards and ethics in tragic detail, with the same unaddressed problems emphasised year after year.
This situation shows the crucial need for a system of ethics management in both the state and business. South Africans’ constitutional rights to quality education, healthcare, safety, housing, energy, water, and livelihoods, among others, will be vastly improved if meaningful reversals are made to the trend of failures in accountability and institutional integrity, she adds.
A strong case for anti-corruption programmes
Research has found unequivocally that companies which have implemented anti-corruption programmes and developed a strong ethical culture are better off when it comes to protecting themselves against corruption. Norwegian anti-corruption research and resource group U4, in a study, found that companies with such programmes experience up to 50% fewer incidents of corruption than those without, and perform better.
“There is a symbiotic relationship between market and firm performance: aggregate growth and firm performance is lower in highly corrupt settings, while markets perform poorly when corporate corruption becomes commonplace compared to markets in which firms typically refrain from corrupt behaviour.”
There are other less obvious disadvantages – corporate corruption, U4 noted, whether detected or undetected, has a harmful effect on staff morale, and this often leads to marked slumps in productivity.
And U4 found that while there may occasionally be some short-terms gains from engaging in corrupt activities, overall the costs outweigh the benefits in the longer term.
Unless, of course, you have a company like Bosasa which siphoned so much money from the public purse that it was able to pay large cash bribes to numerous government officials on a monthly basis, without denting its bottom line. However, after the full extent of its corruption was revealed at the Zondo commission, Bosasa came to an ignominious end, showing that after all, corruption does not pay.
In addition, the greater economy is negatively affected by a corporate corruption culture, the U4 report noted. “Such background corruption has adverse effects on a country’s economic performance by reducing institutional quality, undermining competitiveness and entrepreneurship, distorting the allocation of credit, and acting as a barrier to trade.”
The BLSA/Gibs anti-corruption guide incorporates these lessons and more. It features key elements of the international ISO 37001 anti-bribery standard, alongside expert views, the experiences of those who have been affected by the extensive corruption of the past decade, and lessons from tech solutions multinational EOH, which was implicated in corruption but managed to redeem itself.
Corruption Watch’s recent report on EOH’s rise, fall, and rise shows the damage done not only to the company itself, but to the wider economy, by corruption. The report, developed together with South Africa’s National Business Initiative and independent global affairs think tank ODI, examines Zondo-implicated EOH as a case study of corporate corruption and the resulting analysis shows that while the wider context of state capture in South Africa after 2009 was very important for corruption at EOH, the corporation’s problems preceded the state capture period and extended well beyond EOH’s direct engagement with the state.
The BSA/Gibs report notes that EOH, for example, made certain ‘donations’ to the ANC and subsequently won two lucrative contracts from the City of Joburg, worth R109-million and R404-million, in dubious circumstances. The problem with this type of activity, the report notes, is that in South Africa companies are not compelled to disclose details of donations in their annual financial statements. “In the absence of such an obligation in the Companies Act, companies should commit, in their anti-corruption policy, to disclosing these, along with details of commercial dealings with politically exposed people.”
EOH willingly participated in the Corruption Watch research as a case study for addressing corporate corruption in South Africa.
The way forward
What should such a dedicated anti-corruption programme look like? How far should it go? Who should have oversight responsibility? How would it incorporate existing compliance functions, such as internal audit and whistle-blowing programmes?
These questions, and more, were at the heart of the work to develop the BLSA/Gibs guide.
Having deliberated on these issues, the team proposes 38 central principles, grouped into eight categories, which could easily form a good starting point for an anti-corruption policy that a company could adopt. The categories are:
- 1. The tone from the top and the role of the board;
- 2. The adoption and publishing of an anti-corruption policy;
- 3. The formation and structure of the anti-compliance function;
- 4. The substance of the anti-corruption policy;
- 5. The role of regular risk assessments;
- 6. The role of whistle-blowers;
- 7. The role of reparations; and
- 8. Guidelines for ethical lobbying.
However, individual companies taking these steps will not have nearly the impact of a concerted corporate effort, the report stresses. Consequently, it has dedicated an entire chapter to the importance of business taking collective action, and supplies several suggestions on how to make it work.
The view of Gibs director Rabbi Gideon Pogrund is that “companies must move beyond their immediate and narrow self-interests and instead focus on the bigger picture, thereby helping to ensure the longer-term conditions for their success.”
Furthermore, EOH CEO Stephen van Coller says it must start with the public deciding that “it’s not alright to be corrupt — so if you’re corrupt, you’re an outcast. This is why, if we really want to fight corruption, we have to do it openly and systematically.”
BLSA CEO Busi Mavuso says of the document, “It bolsters the corporate governance framework and gives companies a comprehensive, workable plan to tackle corruption. But it will only work if we act collectively in making these proposals a reality across the business landscape.”
There is evidence, the BLSA/Gibs report concludes, that other countries and cities have been able to pull off just such a U-turn in the past, in the face of people who said it couldn’t be done — such as Singapore.
The two organisations envision the guide as being “the launchpad, not just for a much-needed discussion on how to create a corruption-resistant business sector but also, more ambitiously, for a blueprint on how to return South African society to the apex of the global socio-political order when it comes to ethical practices.”
