The recent events in South Africa, especially around the VBS failure, forced me to understand our biases towards fraud and corruption. Firstly, according to the Corruption Perception Index 2019 results, South Africa scored 44, a point of improvement from the previous year’s score of 43. South Africa is one of the 66% of countries whose score is below 50. Seychelles has scored 66, which is the highest in Sub-Saharan Africa, followed by Botswana at 61, and South Africa scored 44 and is number 9 in the region.
This result made me wonder why a low score and trying to understand what is perpetuating fraud and corruption in South Africa. The recent testimony by the former PRASA Chairman Popo Molefe during the state capture commission, made me realise or understand why we are continuing to score below 50, on the Corruption Perception Index. This situation then forced me to question myself about our ability as a country to combat fraud and corruption.
Whose responsibility to combat fraud and corruption in a company?
Combating fraud and corruption is the responsibility of the company directors. The King code clearly states that the “board should provide effective leadership based on an ethical foundation.”
The first question that arises who has the power to dissolve the board, especially for the state-owned companies. Why would a single person have such enormous powers to dissolve the board? I am asking this question for one specific reason; this is because the private companies for the dissolving of the board; you need to vote, and the majority decision will win.
In this case of the public companies, I was surprised that a Minister was able to dissolve the entire board. This dissolving of the committee was done to the PRASA board as per the former chairperson’s testimony. The chairman testimony brings me to another question what the role of parliament was, are they not supposed to question or ratify those decisions taken by the Minister. I would think this, therefore, represents a loophole in which when the board is carrying its activities that are assumed to be against the respective Minister’s wishes. This area represents several weaknesses because compliant board members can be appointed.
However, it is essential that in any business, the diversity of views and opinions is something to be promoted. Appointing compliant board members can be easily coerced by the principals and lead to groupthink. I think the significant issue that has been a weakness in our state-owned entities has been the board membership. It is the most critical element in any corporate governance structure because we need the board to be people with diverse skills and to challenge whenever that is required.
The above-highlighted phenomena contributed to the failure of several notable cases where long-established companies failed, and thus, some went into liquidation or financial distress. I will highlight a few of those companies, i.e., VBS, Steinhoff, Tongaat Hullet, KPMG, and several State-Owned Entities (Eskom, SAA, PRASA, DENEL, etc.). In addition to the above, are we doing enough to make those responsible face the consequences?
I am not sure how to answer this question for several reasons, sometimes we can see what has been lacking is our urgency and corrective action taken to those involved in wrongdoing. This practice to serve as a deterrent.
The role of the chairman has also been brought into the spotlight in both private and public enterprises. Recently the former SAA chairperson was found by the courts to be a delinquent director. The former chairperson of VBS is also facing serious charges relating to the collapse of VBS. Noting the above, it is essential to understand that corporate scandals are not something unique to us as a country, but it is a global concern. In recent times we had witnessed several South African companies on the media for the wrong reasons.
The increasing situation made me think of Arthur Anderson and Enron. Although this is an American company, we can see that the same position that happened then, is what is threatening our corporate governance practices, in our current environment. Therefore, this made me think about the Arthur Anderson, ENRON scandal, and how the regulators and the law enforcement agencies acted on the matter.
According to the reports, ENRON former CEO Kenneth Lay could not avoid the law’s might, and he was charged for fraud. After the collapse of this company, the Sarbanes-Oxley Act was also signed into law to protect investors. We can learn from other markets regarding their actions to correct the wrongdoings done in these entities. It is high time that those responsible for the demise of these companies face the might of the law. Actions to be taken regardless of the person’s status in society. This is to be true to both the public and private companies.
To attract investors into our country, we need to work hard to end this perception. Investors are attracted to destinations that will ensure that their investments are safe and cannot be easily eroded. Let all those who are involved and responsible for the demise of these establishments, to face the might of the law. Acting on the people involved will discourage the mushrooming of fraud and corruption activities in private and public companies.
Let us support the National Prosecuting Authority in their endeavours.