What is the role of business in response to the state capture scandal?

Published in Thought Thursdays, University of Stellenbosch Business School – Executive Development, 7 July 2017

South Africa has been facing a continuous barrage of revelations under the banner of state capture, with details ranging from corruption to attempts to manipulate public perceptions. The unethical conduct that gave rise to the former public protector’s State of Capture Report started long before the report’s publication in October 2016, and subsequent disclosures have dwarfed the evidence put together by Adv Thuli Madonsela. The ethical outrage that has followed is to be welcomed as an important factor to ensure that this issue is fully investigated and appropriate action follows. But what role should business play to ensure a just outcome and a better future?

How did we get there?

The key factor in the current (un)ethical environment is the charge of state capture, which the State of Capture Report describes as entailing “alleged improper and unethical conduct by the President and other state functionaries relating to alleged improper relationships and involvement of the Gupta family in the removal and appointment of Ministers and Directors of State-Owned Enterprises resulting in improper and potentially corrupt award of state contracts and benefits to the Gupta family’s businesses”.

There are two other noteworthy reports, both released in May 2017, that address state capture. The Unburdening Panel Report of the South African Council of Churches acknowledges that “South Africa may just be a few inches from the throes of a Mafia State, from which there may be no return”. The State Capacity Research Project titled Betrayal of the Promise: How South Africa is being Stolen, drafted by academics from the Universities of Cape Town, Stellenbosch and Johannesburg, acknowledges that what state capture amounts to “is in reality a de facto silent coup”.

Adding to these reports are ongoing press revelations, mostly deriving from the so-called Gupta Leaks, which are speculated to be as many as 200 000 emails that were leaked to various newspapers. The 3 June 2017 story by amaBhungane and the Daily Maverick's new investigative unit, Scorpio, which divulged that the Guptas and associates had benefited R5,3 billion in kickbacks from the China South Rail supply of locomotives to Transnet, is but one example of these exposés among many others.

What is the impact?

The ripple effect of this web of misconduct has contributed to further stresses. Low growth rates and South Africa’s decline to junk status have culminated in a recession. The result, as established by Sanlam’s Benchmark Survey 2017, hindsight / foresight, is that 73% of middle-class South Africans are experiencing financial stress. And, if the middle class is under financial stress, what about the lower economic classes? A pertinent factor in this regard is that the (official) unemployment rate has increased to 27.7%, the highest it has been since September 2003, according to Stats SA’s June 2017 Quarterly Labour Force Survey.

All of these negative factors have an impact on the South Africa public and the organisations and institutions operating in South Africa. For organisations, this context can affect their business and key stakeholders, including employees, clients and suppliers. Responsible leadership warrants being responsive to this situation, which means that the board and management should give due consideration to understanding the implications of this context and to making informed decisions about what action might be appropriate.

For organisations, reduced business confidence can lead to postponed investment and expenditure, which can have an impact on the organisation’s value chain. When reduced business confidence is coupled with the current recession, it negates the likelihood of business growth. This leads to the risk of future job cuts, and the tougher path to making profits can result in business ethics being compromised.

For employees, the moral outrage stemming from the scale of this scandal has the potential to cause lower morale because of diminished hope for the future. In combination with financial stress, productivity can be negatively affected. Reduced trust in senior political leaders lends itself to the risk of lowest-common-denominator behaviour. Misconduct now has a very high-profile justification: “If they can do it, why can’t I?”. This can put people who would normally act ethically on a slippery slope towards unethical behaviour and result in an increase in misconduct and white collar crime.

What does this mean you should do?

If you think this situation is likely to improve significantly in the short term, your organisation can arguably simply wait for the crisis to pass. If, however, you are of the view that this situation will not be resolved in the short term, then in the words of Jack Welch, former chairman and CEO of General Electric, you need to “face reality as it is, not as you wish it were”. This presents not only the choice between doing ‘something’ and ‘nothing’: The difficult middle ground is ‘not being sure what to do’, as this can equate to ethical inertia. For responsible leaders who want to manage this situation proactively, the following actions can be considered:

  • Become a visible ethics advocate
    Creating opportunities to emphasise the importance of ethics not only serves to strengthen the organisation’s commitment to ethics, but also reinforces its importance for the audience. Hosting ethics talks or sponsoring ethics training for key stakeholder groups can effectively position the company as an ethics advocate. This may be able to be incorporated as a meaningful facet of the company’s corporate social investment or enterprise development initiatives.
  • Ensure your ethics training contributes to improving ethics in South Africa
    Every person that the organisation equips with a better understanding of ethics and why it matters represents not only an employee, but also a family member, a community member, and a citizen of our country. In this way, ethics training has a much wider reach than just within the business environment.
  • Actively support the campaign to #KeepEthicsAlive
    More broadly, in the face of so many bad examples, an important role business can play is to keep ethics alive and to guard against the ethical apathy and inertia that can flow from ‘misconduct-overload’. This means that ethics should be intentionally factored into business decision making. For organisations that have not included ethics as a corporate goal, now is a good time to remedy that shortcoming (not least because assuming organisations can achieve appropriate and well-aligned ethical conduct among stakeholders without a clear, common ethics goal and a supporting ethics strategy is frankly wishful thinking). Visible ethical leadership is also imperative. An interesting exercise to do on a regular basis is to review what the leader has done that made ethics visible. The answer should not be ‘nothing’.

For leaders, the current challenge is well summarised by Peter Senge, author of The Fifth Discipline and director of the Center for Organizational Learning at the MIT Sloan School of Management. He acknowledges that “when things are going poorly, we blame the situation on incompetent leaders [and] when things become desperate we can easily find ourselves waiting for a great leader to rescue us”. Senge notes that this outward focus of looking for someone else to be the leader who raises the company’s level of behaviour, misses the bigger question, namely: What are we, individually and collectively, able to contribute? To that can be added: Are you and your organisation doing what can be done to make an ethical difference?

by Cynthia Schoeman