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28 Sep 2009 06:00
South Africa has been struggling with business ethics from well before the collapse of Wall Street and the near failure of the globe’s financial system a year ago.
The Competition Commission was—and is—actively pursuing cartels in a number of sectors, the management of the country’s power utility had brought local industry to its knees and the Fidentia scandal had seen money disappear from poor widows’ pockets.
Shan Ramburuth, head of the Competition Commission, believes business does what society allows it to get away with.
“There are ethical businesses out there.
But businesses will do what society sanctions and they are part of the society that they operate in.”
The commission’s work has seen petrochemical giant Sasol fined for its role in a fertiliser cartel—which comes on top of its European Union fine for its role in a paraffin wax cartel.
Ramburuth thinks that one reason for the increased activity in competition law enforcement is that society has caught up with the legislative framework and begun to demand accountability. “In the cases we have unearthed, whether it is bread or poultry, there are no victimless crimes,” he says.
The public’s increased awareness of this has shortened its patience with corporate abuses. But some observers argue that legislation stemming from such impatience overcompensates.
The Competition Amendment Act, recently signed into law by President Jacob Zuma, provides for criminal sanctions against company directors who are deemed to know of or participate in anti-competitive behaviour. But it has caused consternation in the business world.
“Whether the provisions in the amendment are wise or not is a matter of debate. But the intention of the policy is a result of consumers’ frustration and businesses’ intransigence,” argues Ramburuth.
He acknowledges that the evolution of local corporate culture has seen a shift in corporate attitudes towards a more pragmatic, cooperative approach that includes a willingness to own up to the negative behaviour of firms.
“Having said that, there is still a tendency to blame a few rotten apples for a firm’s actions — And this is an admission of a serious lapse in corporate governance.”
Ramburuth calls on boards and shareholders to seriously question their oversight role and the way in which executives are incentivised to take foolish risks.
Professor Walter Baets, director of the UCT Graduate School of Business, argues that this “decoupling of risk-taking from reward” has had a significant part to play in the recent crisis; it has “opened the door to greed”, he says.
Similarly, Saki Macozoma, president of Business Leadership South Africa, believes “the fundamental issue was reckless risk-taking fuelled by greed and fostered by a perverse incentive system. Although the issue of ethics and ethical behaviour is relevant, it should not be our primary point of concern.
“People behave unethically if they break established rules and norms whose consequences they know and understand. Business leaders gambled with the world economy quite often without understanding the consequences. That is more frightening than the occasional lapse of ethics,” he says.
In addition, the debate has not addressed the role of investors in the crisis, he says. “The expectation of quick and ever-rising profits by shareholders is a great part of the problem of ‘immediatism’ that manifests itself in risky investments and the relativisation of ethics in business,” says Macozoma.
Should business ethics be taught, then, to prevent future problems? Baets believes the answer lies in ensuring that future business leaders understand the place a company has in the society in which it operates.
“Business schools need to stop teaching disciplines as if they are not interconnected,” he points out. “Ethics talks about what value is. It asks to whom and to what value is added, it questions [a business’s contribution to society] and to nature.”
While the debate continues legislation such as the new Companies Act, promulgated in April, will further ensure that businesses and business leaders are held accountable for their conduct.
Gareth Driver, director at Werksmans Attorneys, points out that the Act introduces new remedies for shareholders, particularly minority shareholders, to challenge directors. “The Act increases the responsibility of directors by creating new channels and formalising old ones that allow shareholders to challenge companies on their conduct.”
Shareholders may believe that a director has been derelict in his or her duties, for instance. In such examples, shareholders may put their complaint to the board and fellow board members are obliged to review the conduct of their peer. If the board finds in favour of the director, the shareholder can refer the matter to court.
The Act also provides for the creation of a Companies and Intellectual Property Commission and Tribunal, similar to that of the Competition Commission and Tribunal. In certain instances shareholders can refer complaints to the commission, which may take it to court.
While these provisions allow for greater shareholder activism, Driver warns that self-interested shareholders could abuse them, sowing division within a company.
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