Telling all: EOH — helmed by chief executive Stephen van Coller (above) — appeared before the Zondo commission of inquiry into state capture and provided evidence of irregular money flows at EOH, which was unearthed by law firm ENSafrica.
(Gallo Images/Papi Morake)
Senior managers at IT services company EOH who were implicated in the Zondo commission’s state capture report have yet to face criminal prosecution, but the company has come through a long era of corruption, after chief executive Stephen van Coller took over and cleaned up the house.
These were among the findings of a new report written by economist Stephen Gelb, a researcher with the Overseas Development Institute (ODI), which was released in partnership with the National Business Initiative and Corruption Watch at a webinar on Tuesday.
The report is a case study of corporate corruption and the subsequent turnaround of the JSE-listed company, which provides key services to businesses and the government in South Africa. It documents research by the three organisations and provides insight into the social behaviours of corporate entities and the measures taken to address misconduct, with a particular focus on the EOH case.
EOH shareholders have lost about R24 billion since allegations of corruption involving government tenders and poor governance emerged, even before the state capture era, which led to the company suing eight former executives including Asher Bohbot, founder and former chief executive; John King, former chief financial officer; Jehan Mackay, former head of public sector; and Ebrahim Laher, former head of EOH International, for R6.4 billion in damages.
It also filed a criminal case against the four former executives. The court matters are ongoing.
Highlighting the research findings Gelb said the Zondo commission had not looked deeply into the reasons for corporations such as EOH becoming corrupt, because it had focused on the public rather than the private sector.
The report’s analysis showed that while the wider context of state capture after 2009 was “very important for corruption at EOH the corporation’s problems had preceded the ‘state capture’ period” and extended beyond its dealings with government.
After wider problems came to light from late 2017, key shareholders forced the board to appoint a new chief executive, Van Coller, in mid-2018 who “turned out to have a very different approach to corruption than his predecessors at EOH”.
Gelb said his research included one-on-one interviews with 12 current executives including Van Coller, two current board members and 12 focus group discussions involving 82 current employees.
He said Van Coller had introduced a new era of transparency, professionalism and standards in the company and had successfully, albeit at a high cost that included staff working long hours, successfully restructured the company and its liabilities.
“Not one person remains on the board from 2017-18 and the company has taken an approach of proactive transparency, approaching the authorities including 14 or 15 agencies (such as the South African Revenue Services [SARS] and the South African Financial Conduct Authority) and market connections in a transparent way, talking to suppliers about what happened and to the banks and it had a regular presence in the media,” Gelb said.
“People have to put in longer hours of admin work for good reason but people did emphasise that there is much less bullying and a greater concern for staff welfare. But there is still a lot of worry about the future of the company and therefore about their jobs.”
He said there had been only a single fine imposed on the company by law enforcement agencies, which was levied by the JSE after EOH approached it regarding its accounting irregularities.
“There have been no prosecutions or other regulator actions towards individuals or organisations and no public self-reflection by the regulatory authorities,” Gelb said.
He said EOH had achieved “the successful restructuring of its liabilities … but at a high cost. The share price is about 1% of its peak level and capitalisation and its labour force are much lower.” But the company remained a “crucial” player in the country’s information technology systems.
Gelb said Van Coller’s team had highlighted the importance of addressing corruption while saving the corporation and of a broad customised approach to dealing with corruption combining top-down and bottom-up action.
“We don’t have [a situation] in every company [with] people like Stephen and his team who have approached the task with such integrity.”
He added that the case study showed the need for a new approach by regulatory authorities in confronting corruption in the corporate sector.
“We need more active oversight of corporations [and] need for stronger remedial actions,” he said.
Van Coller said it was important to create an incentive for people to report irregularities by implementing deferred prosecutions.
“I was lucky I had not moved to EOH for money but there was a possibility in the fourth industrial revolution driven by the president to create jobs so my motives were very different and that helped. But the biggest thing we need to get right is that businesses are not corrupt, people are,” Van Coller said.
He said the business had been left to pay back billions of rands to suppliers, the Special Investigating Unit and SARS while allegedly corrupt individuals had managed to walk away.
“We had to pay back R4.8 billion and were left with R800-900 million. We had to sell businesses to stay alive … it feels like driving down the road at 100km an hour and trying to service your car at the same time.”
“Some of those people have just moved on and created businesses and some of them are the competition. We can’t change South Africa if there are no consequences for being corrupt,” he said.
“We need to put in processes and deal with corruption properly because if you move them on quietly, the corruption just moves.”
Business Leadership South Africa chief executive Busisiwe Mavuso said the number of senior managers involved in corruption was high.
“The architecture of businesses is not corrupt, what is corrupt are leaders. The response by authorities can’t be to shut down companies. We are in this mess because of leadership and the same is true of companies. If you take a company and put the right leaders in place you could sit with a brand new company which is the epitome of good governance under the right leadership,” Mavuso said.
“And giving the CEO the necessary power to do what needs to be done you need to give the executive teams complete power to effectively deal with corruption because if you don’t you are setting people up for failure.”
Corruption Watch executive director David Lewis described the report as “groundbreaking” and said the methodology used in the research could be applied to state owned entities and government departments.