The recent spate of scandals in South Africa involving fraud and economic crime has pointed to widespread corruption in both the public and private sector. This malfeasance has highlighted the need to re-examine the ethical and moral framework within which business operates.
Professor Michael Katz, chairman of ENSafrica told a Gordon Institute of Business Science (GIBS) forum that an ethical culture, and not merely rules, need to be inculcated in business. “Society has to have a culture which sees white collar crime as an offense. It has to be culturally embedded that it is wrong.”
Professor Eugene Soltes, Harvard Business School academic and author of Why They Do It said white collar criminals generally don’t see the harm in what they do when performing a cost benefit analysis of their crime.
“Those committing the crime don’t see the harm in their misconduct as the victims are physically removed, or an amorphous entity such as ‘the market.’ They will proceed if they can benefit in terms of monetary gain or prestige,” he explained.
Editor of the Financial Mail, Rob Rose said criminals seem to have a level of cognitive dissonance of the harm they have caused. “They have no connection to the actual impact of what they do and no tangible sense of harm. “
He categorised white collar criminals as ‘borrowers’, who don’t set out with the intention to defraud but take money in the belief that they will eventually return it; or as opportunists like currency riggers. A further category was crowd followers, who believe ‘everyone is doing it,’ such as those who commit tender fraud. Finally, cartel behaviour is a further instance of white collar crime, where unethical behaviour becomes legitimised among a small community over a number of years. In this instance, Rose explained, “Accountability seems to have disappeared completely.”
Group CEO of Imperial Holdings, Mark Lamberti said the causes of white collar crime are poor processes, short termism and poor custodianship: “Short termism is one of the major causes of malfeasance. A key requirement of leaders is to not exert too much performance pressure on an organisation as it can become a driver of corporate crime.” He said managers assume an arrogance and forget who owns the company, when they should act as a custodian to protect the interests of others.
Lamberti said there was “no such thing as a generic non-executive director,” as boards would in the long run not be in a position to hold management to account.
Rose commented that boards had been “stunningly weak” at holding management to account for transgressions, and that institutions of accountability needed to be strengthened.
Non-executive directors who don’t know the business and are captive to management, coupled with the absence of a culture of healthy dissent were “a toxic mix. Such organisations are an accident waiting to happen,” Katz added.
Bonang Mohale, CEO of Business Leadership South Africa said corruption was “countenanced at the top filters through to the rest of society. We must hold ourselves to the highest moral and ethical standards, as ethics is what happens when nobody is watching.”
Advocate Kgomotso Moroka, senior counsel at Thulamela Chambers said not enough focus was placed on white collar crime in the private sector. “We need to ask how we got to where we are now, and move back to occupy the moral and ethical high ground.”
The state capture project which entangled both public and private entities and tarnished the reputation of a number of companies operating in South Africa, including KPMG, Oakbay, McKinsey and SAP had been “the most extraordinary heist in terms of both scale and organisation,” Executive Director of Corruption Watch David Lewis said.
He warned against civil society and ordinary citizens becoming less vigilant since the change in leadership and new administration under President Cyril Ramaphosa: “We have to continue to hold government and business to account. No government in the world will do good for a sustained period of time if its citizens are not demanding.”
Changing the ethical culture
Deterrents and stringent sanctions were useful in preventing white collar crime, Professor Soltes said. “Very few people actually believe they will be held criminally accountable for committing a white collar crime. We have to lower the disconnect so people realise if they engage in misconduct, they will be prosecuted criminally.”
Advocate Moroka argued that while society must be regulated by rules and laws, there must be an underlying ethical culture to ensure compliance: “If leadership doesn’t have the commitment to do things for the right reasons, it will become a tick-box exercise with no real change to culture. We have to build an ethical connection between the public and private sector. If we only focus on the public sector we lose the war. Both parties and society must be awake.”
Improving the culture of compliance in the private sector was an important initial step in eradicating white collar crime, Professor Katz said. Organisational structures must then be put in place to ensure the culture filters down and is monitored and enforced. “It is not just about rules in a vacuum, but rather misconduct which is harmful to broader society,” he concluded.