“Ethics is knowing the difference between what you have a right to do and what is right to do.”
– Potter Stewart, Associate Justice of the United States Supreme Court
South Africa’s current woes are in large part a result of a large-scale breakdown in ethics (both personal and professional) and good governance practices.
One only needs to look at the goings-on at Steinhoff, KPMG, Eskom, SARS and VBS Bank to see the impact that unethical behaviour, large scale looting and unchecked business practices have had on the South African economy and on South Africans, whose confidence in the leadership of this country and those in business is at an all-time low.
Many South Africans are asking the same question. How are we going to find a way out of this mess? At BusinessBrief, we believe it is going to take the willingness and an earnest desire of our leaders and every South African to walk a path of honesty and integrity, with unfailing ethics and an unwavering moral compass. Getting our ethics right and ensuring that the public and private sector have processes and procedures in place that guarantee good governance practices is the only way we are going to prosper as a nation.
This feature looks at how organisations can manage ethics and governance, the role professional bodies play when it comes to ethics and what companies need to consider when it comes to ethics and governance in the digital space. It also highlights two new products on the market – one which authenticates a person’s credentials and stops identity theft, and, the other, a new app that enables organisations to view their corporate governance status at a touch of a button.
Breakdown of ethics is a crucial issue facing South Africa
Much of the fraud and corruption so prevalent in South Africa today is the result of a breakdown of ethics and values, says Deon Rossouw, CEO of The Ethics Institute.
Rossouw says one is ethical when one not considers what is good for self, but also good for others.
He describes professional ethics as a set of ethical values and standards that guide a professional in his/her interactions with stakeholders, with the interaction being good for both parties.
How organisations can manage ethics
Rossouw says it’s not enough for an organisation to have a code of ethics for people to abide by. “Organisations must articulate their ethical standards, familiarise their employees with those standards and then motivate them to follow the standards.”
He adds that while extrinsic motivations like fear, punishment and incentives do work, the far better way is to is getting buy-in from employees for the organisation’s values and standards, so they do the right thing, even when no-one is watching.
“Having ethical leadership is not enough. Organisations must appoint a dedicated person or team to attend to ethics.” The Ethics Institute trains and certifies people in organisations as ethics officers or managers.
Rossouw highlights five things organisations need to do to manage ethics:
- Do an ethics risk assessment. Determine any unethical behaviours, practices or beliefs in your organisation. Identify any grey areas, also known as ethical dilemmas, and get clarity on those. For example, what is the organisation’s policy on gifts?
- Formulate an ethics strategy and develop an ethics management plan. For example, training leaders, incentivising people to do the right thing and creating disciplinary procedures to deal with those who don’t adhere.
- Next, organisations need to ensure their codes of conduct and policies are sufficient to address the risk areas they have identified.
- Codes and policies must be institutionalised by making sure employees understand the organisation’s standards and motivating them to uphold these standards.
- Monitor the plan to see if it has resulted in a change in behaviours, practices and values and then report it. An information management system will be needed to capture and analyse the data.
The role of the professional body in promoting ethical behaviour
Ethics lies at the heart of what professional bodies do, says Claudelle von Eck, CEO of the Institute of Internal Auditors South Africa (IIASA).
“One of the SAQA requirements to be a professional body is to look after the interests of the public. It’s the professional body’s code of ethics against which members are held accountable in looking after the public interest.” To this end, members of the IIASA who hold designations are required to include ethics training in their CPD annually.
Willi Coates, SAICA Senior Executive: Brand, says SAICA requires its members to live the values if the CA(SA) profession and keep each other accountable. “Every member, through their actions, determines the reputation of the profession and contributes to fostering accountability and trust.”
Coates points out that it is not only the CA(SA) profession or its chartered accountant members who are responsible for ethics in business. “This requires the combined adherence of everyone involved in the business value chain to actively contribute to governance processes and adhere to ethical behaviour. While the King IV Code should result in good corporate governance and promote greater accountability and transparency, to achieve this there must be ethical leadership and a culture that promotes ethical mindsets and behaviours.”
Stephanie Pillay, COO and Acting CEO of the Financial Planning Institute of Southern Africa (FPI), adds that there is zero tolerance for unprincipled practices, whether unprofessional or unethical conduct by its professional members. She says that at least five of the 35 CPD points that FPI’s members are required to get annually are focused on ethics and practice standards. “These have to be prevalent in how our members conduct themselves and their businesses. We are driven by strict standards and discipline that upholds the integrity of the profession.”
But Ivor Blumenthal, CEO of ArkKonsult says there is a misperception that a professional body is accountable for ethics tracking of people who they’ve professionally recognised. “Where an industry association exists, it would be the role of the industry association – whether a trade association, business association or trade union – to track and enforce ethics. Where no such industry association exists, a professional body would handle matters of ethics on their own by holding designated members accountable for their behaviour, but they need to be careful not to become bogged down in ethics enforcement rather than the enforcement of professional standards, which is their role.”
Deon Rossouw, CEO of The Ethics Institute, says professional bodies have several sanctions at their disposal to discipline members who are in contravention of their codes of conduct ranging from verbal warnings and fines to striking members of the professional register, denying them membership and naming and shaming them.
SAICA offers examples of how it deals with errant members. “We deal decisively with members who have acted unethically or been involved in misconduct by instituting investigations and disciplinary proceeding. Where members are alleged to be involved in illegal activities, SAICA liaises with authorities mandated to carry out prosecutorial processes as SAICA does not have the power of subpoena. Members found guilty of breaching SAICA’s Code of Professional Conduct or by-laws, or its Code of Professional Conduct can receive a caution, a reprimand, a fine of up to R500,000 per charge, have their membership suspended for up to five years or get excluded from membership,” says Coates.
SAICA also encourages members to commit to professional ethical standards such as the Non-Compliance with Laws and Regulations (NOCLAR) provisions which guide auditors and other professional accountants in what actions to take in the public interest when they become aware of potentially illegal activity.
Ethical Leadership and eradicating fraud and corruption key to getting South Africa back on track
Accountability in both the government and private sector is what is needed to overcome the massive lack of ethical leadership in South Africa, says Bryan Hattingh, CEO of exponential leadership company Cycan.
“People need to be seen to be truly taken to task and bear the consequences of their actions. We need leaders in both business and government who are inclusive, aspirational and are part of creating a better world and society. In this rapidly changing world, we are going to need leadership with greater levels of self-awareness, agility and resilience.”
Professional bodies, says Stephanie Pillay, Acting CEO of the Financial Planning Institute of Southern Africa (FPI), can lobby for stronger action to be taken against people who are found to be corrupt.
“Laws need to be tightened and people prosecuted if we’re going to transform this corrupt society we’re living in. The lack of transparency and professional accountability needs to be addressed and public officials that have criminal cases against them should not be eligible for election. We need to aid and advocate the change in government processes. If officials are members of more aligned professional bodies, there will certainly be fewer reports of the criminal cases.”
She adds that professional bodies also have a role to play in informing the public about procedures and processes through which they can get justice when they’ve been a victim of fraud and corruption.
Associate Professor Kosheek Sewchurran of the University of Cape Town Graduate School of Business (UCT GSB) and Acting GSB Director, says the corporate leadership failures of recent years have been a stain on South Africa’s reputation and its proud history of developing outstanding entrepreneurs and business leaders. “Collectively, we have to examine what went wrong with our corporate governance that these kinds of things were allowed to happen. Business schools also have to reflect on what we can do to ensure this kind of behaviour doesn’t happen again. We need to produce authentic leaders who have purpose.”
David Loxton, CEO of Africa Forensics & Cyber, says South Africans constantly bemoan the magnitude of corruption in the country yet at the same time text while driving, bribe their way out of traffic fines and jump red robots. “If you’re guilty of any of these misdeeds, you’re not simply taking an easy way out – you’re deliberately flouting the law. Lawlessness may start with these deliberate actions, but it’s also the decision not to take action that contributes to the lack of ethics in our society. Are you prepared to stand up when you see a transgression? Are you prepared to honour the employer/employee contract, which requires that we put employer’s interests first, alerting them to malpractice rather than covering up and becoming a bystander to fraud, corruption and theft? Unless you are, our state will continue to rot – because, quite simply, ethical states have their roots in ethical individuals.”
Professional bodies sign MOU to encourage accountability among members
Six professional bodies that are members of the Anti-Intimidation Ethical Practices Forum (AEPF) signed a Memorandum of Understanding in September 2018 to foster a culture of accountability among their members and restore credibility in SA’s public and private sector companies and institutions.
The sole focus of the MOU is to hold the members of the signatories accountable. Signatories include the Institute of Internal Auditors South Africa (IIA SA), The Institute of Risk Management South Africa (IRMSA), South African Institute of Professional Accountants (SAIPA), Chartered Secretaries Southern Africa (CSSA), Institute of Directors Southern Africa (IODSA) and the Association of Certified Fraud Examiners (ACFE).
The MOU will see the signatories pooling resources and share the cost of investigations, disciplinary hearings, court cases and the like.
Claudelle von Eck, CEO of IIA SA and chairperson of the AEPF, said that with so many allegations of corruption last year and the potential of increasing allegations against members, the MOU signatories sought a way to support each other to hold members accountable. “Many of our members hold multiple designations and/or memberships in several AEPF bodies. It’s very costly to fund investigations, hold disciplinary hearings and fight court action. We’ve agreed that depending on the discipline that person was practising at the time of the misconduct, that the professional body presiding over that discipline will take the lead in the investigation, while the others assist with resources and will also abide by the outcome of the investigation.”
The MOU will make it harder for professionals to evade being held accountable for their actions because they will be held liable for their actions by all MOU signatories.
Signatories will also inform on each other’s members, where they hear of misconduct. “We want to foster a culture of accountability and with that comes speaking up and encouraging others to speak up,” says von Eck.
Good corporate governance should be the ethos of every organisation
Understanding corporate governance and applying this discipline should be at the heart of every organisation’s strategic intent, says Terry Booysen, CEO of CGF Research Institute (CGF).
“Key stakeholders and institutional investors are increasingly demanding that organisations and their boards be held accountable for the affairs of the business. At the heart of corporate governance should be the desire to be a good corporate citizen, which means anything an organisation does should be able to withstand all forms of scrutiny,” he says.
Booysen describes governance, in its most simplistic form, as ‘the system by which the board and its executive management direct and control the affairs of an organisation’.
He adds that while organisations are directed differently, the intended outcomes of good governance remain principally the same, irrespective of the nature of an organisation’s business. “The values of organisations will understandably vary and their ethics may be influenced by numerous variables such as:
- An organisation’s governance systems
- Role and composition of the board
- Extent of legislation
- Internal policy prescripts
- The leadership’s own ethical belief systems, generally shaped by their personal backgrounds and culture
Booysen says individuals should never have to ‘subordinate’ their personal ethics, values and belief systems to those of the organisation they work for, but should understand whether their belief systems are ‘congruent’ with those of their organisations. “Where the value systems of the stakeholders and the organisation are not adequately aligned, support of the organisation and its products and services becomes highly questionable. An example is the recent KPMG scandals. These have shaken the confidence of its clientele across the world, who fear reputational damage through their association with the firm.”
Booysen adds that leaders should be careful not to over-regulate their businesses in a…
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Read this Feature on PROFESSIONAL EDUCATION and CAREERS by Max Marx, as well as a host of other topical management articles written by professionals, consultants and academics in the February/March 2019 edition of BusinessBrief.
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