Around the world, shareholder activism is proving a disruptive force in the corporate sphere. While activist investors driving personal agendas are a cause of alarm for many Board members, it’s the environmental, social and governance activists (ESG) that are creating the greatest impact.
When Steinhoff International Holdings NV entered its downward spiral, former chairman Christo Wiese lost more than $2 billion. That’s a large sum of money by anyone’s standards – but the reputational loss triggered by his involvement in the corporate scandal must far outweigh any financial loss. This, surely, would be enough incentive to encourage the business mogul to keep a close eye on the transactions of any company with which he has an association.
Wiese is not the only executive who has kept mum about ‘grey’ happenings in their own company. (Maybe he was kept in the dark). This year, however, newspaper headlines relating to companies caught up in corruption scandals seem to be coming thick and fast. Most recently, the rapid decline of EOH following allegations of dodgy government contracts has seen the company’s share price tumble, causing Microsoft to cut ties with the organisation and forcing its executive team to take a much closer look at internal corruption controls than the previous team did. Then there’s Stephen Saad, co-founder and chief executive officer of Aspen Pharmacare, whose personal reputation has taken a pounding along with his company’s share price.
What’s interesting here isn’t the fact that corporate corruption continues to be a major issue in South Africa, in spite of the Zondo Commission forcing corruption to the forefront of the national consciousness. Rather, it’s the vacuum that has followed our awakening to the depth of this problem. It would be lovely to imagine that our new awareness of corruption had left us determined to create a climate that encourages ethical behaviour – or, at the very least, rewards those who out the perpetrators of corrupt practices.
A state of apathy
The prevalence of corporate corruption points to the poor state of shareholder activism. It would seem as though, rather than giving rise to a generation of investors and shareholders inspired to use their ownership to steer organisations towards more ethical operations, the people who are in a position to make a real difference are held in the grip of apathy and the willingness to turn a blind eye. As long as we are making a profit, why interfere, seems to be the mantra.
I have seen this from my personal experience. You’d be forgiven for thinking that, in my years as a lawyer specialising in the areas of fraud and corruption, I would have been approached by shareholders any number of times. Sadly, not so. I can remember only one occasion where a shareholder requested that I investigate an executive team suspected of fraudulent activity. (Interestingly, this executive team was highly profitable!) Far more often, shareholders are willing to keep their questions to themselves.
Time to take a stand?
But here’s a question for those who are all too happy to distance themselves from presumed wrongdoing: how can we hope to entrench a more ethical culture if no one is prepared to take a stand against those who turn away from transparent operations?
What’s important to note here is that stepping forward can – and does – make a difference. Last year, we saw KPMG – as one of South Africa’s Big Four auditing firms, a highly respected organisation – lose its lustre as its involvement in Guptagate and State Capture was uncovered. We saw a number of the company’s high- profile clients cancel their contracts and distance themselves from the firm.
Moreover, we have a legislative environment that’s…
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Read the full article by David Loxton, Chief Executive Officer, Africa Forensics & Cyber, as well as a host of other topical management articles written by professionals, consultants and academics in the August/September 2019 edition of BusinessBrief.
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