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Forget corporate codes, give me a leader with character


Forget corporate codes, give me a leader with character

We need people with genuine ethics if we are to recover our respect and faith in business leadership

Stuart Theobald

For reasons I have never quite understood, South Africa has long prided itself on its corporate governance standards. But our confidence in the capabilities of our corporate directors is plummeting.
Maybe we’ve been wrong all along. One way you can see the faltering faith is the World Economic Forum competitiveness rankings. These reflect the self-image of corporate leaders by asking them what they think of aspects of their own countries. According to them, SA has gone from having the third-most effective corporate boards in the world to 34th between 2016 and 2017. The strength of our auditing and reporting standards has collapsed from first in the world to 30th.
Those figures are now dated, resulting from an opinion survey in the first half of 2017.
In light of the Steinhoff debacle, which began at the end of that year; the serious questions about Resilient we are grappling with; the accounting failures related to those and other examples; and outright illegal activity emerging at small bank VBS with the connivance of auditors, I would expect executives to downgrade their opinions on the quality of governance and private sector institutions far closer to what they’ve long believed about government.Their opinions on public trust in politicians puts us 114th in the world and favouritism in the decisions of government officials at 127th.
Institutions sometimes fail, even those we invest a great deal in making robust. Banks collapse. Auditors conspire with clients to hide fraud. Board directors don’t read information about their companies and glibly sign off on management decisions.
We try to stop these things by putting laws in place, rules about board committees and decision processes, trying to erect what we call “checks and balances”.
These kinds of institutional paraphernalia are intended to structure behaviour so that it delivers what we want: ethical outcomes in corporate decision making.
King-size error
But we have attempted to make up for a lack of character in our leaders by trying to erect institutions that don’t require character.
That is our error. Ethical character is essential. Institutions cannot make up for it. Institutions might help, but they don’t always. If I had to choose between a corporate manager with deep ethical commitments and leadership talents, and another company that checks all the boxes of the King 4 code on governance, I’d go with the former.
I don’t care if that leader violates the King code prohibition of vesting the CEO and chairperson roles in the same person. I don’t care if less than half the board is occupied by independent non-executive directors.Indeed, when corporate leaders whom I consider excellent, like former Bidvest CEO Brian Joffe, are forced to separate leadership roles and appoint people to boards who really don’t add value, I think we’re making things worse, not better.
But, I can hear many say, ethical character is so hard to know, that we must have institutions that do the job for us.
Actually, that’s wrong.
When we have direct line of sight to our leaders, we can judge them quite easily. The problem is that the governance structures we’ve erected actually obscure that line of sight.
We’ve substituted direct assessment of individuals with a compliance checklist. Ethical character is hard to know because we’ve concealed much of the information we need. Humans are very good at judging people. We have finely tuned brains that detect when people are lying to us.
We’re good at interpreting information to form opinions on peoples’ ethics. We just need that information.
Getting above board
Instead of complex governance codes, I would want firms that are transparent. Can we see the minutes of board meetings to understand who in the room actually says things that are informed by a deep understanding of the company and independence of mind? Can we see the decisions that each board member made on issues that the board considered, so we can detect patterns to enable us to understand their character and whether they really understand fiduciary responsibility?That matters infinitely more than whether they are independent, or have been on the board for 20 years or two.
Can we publish each and every sanction that the JSE gives out to managers or directors for violations of listing rules (even the ones that don’t matter)?
Can we make the lead audit partner visible to investors and available to answer questions directly at AGMs? Can we bar him or her from hiding behind the audit firm name? Can we ensure that all of the sanctions the audit regulator hands out in disciplining auditors are made public and recorded?
While we’re at it, can we forbid the notion of a confidential sanction in every bit of civil law concerning companies so that when someone does wrong we know about it?
If we are to recover our respect and faith in business leadership we have to know that we have leaders with genuine character.
The last year has proven our corporate governance institutional paraphernalia not only fails to deliver the leadership we want, but may actively frustrate it by prioritising things that don’t matter, and by giving investors a set of standards that don’t track the quality of leadership.
Let’s think again.

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