Now we are at tipping point, it cannot still be business as usual
In the face of social, environmental and governance crises, profound changes must be made
JUST BECAUSE WE CAN, SHOULD WE? WHICH TEAM ARE YOU ON: TEAM MACHINE OR TEAM HUMAN?
NO LONGER IS IT, OR CAN IT BE, BUSINESS AS USUAL. THE STAKES ARE TOO HIGH, THE ISSUES TOO WIDESPREAD
When two Boeing 737 Max 8 aircraft crash within five months of each other due to technical malfunction, killing 346 passengers and crew, one suspects all is not well at the group.
Similarly, though far less tragically, when US bank Wells Fargo admitted in 2016 to creating 3.5-million unauthorised bank accounts, or brand-leader Johnson & Johnson was found guilty of involvement in promoting opioid addiction, something is obviously wrong in the corporate sector, not only in the US but globally.
For most trustees, environmental, social and governance (ESG) considerations have at best been “nice to have” or “must have” but only from a compliance perspective, in a trustee pack.
For most lay investors, it is one of those annoying topics squeezed into investment conference agendas.
Arguably, recent events such as those above are changing that paradigm.
Global examples aside, in SA Steinhoff, Resilient, Tongaat, EOH, Sasol and others have seen share prices plunge, negatively affecting investor returns. SA for decades scored in the top few places globally in the World Economic Forum global competitiveness survey in such areas as quality of audit and reporting, corporate board efficacy and the protection of minority interests, but it has seen those rankings plummet, and for good reason. The sort of corruption that bedevilled the Zuma administration found its counterpart in the business community.
At the recent Business Against Corruption conference in Johannesburg it was pointed out that corruption does not take place in a vacuum. It cannot simply be the public sector at fault. On the other side of every deal sits a businessperson. The corporate sector, in all humility and urgency, needs to take a hard look at itself. Material and deep-rooted change is needed. The “G” in ESG so long touted by corporates and asset managers as an SA strength, needs to be critically challenged, with recent events at JSE stalwarts Old Mutual and Sasol adding grist to the mill.
And it’s not just the “G” that is problematic. The “E” issues are now more relevant than before.
Climate-change problems are well documented and accepted, not only in scientific circles but by the vast majority of the general populace. Arguably, only those with an alternate motive, misguided incentive structure or conflict of interest can pretend to differ.
Admittedly, some deniers hold high office, as in the US, or have huge power, budgets and effective lobbyists, as in the case of oil companies, and can obfuscate, delay and damage the urgently required move to a greener world.
Yet the planet protests louder every day. Recent examples include the hottest temperatures in many European cities, huge degradation of Amazon forests and the loss of critical bee populations (Brazil), loss of the enormous Okjokull glacier (Iceland) and many more. For many corporates, these issues have a direct financial and reputational effect. On the positive side, getting one’s positioning right provides an enormous opportunity too.
Lest we forget the “S”, its effect is felt too. The social contract is being severely tested around the world. Harsh and valid criticism is levelled at leaders at governmental and corporate level. The status quo is under attack, whether in China (communism), with respect to human rights issues (Hong Kong and protests not often reported on in the mainland), or in the West with unbridled excesses of capitalism and their effect on inequality, perceptions of abuse and excess and more. And this is before consideration of the looming consequences of technology under the banner of the fourth industrial revolution (4IR).
Aside from the obvious, huge and potentially negative effects on jobs, there are wider issues
moral, ethical and social where the important and necessary debates have not even begun. In his book Human
vs Technology The Coming Clash Between Man and
Machine, author and futurist Gerd Leonhard raises critical questions. For example, “Just because we can, should we?”, and, “Which team are you on: team machine or team human?”
And what of geopolitics the move to the right in global politics, the wave of populism sweeping the West, the effects of extreme political correctness, and SA’s own difficult, internal issues (past, present and future)? Or of financial repression, another megatrend, which not only continued after the global financial crisis but arguably intensified. How do investors deal with a world with more than $17-trillion of negative yielding bonds? Do the old paradigms, models and techniques even still apply?
It seems clear that we have reached a tipping point, within each of the E, S & G sectors, yet arguably more broadly than that. No longer is it, or can it be, business as usual. The stakes are too high, the issues too widespread, the news out too quickly and globally.
The issues in those trustee packs, and raised at investment conferences, will not go away, nor will they be silenced, however much some might wish to remain in the dark ages.
What might the effects of the above be on society? On government and corporates? On markets and investment returns? These weighty questions require all our attention. New ideas, new solutions, new approaches are required. We can wait no longer. The time to ask, to act, is now.