How KPMG can win back public’s trust
The phrase “A week is a long time . . .” is well established in the political lexicon. But rarely has such a phrase had such direct and profound implications for the business sector.
Exactly a month ago, the ANC elected its new leadership, headed by Cyril Ramaphosa. This came after 10 years of the Jacob Zumaled administration, during which parts of the governance and accountability systems collapsed and were paralysed from within by political principals. This led to various incidents of corruption in the public and private sectors, ignored by indifferent and distracted law enforcement agencies.
The most explicit exhibit of this paralysis related to the Gupta family and the private and public sector companies implicated in the state capture project. Throughout last year, such companies remained untouched by law enforcement agencies in spite of overwhelming evidence in the public domain. The governance crisis moved from being a state problem to a universal problem in South Africa, implicating companies such as KPMG, McKinsey and SAP.
Since the change in the ANC’s political leadership, there has been a dramatic change in the behaviour of law enforcement agencies, which are now actively pursuing the participants, enablers and beneficiaries of state capture. The Asset Forfeiture Unit has taken steps to recover the billions paid by Eskom to McKinsey and Trillian; and the Companies and Intellectual Property Commission has laid criminal charges against KPMG, McKinsey and SAP for Companies Act violations.
Due to the nature of its business as an audit and advisory firm, the events have had traumatic implications for KPMG. The currency of an auditing firm is the ability of stakeholders — clients, regulators, lenders, investors and other parties — to have faith, confidence and trust in the business conduct of the firm, especially as it relates to integrity. The loss of such faith is the single biggest risk for an audit firm.
Over the past year, from its unexplained retraction of its South African Revenue Service report and its complicity in the Gupta project, KPMG has suffered from such a loss of trust and, inevitably, has lost key clients. Surprisingly, though, in spite of the public interest in the matter, KPMG’s own disclosures have been vague.
Last week, as part of its path to reform, KPMG appointed Professor Wiseman Nkuhlu, the chancellor of the University of Pretoria, chairman of its board. He is the country’s first black chartered accountant and a respected leader in the profession — KPMG could hardly have found a better person for the task. The key question, however, is defining that task.
The KPMG dilemma rests between the twin pillars of accountability and appeasement. If KPMG has appointed Nkuhlu in order to use his stature and influence simply to appease its stakeholders and not to address its accountability and governance issues, such an appointment would be a waste of time.
The main challenge facing the firm is the restoration of credibility, faith and trust. To achieve this, KPMG has to go beyond the cosmetic and identify and disclose where its systems and processes went wrong and then convince the public it can be trusted again.
An internal diagnosis is not useful if it is not accompanied by the transparency that enables us to understand just how the firm ended up where it is in the first place, and how it will ensure this never recurs. For an industry that traditionally treasures confidentiality and secrecy, there is a need to do things differently in this case.
An accountable KPMG would acknowledge that its alleged role in state capture leaves it exposed to the inevitable political storm that will unfold this year. The firm should therefore take the view that full disclosure is the appropriate option, rather than incurring constant speculation.
As we have seen in the recent Viceroy and Steinhoff saga, speculation leads to anxiety that — in the case of KPMG — can result only in the loss of trust and the departure of more clients. It would be a great pity for KPMG to suffer such a fate under the leadership of Nhlamu Dlomu as CEO and Nkuhlu as chairman. Our political correctness notwithstanding, that would be seen as a failure of black leadership.
And that would be a greater setback for all of us.