Dirt evident on the white collar
WHY do rich business executives, such as Markus Jooste of Steinhoff, cut corners and cost societies billions in criminal acts of greed?
Speaking at the Gordon Institute of Business Science (Gibs) this month, Harvard Business School professor Eugene Soltes had some intriguing insights into a question no-one has been able to satisfactorily answer: why do the uber-rich take criminal shortcuts?
Soltes was the headline speaker on a panel discussing white-collar crime, including Imperial chief executive Mark Lamberti, Business Leadership SA head Bonang Mohale and advocate Kgomotso Moroka, assembled by ENSafrica chairman Michael Katz.
But if Soltes, author of Why They Do It: Inside the Mind of the White-Collar Criminal, thought it was going to be a run-of-the-mill academic gabfest, he’d underestimated the white-hot fury about Steinhoff, Trillian, McKinsey, KPMG and state capture in South Africa.
A decade ago, while finishing his MBA, Soltes began writing to incarcerated executives, like Bernie Madoff and Jeff Skilling, to find out what made them tick.
The letters he got back were compelling, providing the sort of insights that will be invaluable in understanding the “mistakes” made by Jooste.
Speaking at Gibs, Soltes said many of the traditional explanations – greed, or the view that there’s a sophisticated cost-benefit analysis going on in the chief executive’s mind – proved frustratingly inadequate.
“What I saw was not a failure of reasoning but a failure of intuition. That is, they didn’t see the harm associated with their actions at the time,” he said.
“If you’re surrounded by people at a top company who all have a great background, you simply don’t think you’re the kind of person who is going to be sent to prison.
“You don’t see yourself as a criminal.”
But if this was the sort of cognitive dissonance rife in the Steinhoff boardroom, the interplay with the wider political environment under former president Jacob Zuma only emboldened morally flexible executives.
As Katz put it: “People come to consult me on corporate issues, and I’ll say that, for example, something is a breach of the Companies Act, or a breach of the listings requirements of the JSE.
“And senior CEOs will say: ‘Michael, what are you talking about a listings requirement for – look what’s happening in the country.’ ”
Mohale said: “When we were in the throes of state capture, and R100-billion was being siphoned off per year over a 10-year project . . . tax morality declined. CEOs were saying: ‘I cannot pay my 28% [in tax] to be given to the Gupta brothers to buy another jet, or buy another property in Dubai.’ ”
But someone in the audience suggested that the deeper question was what institutional frailty enabled the Steinhoff debacle: “Why did you have so many people sitting around a table who were so smart, seasoned businessmen, who couldn’t ask questions, who didn’t ask questions?”
After all, South Africa has a history of white-collar scams going back decades, including Masterbond and LeisureNet.
So it’s not off the mark to say we need to examine why so many of our boards are ineffectual, driven by rules and not ethics.
Lamberti said some chief executives bent the rules so they could chase growth in share prices, implying our executive remuneration structures had to be overhauled to prioritise sustainable long-term growth.
“Relatively small decisions can have a big impact on the bottom line, that can lead to incredible arrogance. It leads to people thinking: ‘It’s my company, I can do what I like, I can behave how I like,’ ” he said.
This was the case with Sam Waksal, a biotech billionaire convicted of insider trading in the early 2000s in the US.
Discussing his conviction, Waksal said: “I could sit there . . . thinking I was the most honest CEO that ever lived.
“And at the same time, I could glibly do something and rationalise it [when] I cut a corner, because I didn’t think I was going to get caught.” Today, in the dewy-eyed honeymoon of Cyril Ramaphosa’s presidency, we see the Hawks belatedly swarming around the Gupta mansion and the NPA belatedly charging Zuma for corruption, and we’d like to believe that crime, again, doesn’t pay.
But the word from inside the Hawks’ investigation into Steinhoff isn’t encouraging.
The complex shenanigans reported to the Hawks by Steinhoff audit committee chairman Steve Booysen are apparently an almost-unsolvable riddle to a prosecutions service utterly denuded of commercial skills.
It’s all very well finally having the political will to do the right thing, but without the skills, it’s never going to happen.