Corporate SA should rethink “people power”

BRITISH-headquartered public relations agency Bell Pottinger was this week placed under administration. It has been a dizzying fall, the speed of which has not only taken the agency and its supporters aback, but has fuelled unrealistic expectations regarding the exercise of “people power” through social media.

Within months of the racehate campaign it had been waging in South Africa, being exposed, Bell Pottinger had shifted from arrogance to faux humility, from defiance to abject public apologies, and thence to financial and reputational ruin.

Bell Pottinger had set out to deflect attention from the allegations against President Jacob Zuma and his controversial cronies, the Gupta clan, by scapegoating whites for all South Africa’s ills and attacking critical journalists of all hues. Given that it used fake Twitter and Facebook accounts as vehicle for its efforts, it is poetic justice that it was the outrage of tens of thousands of real people on social media that stymied its machinations.

If such an influential and wealthy cabal of spin wizards – skilled at manipulating the currents and eddies of public opinion – can be brought to its knees so swiftly, what is the likely fate of other entities involved? The civil society group Save South Africa warns that “KPMG could be the next Bell Pottinger,” because of its work for the Guptas.

But while the implosion of Bell Pottinger was a rare triumph of the obviously good over the obviously evil, it would be a mistake to take what might be just a political flash in the pan and elevate it into a political trend. The cracking of Bell Pottinger does not mean that spontaneous public anger, focused by activist groups to bring intense pressure, will vanquish larger, more formidable, more entrenched foes.

Next in line are auditors KPMG SA and international management consultants McKinsey but they will not be knocked over as easily.

These are seriously big players. Bell Pottinger had 240 staff and an annual revenue of $44m. McKinsey worldwide has 14 000 staff and a turnover of $8bn, while KPGM internationally is even bigger, with 189 000 employees and a $25bn turnover in 2014.

It takes some stretch of the imagination to think that local activists could bring them down in the same way that they did Bell Pottinger. It would be like downing an elephant with a pellet gun.

Paradoxically, though, it is the very scale of these firms internationally that makes their SA operations vulnerable. If the stench from their wallowing in the Gupta trough starts to offend internationally, the local operations can be sacrificed with relatively little cost to their worldwide partners.

Although the tainted contract with Eskom allowed McKinsey SA to pocket R1.6bn, the firm has fewer than 10 partners in the country. And while KPMG SA is far bigger – unsurprisingly, as befits the audit firm servicing the Guptas, it is difficult from its glossy, vacuous marketing material, to pinpoint actual size and revenues – it’s not so big that it can’t be amputated, should the gangrene from the SA limb start spreading.

Pressure is certainly being exerted. The civil society group Save South Africa has called on blue-chip names, including the Johannesburg stock exchange and the country’s biggest banks, to drop KPMG.

And the pressure is telling. The Institute of Directors in Southern Africa has already suspended all co-branded activities with KPMG‚ while it considers its final position. Asset manager Sygnia cut its ties following a meeting between CEO Magda Wierzycka and KPMG at which she attempted, futilely, to ascertain how the firm’s partners had missed a “big moneylaundering exercise” relating to the infamous Gupta wedding.

On Friday, KPMG CEO Trevor Hoole, COO Steven Louw, chairperson Ahmed Jaffer and five other senior executives resigned. The firm also withdrew its Sars rogue unit report, admitting its earlier assertion that the former finance minister Pravin Gordhan knew, or should have known, about the unit, was simply wrong.

As recompense, KPMG will either refund its R23m Sars report fee or donate the money to charity. The R40m earned in fees from Gupta related entities, stretching back to 2002, will go into education and anticorruption not-for-profits.

It will be interesting to see whether this appeases public anger and gives corporate SA the wriggle room it needs. It may let off the hook Standard Bank, Old Mutual, Investec and Goldfields, who all have remained clients.

It may be that their inaction stems from an understandable reluctance to be seen bowing to public pressure. On social media, righteous anger can quickly deteriorate into a rampaging lynch mob and who knows who the hoi polloi will next target?

They are making a strategic error. To avoid the kind of reputational damage that can make them hostage to populism, corporates need to place ethical integrity at the heart of their decision making. They have to be squeaky clean and transparent.

This week Iraj Abedian, chief executive of Pan-African Research, stepped down as a non-executive director at Munich Re because the reinsurer would not fire KPMG SA. In an excellent analysis in Daily Maverick, he gets to the nub of the issue: it is not about the narrow definitions needed to bring criminal charges, nor about the limited authority of the audit industry regulatory board to punish professional failings.

“(These) have absolutely no bearing on the ethical judgment that KPMG clients have to make. On the basis of what is already in the public domain — and KPMG has not denied any of it — there is nothing to wait for.” So, too, with McKinsey.

Follow WSM on Twitter @ TheJaundicedEye