Opinionista Johann Redelinghuys 25 November 2013

The down – and up – side of recklessness and greed

Independent research now confirms that the majority of South African companies fail to take proper account of risk and that they chase profit above all else. Corporate governance is nice in theory, but when it comes down to practical business, we go for short-cuts.

Dr Claudelle von Eck, CEO of The Institute of Internal Auditors of South Africa, (IIA SA) launching the corporate governance and risk index, says that only 41% of audit executives are confident that their companies’ risk management is fully effective. Concerned members of listed company boards say risk is increasing.

The area of greatest concern is in information and technology risk. Relying increasingly on technology to drive and sustain business systems, the risk exposure is a major concern for executives and investors.

There is no immediately plausible reason why this critical aspect of sound corporate governance is not given proper respect and consideration. Trying to get to the bottom of it, one has to examine priorities and the drivers of our corporate behaviour. Of course business is about profit and the increasingly demanding investment community keeps shouting louder, but there seems to be something else at play. Is there an unexplored corner of the South African personality working here?

In the international business community, South Africans have long been known to be ambitious go-getters and people of drive and determination. Compared to our more mild-mannered brethren, for example in other Commonwealth countries, we are seen as greedy risk-takers and people who just want to move in and take over.

In the local business community, we see the same syndrome manifesting at all levels of the social hierarchy. Daniel Jagadasan Singh, the man who is responsible for the Tongaat shopping mall collapse, is a perfect example. Despite multiple warnings and summonses to stop what he was doing, he simply went ahead, giving a finger to the law and no care to the risks. Making a buck overruled any concern for safety. Taxi drivers, who skip red lights and cross solid white lines, putting all their passengers at desperate risk, chase on to the next payload with little apparent care.

Profligate spending, whether it be on an Nkandla or the big houses and fancy cars of the other people with extravagant lifestyles frequently reported, are daily evidence of greed and recklessness.

Although there was some tightening up after the 2008 financial collapse, the international banks were major risk offenders. In their scramble to compete and carve an ever bigger slice of the market, they reduced their diligence practices, and increased risk to the point of near-disaster. They are getting back on the train again. It’s just too tempting, even for sane top-end business decision-makers.

Our appetite for high risk and high reward may come from what many think is a precarious situation, here at the lower end of Africa. Coping as one does with the daily challenges of managing crime, driving on the scary roads, being forced to trust corrupt politicians, and surviving health hazards, it is no wonder that less adventurous people choose dopey but safe places like New Zealand instead.

This country has long lived with a sense of impending doom. Most privileged people here enjoy the good standard of living but don’t believe that it will continue indefinitely, so there is an underlying awareness of having to make hay while the sun shines. There is a certain opportunistic thing in South Africa, and maybe in others on the continent north of us as well, that one has to grab while the going is good and to hell with the consequences. We are short-term thinkers. Focusing on long-term sustainability has never had much appeal and is only now being educated into us.

Pervasive high-risk behaviour suggests that there is little care for the consequences. People know that there is only patchy censure for lawlessness and if one is not going to be punished for it and if it can bring some benefit, why not? We have lost respect for the law and for those who are meant to enforce it. Convicted criminals can bribe their way out of the consequences and even ordinary folks believe they can manoeuvre their way beyond the reach of the law or any of the bodies that regulate standards of conduct.

With our internationally respected code of governance King III, one would have thought that South Africa would be a shining example and there would have been a stronger awareness here of how to manage corporate risk. But that is not the case. And it will be no surprise that the state-owned enterprises have the lowest ratings for King III compliance at 25%.  The compliance rating for provincial and national government is 31%.

Is it conceivable that the habit of playing chicken with life in this way could have any benefit? Low resistance to risk, an exaggerated profit drive and being in a hurry, when we think about it, can have an up-side. Together they play into greater willingness to start something new. New businesses don’t proliferate in safe, comfortable places. Life is too good for the need to look for something new or better. Being anxious for improvement provides the energy and drive to create new solutions and, maybe, an improved mouse-trap.

For this tangential potential benefit, should we just make peace with the high risks and the greed? Can we harness a weakness and turn it into a strength? DM

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