Monday, April 9, 2018

Stakeholder capitalism.

Can South Africa create a fresh economic approach to growth and inclusivity?

Part of the enthusiasm of a “new dawn” in South Africa is the belief that a closer partnership can be established between labour, capital and state. It has a firm Ramaphosa stamp to it and is key to the President’s desire to galvanise the nation on a different business friendly path of cohesion, inclusivity and growth.

In this he has put renewed emphasis on the CEO initiative and the National Economic Development and Labour Council (NEDLAC) as “unique institutions” in bringing the three economic estates together and that are envied by many other nations. Sceptics could argue that most nations do not need them and have long since evolved beyond 19th century ideological divisions captured in theories of “capitalism” and “socialism” that still mesmerise many in this country. (See article: An age of economic soul searching here.)

Only a political or organisational theorist could come up with a term such as “stakeholder capitalism”. It’s counter-intuitive to the very definition of capitalism and borders on being an oxymoron. The classic definition of capitalism assumes the supremacy of ownership over “stakeholders”. Perhaps it is time to move beyond the debilitating semantics of capitalism and socialism. There are so many permutations of both in different settings that neither exists in its pure form. Yet the words themselves ignite knee jerk responses based on stubbornly nurtured prejudices.

Associative meaning has a subtle way of creating unshakeable intuitive prejudice – to the extent that many baby names are banned in some countries with some nations even having a pre-approved list. Have the words “capitalism and socialism” not reached that point? And perhaps with them other concoctions such as “communism”, “neo-liberalism”, “social capitalism” and “stakeholder capitalism”. There is, of course, much value in the inclusive stakeholder approach, but to achieve that, one simply has to let go of much of what is conventional capitalism – including the purpose of business and the accounting formats -- in favour of a common purpose; common fate approach.

It will also need a clearer distinction between capitalism and other concepts such as “free enterprise”, “free markets” and even notions such as innovation, entrepreneurship, and prosperity. Without that distinction, those laudable, more palatable and easily defended concepts become tainted with many negative connotations associated with the name of capitalism. It is said to be in a crisis. Its face has been called “unacceptable”. It’s been slandered as “ugly”. It’s even been demeaned as having no face at all. It solicits ill-informed responses from populist leaders that inflame without enlightening: much heat without light. Included in its defence, and entrenched by the word itself, are questionable assumptions about what accounts for its success.

The first is that human beings are singularly driven by their immediate material self-interest and profit. That is a silly generalisation. Human beings are far more complex than that. Free enterprise supports a different understanding, as pronounced by Adam Smith (See here). Without a good measure of benevolent behaviour we attract the very nemesis of free enterprise: more rules, regulations, laws, government controls and even coerced empathy in the form of a system mildly called socialism. Which prompts me to burst another assumption bubble: because homo economicus is a social being rather than simply a functional entity in one or other construct, it does not support the radical socialist argument of ownership by all – or ownership by none.

Interestingly, while capitalism is blindly married to the material self-gain driver, free enterprise does not concern itself with motive: as long as it is led by the fundamental rule that wealth is the result of creating something of tangible value for others or being useful to fellow human beings. In that it has a fundamental benevolent underpinning. Free enterprise is remarkably resilient and accommodating, and does not attract or even need the fanatical posturing that advocates either for or against often adopt in an understandable blind prejudice. Even in its aversion to socialism and the latter’s implication of bigger government at the expense of private initiative, it can accommodate permutations that fly in the teeth of many arguments.

Capitalism vehemently champions my old pet objection: the profit motive and profit maximisation as the ultimate driver of success and prosperity. I do not intend repeating my challenge to this claim as simply being false. What is worth repeating is the outrageous and demeaning assumption it makes about the motives of entrepreneurial giants who have made a marked and lasting impact on humankind. The social miracle of free enterprise is its ability to forge cohesion and a sense of common purpose between stakeholders. That obviously implies not trying to rank one above the other, and certainly not encouraging the exploitation by one of the other.

That is implied in the name “capitalism” itself. It assumes capital supremacy in all things, and the pursuit of its formation and growth is a precursor to all kinds of wonderful stuff. Free enterprise accommodates, indeed proposes, a different view: that enterprise leads and capital follows. Capital is indeed a critical enabler. But so are skills and labour, and government services and infra-structure. But the ultimate enabler is demand.

The results of a narrow and exclusive view on the role of capital formation have been devastating. We have not seen significant capital formation in organic growth through multiples of mom-and- pop ventures, small and medium enterprise growth, and growing middle classes; but in mergers, acquisitions, financial services, and financial or property assets. Control of capital, not necessarily ownership, has increasingly been concentrated in the hands of the few, who in turn, some have argued, have “captured” many free enterprise activities, parts of government, and the most invidious of all: banking and money creation.

The term “monopoly capital” may have no logical basis, but it’s simply a reflection of trying to find, or even create a demon that “will be confronted” by voting for some populist megalomaniac. The concentration of control over the means of production, either by government or a few plutocrats is the antithesis of free enterprise. The term itself is a P.R nightmare. Even in its origins it was demonised by novelist Thackeray to represent an exploitive landlord. It never featured in Adam Smith’s writings, but was repeatedly used by Karl Marx. So it was coined by its enemies.

I have no doubt opened the gates of wrath of many readers. And that is the essence of the problem, emotive responses linked to a name. You will unlikely find these observations in economic textbooks. The reason is simple: for the most part I have been dealing with perceptions, which most textbooks and academics ignore. At the same time they fail to recognise a fundamental truth: that perceptions create reality.

The one thing that globalisation has shown is that there is no one-size-fits all best economic system. All countries have their own uniqueness that often defy ideological prescriptions. Each has to evolve in its own way.

If we want to create something fresh, let’s not muddy it with dogmatic assumptions.

Saturday, March 17, 2018

In the eye of the Tiger

The power and complexity of sincerity in a corporate crisis.

It may be early days yet, but Tiger Brands and the listeria crisis are rapidly shaping up to becoming a case study in corporate crisis management.  The South African food giant has had the deck stacked heavily against it; not the least being the legitimate practical, insurance and legal constraints in admitting accountability and by implication, liability at the outset.

In such cases, the only mitigating response is sincerity in concern for the community and customers without necessarily admitting culpability. That’s a very difficult tap-dance because it invokes what is essentially a human quality in an institutional and legal environment. Sincerity reflects a combination of attributes that ultimately create authenticity and credibility even at the institutional level. This is not something you can easily spin or rehearse from a P.R. handbook. It is fed by genuine empathy, intuition, honesty, humility, integrity and above all consistently demonstrated as a brand over a number of years. Whether it mitigates the crisis or not is ultimately not the point. Sincerity is not about purpose or motive; it is simply about being.

In Tiger’s case, sincerity, coupled with honesty about the difficulty it faced in admitting responsibility prior to conclusive tests proving the source of the outbreak, may have tempered some of the hostility.  I say may, because a hostile media is simply a given these days and lines have become blurred between direct and leading questioning; between inquiry and inquisition and between investigation and prosecution. These were all displayed in the Tiger News conference broadcast live within hours of the Department of health announcement.

It led to Tiger’s one empathetic gesture virtually being ignored; that of withdrawing all Enterprise products and not only the three suspected of contamination. That gesture seems to have been taken out of the spin-doctor’s manual relating to the famous Tylenol case of the early 80’s.  In that incident, 7 people died after consuming the popular pain-killing capsules that had been injected with cyanide In Chicago. The producer, Johnson and Johnson, immediately warned consumers not to take the Tylenol capsules and withdrew all of them throughout the United States. It later stopped producing capsules completely. It cost J&J some $100 million at the time and Tylenol’s market share dropped from 37% to 7%. But within months that had all been regained and the company’s brand emerged with an enhanced reputation.

In 2003, Pick ‘n Pay had a similar experience in an extortionist threat in Gauteng which claimed that some products in its stores had been poisoned. It immediately took the public in its confidence and withdrew the products from the shelves. The threat was shown to be a hoax, and the company’s brand and share price emerged stronger from the experience. The significant difference between Tiger and the others is that the latter were victims whereas Tiger is accused of being a perpetrator. That immediately tarnishes somewhat C.E.O. Lawrence MacDougall’s emphasis that the company had gone beyond what was expected of it in mitigating the effect of the listeria outbreak.

But there’s a far greater significance to the comparisons. Johnson and Johnson’s CEO at the time of the Tylenol crisis was James Burke – a man who passionately believed in the company’s credo, penned in the 1940’s, that J&J’s "first responsibility was to its customers and then to employees, management, communities, and stockholders-in that order”. Six years before the Tylenol event, Burke felt that the credo had lost its influence and challenged the board either to recommit to it, or “tear it off the walls.” Similarly, Pick ‘n Pay had at the time, carefully nurtured “the customer first” passion of its founder, Raymond Ackerman. Tiger Brands simply does not have the same “gravitas”, or consistent sincerity. Just over ten years ago, it was involved in the infamous bread price fixing scandal and had to pay a R100 million fine: one of a number of brand tarnishing events.
Yet, one has to have some sympathy for MacDougall and Tiger Brands. Largely through its own doing, business generally has created a mostly hostile public, whose anger is tempered only by even lower trust in government. Big business is reaping what it has sown for the past three to four decades in the form of a particular interpretation of free enterprise that places exclusive emphasis on capital supremacy, shareholder-value, profit maximisation and short termism. It has been “de-humanised”, preferring to cower behind an institutional shield that often exonerates individual malfeasance and accountability.

In that process it has muted and ignored the most important perspective of all: that business is not about institutional standing and performance, but about personal relationships and individual meaning. As I argued in an earlier article titled “Follow the meaning”, relationships are far more important to a company’s health than metrics or structures. This is particularly true of relationships with customers and the community at large. In that, institutions per se cannot be sincere. They need a Burke or a MacDougall to convincingly reflect that and individual behaviour to demonstrate it.

The way Johnson and Johnson lived out its credo is an important reflection of pre-80’s corporate thinking. Over the years I have cited many others who have benefitted and continue to benefit from the customer driven, “creating value for all” perspective. Today Governance prescriptions are trying to coerce companies into doing that, but it will always remain insincere, prescriptive and onerous until it becomes the understood purpose of business.

Then caring becomes sincere, and trust a given.

Saturday, March 3, 2018

Popular or populist?

President Ramaphosa’s difficult choice.

Not all popular leaders are good; and not all good leaders are popular. Sometimes the right thing is not the popular thing, and often the popular thing is not the right thing. It’s often been said that one of the flaws of democracy is that it blurs that logic, giving rise to a political structure that thrives on false promises and wild rhetoric disconnected from reality and creating a dangerous gap between it and expectations.

We call that populism and it is routinely used by opposition parties to gain power. It’s a highly questionable technique which does little more than inflame expectations and help sow public discord. Populism globally in recent times has helped strengthen opposing parties, in some cases putting them in power where they not only have to backtrack on populist rhetoric but are “recaptured” by the establishment. The U.S. and France are examples.

“Cometh the hour; cometh the man” is a biblical saying that can be applied to Cyril Ramaphosa and while he has all the right attributes to exploit that to its fullest, he has openly conceded that “we must ride this wave” (while we can); and has strengthened it through promenade jogs and township walks. Charismatic, charming, accessible, affable and somewhat inspiring are mantles that fit him well. But one would be less than candid if one did not concede that in no small measure his popularity has been given a massive boost by simply being an alternative to his much maligned predecessor.

When that honeymoon fades, and when the fear of a revival of Zuma factional support starts to diminish, he will have to find a way of steering the ship between remaining popular without being populist. That will confront him soon in an election year where opposition parties are hell-bent on ensuring that the governing party does not regain what it lost during the Zuma era. It’s already happening, forcing Ramaphosa to look beyond the low hanging fruit that Zuma left him such as unleashing enforcement watchdogs on the corrupt, stabilising the fiscus; shaking up SOE leadership; and committing to a reconfiguration of the executive which most interpret as meaning a substantial cut in the size of cabinet in future. Most of these may lose him some factional support, but will certainly gain him popular support.

The more difficult path lies in the deeper, ideological issues that divide the country and where populist exploitation is at its strongest. These include land reform and concentration of capital. They are at the root of key issues such as Radical Economic Transformation, monopoly capital, WMC, state capture, inequality, cadre deployment, empowerment, inclusivity and in turn many other related issues.

Populism thrives on ignorance and incoherence. Having followed these debates intensely for decades, I am of the firm belief that the most important thing that has to be done before weighing in with legislation and execution is to create a much higher level of coherence and comprehension. On the land issue, the line has not been drawn clearly enough between food security and black economic empowerment. The vague assumption that they are not mutually exclusive may have some substance, but ultimately a single priority has to be defined. This can only be done when we stop thinking of land as political territory and more as a means of feeding the masses. That priority then has to become the ultimate purpose of land ownership – one that can be shared by all. (See article Grabbing land in La-la-land here.)

A greater degree of coherence in and understanding of the issue of capital concentration offers much promise of finding a middle ground where we are currently divided the most. Stripped of all its ideological, racial, and populist claptrap, many may be surprised to find common cause on a global scale of the distaste of what the concentration of capital ownership, control and management has created. (See article here.) 

The argument of maximising capital efficiencies has worn very thin against other outcomes such as inequality, state capture, declining innovation and competition, and tax evasion to name just a few. Market forces work at their best when they are fragmented, decentralised and free. Coupled with the rampant growth of financialisation and debt, the global economy itself has been placed on a knife edge where it can easily tumble into recession or even extended depression. Corporate malfeasance or fraud can destroy the wealth of many; collusion between one or two big players can warp price discovery, and large corporate lobby groups have inordinate power in swaying the state to serve their vested interests.

E.F.F. Commander-in-chief, Julius Malema may find it strange to discover some resonance between his views and that of Adam Smith, the father of capitalism, to be found here in a recent article by Smith scholar, Paul Sagar. Capital concentration virtually guarantees some form of state capture, while true defenders of free enterprise find it difficult to reconcile capital concentration with free markets. It has become Capitalism’s Achilles heel.

Ramaphosa does not have to fall into a populist trap. His experience in labour, business and politics equips him well to create clarity, coherence and comprehension and define a productive middle ground that is far less divisive than what we have. He can indeed chart a new course for the nation.

Time will tell. 

Monday, February 19, 2018

Stopping the train.

Things that really matter in keeping it together for South Africa’s future.

Love them or hate them, but current events have demonstrated how deeply ingrained the ANC has become in South African society. In many respects we are like a one party state, and the trauma that that party experiences, reverberates through all walks of life. Its leadership transition has created as much uncertainty and anticipation as the country experienced in the heady days of the early 90’s.

But these events have shown something else:
·        How easily power corrupts;
·        how fickle and fragile it is when it is based on patronage and loyalties shift from a weakened patron;
·        how effective opposition can be even without parliamentary power;
·        how political opponents can unite against a common threat;
·        how strong civil society can be when it says “so far and no further”, and
·        the supreme value of being guided by a Constitution supported by an independent judiciary and law enforcement.

The Jacob Zuma gravy train has been derailed. It may take a while for the carnage and broken corrupt carriages to be cleared, but history will reflect on these times as a painful evolutionary hiccup and stark cautionary case study. For that alone, 2018 has become a turning point and a year to celebrate even in its infancy.

As many commentators have opined, there’s certainly a lot more hope for a better future. But that does not mean there’s more trust. Indeed, the political uncertainty; corporate scandals; a still unacceptably high crime rate; increasing revelations of corruption, arrests and charges being laid, and the economic quagmire we find ourselves in, have all contributed to deepening distrust. We already have one of the world’s lowest levels of trust in institutions such as government; business; NGO’s and the Media; as ranked by the 2018 Global trust Barometer.

One could also argue that with none of these institutions being fully trusted, and because trust is one of the most significant factors holding a society together, we should be a dysfunctional society. Yet we are not. Only ultra-cynics, or some disgruntled ex-pats who lose touch with the day to day lives of ordinary folk, will argue otherwise. I fully appreciate that there are many of us, including myself, who have been affected, even traumatised by crime, betrayal, poor service, and of course the daily headlines that constantly highlight our capacity to do others harm.  But we go on, sustained I believe, by the number of benevolent acts that we experience more often than malevolence, and a pool of goodwill that despite everything, still exists between us.

Perhaps it’s the metaphor, but I am drawn to reflecting on another train.

Let’s go back a month or so, and to the maize farming town of Hennenman, where a full passenger train was derailed after crashing into a truck at a level crossing. More than 20 people died and about 200 were injured. Within minutes a handful of local folk rushed to help, saving many lives amid anguished screams from passengers trapped in carriages. Among the rescuers were two pre-teen boys – Mokoni Chaka and Evert du Preez – who have a firm friendship oblivious to racial differences, and who helped evacuate the injured, including quite a few infants. They created the perfect cameo not only of humanity’s instinctive empathy at an early age, but how what is most important to our survival bridges any differences between us.

A few weeks earlier, I too was hit by a train. It happened at a level crossing next to a settlement called Dutoitsrus in Buffeljagsriver near Swellendam. I had stopped at the crossing, but edged closer because of an obstructed view of the track. Then there was a deafening hoot just before I saw hundreds of tons of steel hurtling towards me.

Nothing I have experienced comes close to that split-second of paralysing terror. Fortunately I was not too far into the goods-train’s path and it hit the front left fender, spinning the car out of its way to end on an embankment next to a huge blue-gum tree. The train had stopped and I got out of the car. I was not hurt and within seconds was surrounded by many residents – mostly teens and youngsters. I sensed only genuine concern in their curiosity, and had no thoughts that I could be harmed. It’s strange how we often legitimately trust a moment, and then only later question the wisdom of it, mostly on the prompting of others.

Confusion! What does one do when you’ve stopped a train? Get details. Of what I don’t know, but I found a scrap of paper. One young man offered to testify on my behalf that the train had not hooted until it was upon me. But I could not write down his name, having committed a journalist’s cardinal sin of not having a pen. Then I felt a tug on the leg of my pants, and a boy not much older than four offered me his prized possession of a pencil stub. I wrote down the number of the train and name of the “witness” before putting the pencil stub back in my shirt pocket. There was another tug – and an outstretched tiny hand asking for the return of the pencil-stub.

Soon I was surrounded by railway forensic staff and I suspect most of the police contingent at Swellendam. The crowd too had swelled, while crime scene tape was stretched for hundreds of meters around the train and surrounding area. An elderly lady offered me some mineral water, and soon thereafter another on crutches offered me half a bottle of coke. “For the sugar,” she said. I can’t remember how many people approached me with offers of help. I can only remember the genuine warmth and concern around me, including police and railway staff.

There are many things that made the event memorable, apart from the rarity of being hit by a train on a scarcely used line. Among them was the fact that the car had minor damage and I could drive it away, while the train was stuck for 5 hours to undergo repairs to its steel sweeper. For a while, friends and close acquaintances called me the “train stopper”. Fortunately that passed before some village joker was tempted to ask: “Did he really need a car to do that?” But what will linger for the rest of my life is how those folk at Dutoitsrus confirmed my deep faith in humanity and its capacity to care.  

In the larger scheme of things and the current turmoil, these reflections may appear counter-intuitive and perhaps even trivial. Not so when one considers how many thousands of times they are repeated in different ways throughout society. As long as we have that and continue to demonstrate it, it outweighs all else in holding our society together.

Monday, February 5, 2018

Hope and Trust

Will increased hope improve the low level of trust?

Few states are more important in society than happiness and trust. All of the other indicators and measurements we use to gauge societal and economic health pale into insignificance compared with these two. Not only are they codependent but ultimately they will also affect all others things that we think are important. 

I remember some years ago there was a significant global debate on incorporating levels of public happiness and life satisfaction not only as important metrics, but also as significant components of official policy. There’s no point, it can be argued, in having growth, income and employment targets as the primary policy goals, while people are disgruntled. That debate seems to have died down, most likely because of the extreme difficulty in measuring them, but perhaps too because it’s a fair assumption that a large part of humanity remains miserable, angry and for the most part in rebellion against the establishment.

Trust is largely created by personal experiences but can also be significantly influenced by external factors such as improvements in the economic and political climates which engender hope in the future. Globally there has been a marked improvement in economic growth prospects and domestically there has been a complete shift in prospects in a few short months, so adequately outlined by Hilton Tarrant in this Moneyweb Article that further treatment here is unnecessary. Indeed, South Africa’s economic prospects are suddenly a lot brighter.

But will this translate into greater trust? That will take a lot more time and depend not only on economic and political factors. On the global front, economic prospects are very fractured and come with a growing fear of national isolationism and protectionism. There is growing concern also of the financial nature of this growth and the prospect of a repeat of the 2007 great recession. Domestically, much has to happen to restore trust in both government and private sector institutions. The apparent collapse of a corrupt cabal in the wake of some incredible exposé work last year by the media and many others, has to be followed up by rigorous accountability, law enforcement and retribution; as covered in my last article last year. This seems to be happening and could make 2018 one of the most significant life changing years in South Africa, should some of the criminals, including those in the private sector, end up behind bars.

For quite a number of years, one of the most credible global trust reports, the Edelman Trust Barometer, has consistently shown disturbing declines in levels of trust. Its 2018 report is not much different, but could be overtaken by recent events, especially in South Africa. Yet, it is useful to reflect on how it saw 2017 compared to the previous year which it described as “trust in crisis”. The global report, tables and graphics are available at this link.

The Trust index of all of the 28 countries measured has improved by only 1% – from 47 to 48 – in trust in the main institutions of Government, Business, NGO’s and media. However, that means that we are still living in a world where these institutions are mostly distrusted, and hides the fact that one more country has moved from neutral to mostly distrusted. Trust in all South African institutions declined: government by 1% to 14%; business by 3% to 53%; NGO’s by 8% to 50% and the media by 4% to 35%.  

What this is saying is that no institutional sector in South Africa is fully trusted any more, with 2 having neutral scores and 2 being outright distrusted.

Some of the global highlights include
·        The rise of experts in trustworthiness.

·        Respondents saying they want CEOs to take the lead on policy change instead of waiting for government, which now ranks significantly below business in trust in 20 markets. (A point I have repeatedly raised in my own articles.)
·        A highly significant plunge in trust in social media, due to the occurrence of fake news. This in turn has raised trust in journalists themselves, particularly in reports where sources are named. There is a swing from trusting platforms to sources, but even here, as we have seen with the reckless Viceroy reports, sources themselves can be highly suspect. Excessive hyperbole and hysterical panic mongering in their work bear testimony to dubious motives and are never seen in serious company analyses.
·        The global polarization of trust where some countries like China have had massive trust gains, and others like the U.S record breaking declines.

The last bullet perhaps answers a question many South Africans were asking after Donald Trump was elected President of the U.S.: “Who had the worst leader: Americans or South Africans?”

This may be a hint because trust in the U.S. has suffered the largest-ever-recorded drop in the survey’s history among the general population. Trust by that group fell nine points to 43, placing it in the lower quarter of the 28-country Trust Index. Trust among the informed public in the U.S. imploded, plunging 23 points to 45, making it now the lowest of the 28 countries surveyed, below Russia and South Africa. But mischief aside, this refers to trust in all four institutions, and not government alone, and by an informed group and not the general population where the U.S.’s 43% is still significantly higher than South Africa’s 38%.

2018 is certainly going to be a very interesting year. Let the games begin. In many respects they already have.

Monday, November 27, 2017

Immunity breeds impunity

Accountability's missing link -- jail time!

As VIP’s go, you can’t get much higher than a Saudi prince, specifically billionaire Prince Alwaleed bin Talal al-Saud. With a Forbes net worth rating of $16,5bn he is one of the richest men in the world and has large holdings in some of the biggest global companies. I wrote about him some years back (see When Billionaires pout) when the prince threw some of his golden toys out of the cot at not being ranked higher in the Forbes listing of richest people in the world.

Now he has been arrested among dozens of princes and former government ministers as part of a sweeping anti-corruption probe in the country; a difficult thing to fathom in a state that has been rife with endemic corruption and is one of the most repressive regimes in the world. In addition, the purge is clearly part of a very tangled web being weaved around power in the royal family and in the broader context of Middle East geo-politics. But it is the kind of action that might just lift the Kingdom from its 62nd ranking in Transparency International’s corruption perception index, which, surprisingly perhaps, is two ranks better than South Africa. Top spot as the world’s “cleanest” nations is shared by Denmark and New Zealand.

The global rebellion against corruption has become intense.

“In too many countries, people are deprived of their most basic needs and go to bed hungry every night because of corruption, while the powerful and corrupt enjoy lavish lifestyles with impunity,” says José Ugaz, Chair of Transparency International.

Unemployment, poverty and especially inequality create a passionate intolerance of brazen corrupt behaviour and of political largesse and nepotism. It has been a key factor in the global assault on the establishment and the rise of populism. One may be tempted to use events in Zimbabwe as an example, but that has been more about political power mongering than a popular uprising against corruption. This in itself shows how corruption fuels political instability and factional conflict.

We are seeing much of that in South Africa too, but South Africans themselves cannot be accused of indifference towards corruption. These past few months in particular have seen an unprecedented public outcry against the behaviour of some of the political and business elite, including household names in institutional finance. Opposition parties have been active in parliament, the streets and courts; parliamentary committee meetings have become courtrooms with members of all parties practising their prosecuting skills; investigative journalists are writing best sellers with new revelations each day, and civic organisations have adopted law enforcement roles in various ways. We salute them all. We should support them all. These are the good men and women who do NOT allow evil to flourish by standing by and doing nothing

But what is needed now is for one or a few of our own untouchable princes, including some of those in private sector institutions, to be handcuffed in his or her office, marched to jail and subjected to robust prosecution. We have named them. We have shamed them. They should now go to prison.

One can name, but one cannot shame the shameless.

There is enough evidence to institute a high level prosecution. Perversely, the public parading of all of this evidence is aggravating perceptions both here and abroad, of the depth of corruption. We have shown the world our dirty linen. We have not shown that we are prepared to wash it. It’s a moot point whether there aren’t countries that are more corrupt than South Africa, but rank better simply because of media and public repression.

Perceptions drive trust and the biggest price we are paying for both the levels of corruption and the uproar around it, is a widening of the trust deficit. That has become an important factor in holding back economic growth. Imprison one or a few high profile miscreants and trust will gain a substantial boost. Legal retribution is now no longer only about fair play and justice; but also about economic growth, credit ratings, jobs and prosperity.

Judicial commissions, parliamentary committees and enquiries, may add to the heat, but will do little to burn the criminals. Like the enquiry into tax morality, which is a ludicrous oxymoron. How can you can expect tax morality when you have immoral tax spending?

There are many who are hoping that the much talked about ANC’s elective conference next month will be some kind of watershed in the fight against corruption. At least all candidates have included it in their personal manifestos.  It’s little more than typical political incoherence and hypocrisy. It is doubtful whether this fish has rotted only from the head, and that a different head will stop the rot.

What was once viewed as the ruling party’s greatest strength, has become its greatest weakness -- its strong decentralised power structure and the power vested in its branches. From the early 90’s, elections in these branches had become little more than job-hunting by unemployed cadres. Political position was made convertible into employment in all forms of government, S.O.E.’s and supply chain patronage. It was even a good credential to have in seeking employment in the private sector. The extent to which this qualification influenced appointments in executive and administrative positions has undoubtedly aggravated poor service delivery, but its effects on the branches themselves are now obvious in sometimes violent contestation for branch posts and the degree to which branches, regions and even provinces are often in disarray.

Corruption has become systemic, not only in party structures, but in the broad government and related bureaucracies. That is not counter-intuitive to the need for prosecution at the top. It may not make a clean sweep throughout political, government and private sector institutions, but will certainly dramatically change foreign and domestic perceptions about corruption in South Africa.

Wouldn’t that be a nice Christmas gift for the nation?

Monday, November 13, 2017

What the ancients knew.

An enduring principle that can help rescue the economy.

From a distance it looked like an ordinary broken stone. But when farm manager, Adrian Sutton, got closer, he realised that the piece of rock surrounded by cobbles of different sizes, was not shaped by accident. Its symmetrical design formed an axe-head that could fit into a large hand. It was later identified by experts as having been made during the earlier Stone Age between about 400,000 and a million years ago. They are often found in old river gravels, in this case between the Breede River and the Langeberg Mountains to the north; where the cobbles that were rounded by the natural tumbling action of water over millions of years were left on terraces above the river as it cut deeper into the valley.

The prehistoric creature that shaped that axe-head so long ago was one of the earliest manifestations of a social principle that has endured for millennia – that of adding value. The difference between the original rounded stone and the axe-head, and the time, effort and purpose it took to make it, represents value added for his or her particular circumstance. That principle has shaped the destiny of our species and remains the key underlying force that accounts for progress and the difference we make to others lives. It was only a small, but highly significant leap for those ancient creatures to start making such implements for each other, creating a powerful force of social co-operation and cohesion. Exchange and barter was a natural consequence of that, and soon a means of exchange, or money, was developed to ensure smooth transaction.

And so we can draw a direct line between that axe head and everything that underpins all of the complexities of our modern co-existence. 

It is no coincidence that the more we have moved away from adding value as the supreme principle of creating wealth and generating prosperity, the more we have created distortions and arguably many of the critical problems modern economies are facing. These include over-financialisation and the ability to accumulate wealth through rental income; contamination of price discovery through overwhelming speculative and derivative markets; critical levels of inequality and the growing displacement of labour as a significant contributor to and beneficiary of wealth distribution, which in turn feeds market demand.

The supremacy of the value-added driver over any other such as profit-maximisation; shareholder value or even standard productivity measurements is its three dimensional nature and broad inclusivity. These are: transformation; measurement and intent.

TRANSFORMATION: Common understanding of value-added is restricted largely to its physical transformative nature – in other words changing one item into another that is more useful – like a stone into an axe-head, or gold into jewelry. But of course it applies to changing situations or circumstances a well, such as retail, distribution and entertainment. What is mostly lost sight of is that value is always determined by the end user, and without a very determined focus on making that the purpose of transformation, value creation is restricted – in some cases even destroyed. One could apply the same argument to South Africa’s Radical Economic Transformation policy.

The transformation dimension of value-added is a far superior and robust productivity enhancement tool than the standard cost accounting approach. This is because it embraces not only scientific measurements but also subjective criteria that speak to meaning, or the meaningfulness of the transformation itself. Everything has to be tested against usefulness to the end-user, not merely to the agent or provider. That approach keenly questions much of wasteful assets and actions.  A conservative and intense interrogation of any expenditure or action that asks “what difference will this make to our customers?” quickly shows red-flags of unnecessary and wasteful activities. The less clear the usefulness can be defined, the bigger and brighter the flag should be.

Long held assumptions, such as ostentatious head-offices, huge ad-spending, lavish executive benefits, and even many of the employee fringe benefits should not remain holy cows. I have for some time held a rather contentious view that the adage that “happy employees make for happy customers” is demonstrable nonsense. It should be reversed to say: “happy customers make for happy employees”, especially if customer satisfaction is linked to employee benefits triggered by improvements in the value-added measurement.

MEASUREMENT. I have dealt with this at length in previous articles covering the Contribution Account, which is a purified version of the value-added statement or cash-VAS, such as this one extrapolated for the mining industry.

It should be noted that benchmarks such as market pricing for labour and capital, or meeting the legitimate expectations of those constituents, are important in assessing the appropriateness of their share of wealth. This is especially useful in identifying trends over a certain time. What is perhaps less appreciated is the significance of using value-creation as a productivity test, especially in teams and divisions, sometimes even at individual level. This is becoming easier with enhanced data gathering and sensible norms of transferring costs. Techniques such as throughput accounting, are also useful.

Beyond measuring, the subjective assessment of usefulness to the end user should always be a key concern. This focus is by far the best method of engaging employees and other stakeholders in the destiny of the enterprise. It may be a useless exercise, but at every turn, companies should make this dimension of value added known to government, and perhaps do their own calculations on the bang for tax buck they are getting. It’s a good conversation to keep alive. Shareholders too, should become more acutely aware that profitability and sustainability go hand in hand with creating maximum value. This, and the role they can play, should be a key focus at shareholder meetings and in executive remits.

INTENT. The intention to create something useful for others is the whole purpose of adding value. Championing motives such as profit, wages, taxes, or any other self-gain as key drivers of wealth creation are counter-intuitive and detract from that essence. It’s an argument I have repeated many times over the years, and fits in with my understanding of humanity as being essentially empathetic creatures, and not the predatory cannibals often mistakenly attributed to Adam Smith’s view of humanity and depiction of the invisible hand.

Value-adding is at the heart of trade, innovation, evolution, competitiveness, social cohesion, progress and prosperity. It is powerful and simple. Adopting it in everything we do; as a life-style and purpose, is a near guarantee for success – at a personal, company and country level. If ancient creatures with limited cognitive capacity could understand that, then so can the modern child at a very early age.

And so they should. Because it is a principle that will add meaning to their adult lives.