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 62^nd 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?

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.