Business Ethics to MISTRA Conference

Address by Dr Reuel J. Khoza (Chairman of Nedbank Group Limited, Aka Capital  and author of several books including Let Africa Lead and Attuned Leadership) to “Nedbank Group Technology Leaders”  I  15 -16 September 2016

SALUTATIONS

Firstly, I wish to thank the Maphungubwe Institute for Strategic Reflection for this opportunity to address a subject that is close to my heart and my life’s work: the role of business in society. MISTRA’s project at this conference is, to quote your website, “geared towards crafting a dedicated, comprehensive response to the troubling zeitgeist of a twenty-first century wrestling with the effects of an ethical indifference”.

Nothing could be more appropriate for South Africa at the moment; yet it is good that the concern goes beyond this country to question the defining spirit of a world in turmoil. Callous disregard for poverty and human suffering; depraved behaviour in the highest offices of this land and many others; and the utter shamelessness shown by those who misuse their positions of power, wealth and influence to betray our hopes for the future: these are indeed symptoms of a zeitgeist of ethical indifference. Addressing their cause and consequence is sine qua on to our national survival and prosperity.

To quote Robert McCracken:

The world is not perishing for the want of clever or talented or well-meaning men (people). It is perishing for the want of men of courage and resolution who, in devotion to the cause of right and truth, can rise above personal feeling and private ambition.

What prompts this discussion at this time is the acute deterioration of standards of integrity in public life. In South Africa, hard-won democratic freedoms are diminishing while violence and racism are on the increase; the country seems to have entered a moral wilderness.

The effects of this are felt in business. We witness rampant self-enrichment by executives and boards that award themselves salaries and benefits obscenely out of proportion to their true contribution to the bottom line. There is bribery, from petty amounts to gigantic sums; with politicians in the pockets of plutocrats; and when whistleblowers courageously raise the alarm they are vilified and persecuted.

EFFICACY

The title “Business ethics: toxic, toothless or a golden thread?” may suggest that the economic realm is one that enjoys a special kind of ethics, somewhat removed from public morality. Business ethics have no special status; they form part of the totality of human relationships. The golden thread of business leadership should be woven into the moral fabric of society, since the private sector contains major corporate institutions with the status and resources to shape our lives.

Toothless corporate governance flourishes where integrity is absent and the boards and managements of enterprises fail to execute their duties. These duties include financial, social and environmental care: the so-called Triple Bottom Line that is used to evaluate performance from a broader perspective than simple profits.

As an instance, the grandson of Nelson Mandela and the nephew of Jacob Zuma, have been found liable for the willful destruction of gold mining assets at Pamodzi Gold and ordered to pay thousands of workers who were plunged into poverty. Khulubuse Zuma and Zondwa Mandela, the directors of Aurora Empowerment Systems, were guilty of fraud in misrepresenting Aurora’s financial position and their project to revive bankrupt Pamodzi “remained a pipe dream” said the judge. This was toxic business practice at its worst.

Good corporate governance can help to stabilise societies disrupted by waves of 21st century exploitation driven by ethical indifference. In discussing the role of business in public morality one has to confront widespread – and often well founded – skepticism about corporate morality. But corporations are not inherently “pathological” as one critic has put it, because without corporate citizenship the world would be a far worse place.

Fortunately, there are wise heads everywhere who show commitment to ethical stewardship of the State and business organisations. The fourth iteration of the King Report on Governance Principles, recently released for comment, sets out a coherent philosophy for business leadership in society. Ethical and effective leadership, says the Report, should complement and reinforce each other. Ethically, good corporate governance (and I quote from King IV) is “concerned with not only structure and process but also an ethical consciousness and behaviour”. To be effective, the governing body of an enterprise must approve policy, give strategic direction, provide oversight and above all demonstrate accountability.

The combination of ethics and effectiveness is called efficacy in leadership: a concept I have stressed in my writings including The Power of Governance (2005), Let Africa Lead (2005) and Attuned Leadership (2011). Efficacy is the ability to shape a new reality, not just to get results but to transform the situation with a moral vision and uplifting purpose. Leadership is the art and craft of putting oneself at the service of the community in order to build a better future for all. Leaders cannot do this on their own but are bound in a relationship of trust with their followers; and when trust is betrayed we have misleadership.

ACCOUNTABILITY

The accountability of the leadership is therefore of prime importance; as is the responsibility of followers to hold them to account. The subject of accountability is a broad one and the author is not a professional philosopher but a businessman. Nevertheless, the precept that guides the following discussion is that all of us as human beings have moral agency and are duty-bound to think through moral problems and act according to our conscience.

Accountability is generally understood as the apportioning of responsibility to persons or groups who are regarded as the cause of, and answerable for, events, actions, policies and foreseeable outcomes. Although this often carries a connotation of blame this is not necessarily the case. “Accounting” was originally a neutral term applying to administration, finances and governance, with the obligation to calculate and report on the state of affairs. Providing information, as I shall explain later, is a key to achieving accountability.

Accountability starts with good character and the ethical spirit of the leadership. Although the terms ethics and morality tend to be used interchangeably in common parlance, their application here is towards private and public morality on the one hand and professional ethical codes on the other. In the case of professions, a governing body will typically craft a Code of Ethics for its practitioners. The King Code is an example of non-legislative code written to explain principle-based governance and bring about voluntary compliance among JSE listed companies.

Note the emphasis on voluntary compliance. While accountability may be enforced from the outside – and later I will talk about various forms of sanctions that can be applied to hold people to account – a sense of morality is an essential part of our human nature and we are all imbued with it. From this point I will broaden the discussion beyond business to all institutions and all leadership.

LEADERSHIP

My aim is to present a lasting model by which leadership may be judged and held accountable. The traditional African village assembly may be regarded as a metaphor for direct, deliberative democracy in the complex institutional settings of today. Symbolically, the age-old custom of the chief meeting in council with the elders under a big tree, surrounded by villagers who could raise any issue and bring forward any complaint, represents a form of communitarian consultation requiring leadership responsiveness.

The term leadership is normative, it means wielding moral authority to chart the way forward. It also embraces the entire community – whether followers or not – in an inclusive vision of the good life. If we talk of “bad leaders” we actually mean that they mislead their followers, betray their trust, and are not leaders in the normative sense at all. They are guilty of misleadership. When this happens, the responsibility of the community is to hold the leadership to account and not let them betray the collective.

Those who are “leaders”, in the organizational sense, occupy positions of authority; but moral authority is a term of legitimacy: it means that others recognise and accept that their leaders are truly serving them. Here a distinction needs to be made between followers and stakeholders. Followers are those committed to supporting their leaders; while stakeholders fall within the much wider ambit of those who are affected by the policies, actions and decisions of the leadership.

All may be called the constituents of the broader community – comprising followers, the unaffiliated and oppositional elements – and all have a role to play in community deliberations. The term community can have many meanings but in this context applies to what is generally called a community of interest, encompassing all of those who are directly affected by, or share a concern with, the actions of the leadership. The scope of community may extend from the family to the whole globe and is not bounded by organisations or cultures.

DELIBERATION

The African village model of community deliberation provides us with insights that are as old as history and as new as the latest controversy. People want to know what is going on; they want to discuss things; and they want their leaders to be answerable for policies and actions. This has been the African way but it was also embedded in the direct democracy of the Ancient Greek city-state. In modern times direct democracy has given way to representative institutions such as Parliament, the media, shareholder boards of companies, labour union shop stewards, along with foundations and NGOs embodying social and environmental movements.

The information society in which we live is highly pluralistic and we are deluged with facts and figures beyond imagination. In all of this, we may lose our moral compass and need reminding that ultimately we should seek to shape our own destiny and not let it happen by default. In Let Africa Lead I proposed that knowledge, communication and teamwork were key elements of empowerment in modern organisations. To quote from that book:

A communocracy is the form of organisation by means of which ideas and techniques are exchanged and peer support achieved between members with a community of purpose. A communocracy can operate at any level from a small shop to a large corporate. Africa has excellent traditional precedents for communocracy. (Khoza: 2005, 195-6)

Empowerment and participative management belong together not just in business but in all institutions that seek to develop human and material assets for the common good. Responsive leadership is virtuous by nature; it demonstrates that public service means the pursuit of the common good. Leadership is therefore the highest of callings.

ETHICAL REALISM

My approach draws together two threads of moral philosophy: the Classical Greek moral realism of Aristotle and later thinkers, and the tradition of African Humanism, or Ubuntu, as applied to deliberative democracy in modern times. This is not a far-fetched conjuncture. Moral realism and Ubuntu are intellectual currents, convergent ideas, not of two worlds, but of one human universe.

As Aristotle saw it, the highest good is the happiness of all, and for this reason, civic and political engagement is a necessary duty for all citizens. A fundamental aspect of Ubuntu is that the community gains a sense of mission, dignity and worth through the village assembly.

Aristotle’s moral realism has been exhaustively studied and debated since ancient times; now, among contemporary philosophers, it is experiencing a revival known as ethical realism. This casts morality as an inherent quality of human nature. One of the chief proponents of ethical realism is David Ross who argued that the moral order is part of the fundamental nature of the universe, and that our intuition teaches us this.

The idea that people innately understand morality is deep-set in African tradition. We share morality because we share our essential being. Zulu phrase Umuntu ngumuntu ngabantu - translated as "I am because you are; you are because we are” – expresses our existential bond. Our co-dependence is also the source of our co-responsibility, and we are aware of this: we share an intuitive understanding of moral obligations. To let the other down is to sacrifice one’s personhood – weakening one’s claim to belong to the human community.

Africans, like all others on this Earth, have to come to terms with untrustworthiness as a fact of life. We must protect ourselves with codes, laws, contracts and personal instincts as do our peers in other countries. Yet that does not render the existential concept of trust irrelevant. Those who betray us (or we who do this) are in effect undermining the basis of human interdependence and hence personal and group dignity and virtue.

The moral mechanism of trust operates in the village assembly. The chief in council seeks consensus with the elders and villagers over issues of contention. Deliberations are conducted in open forum and attempt, on the one hand, to unveil the truth of any situation through discussion and communal agreement; while on the other hand the chief has finally to make a ruling that all must accept, and this is where the intrinsic, intuitive element of morality enters the picture. The chief's ruling must acknowledge the truth and so establish the legitimacy of the consultation process; failure to satisfy the conscience of the community would represent a departure from legitimacy.

TRUST

Commitment to the good life for all is the golden thread that ties leaders and led together in a relationship of co-responsibility reflecting their co-dependence as members of the human community. When the bond is strained by self-serving behaviour we have misleadership, the breakdown of trust, and the sacrifice of the common good for private benefit. In South Africa today, patronage flourishes, rewarding individuals for their blind loyalty rather than civic duty. Public management loses legitimacy. Everyone can see it because we all have a moral sense; but the machine of patronage rolls on because it has the power of money and position behind it.

Misleadership takes advantage of human vulnerability. We are all prey to temptation and where one can gain an easy livelihood from corruption the rewards may outweigh our conscience. Here I would like to introduce three concepts that I think help us to understand and identify how misleadership takes advantage of weaknesses. Vulnerability, moral hazard, and information asymmetry all place stakeholders at a disadvantage Vis a Vis authority figures who lord it over them.

• Vulnerability obviously means that one party is weaker than the other, and the stronger takes advantage of the weaker. Less obviously, the violation of confidence carries with it what may be termed existential dismay – the psychological and moral disillusionment we feel when confronted with disloyalty and treachery.
• Moral hazard is the term to describe situations where a person passes off the costs of unprincipled actions on other persons. Originally it comes from the insurance business where the insured take more risks because they know the insurer will cover them. In a societal interpretation of moral hazard, the perpetrator exploits a relationship where trust exists and continues to do so until exposed and disciplined.
• Information asymmetry is an aspect of both vulnerability and moral hazard. Asymmetry means that the victims of betrayal are kept in the dark about the real motives and actions of those they trust. Ignorance spells vulnerability; this creates the conditions for moral hazard; hence the loss of personhood on all sides.

Leadership, on the other hand, is an exercise in building trust. It does not exploit the vulnerable; it does not shirk responsibility for mistakes or cynically pass off costs on others; it shares knowledge and aims to broaden the understanding of questions facing the community. Leaders do not spring from nowhere: they become leaders because they are trusted. Leaders are born, and then made: their natural abilities are enhanced by experience and the examples set by other great leaders. The wisdom shown of a Mandela or a Gandhi is accumulated throughout their lives, in suffering, in thought, in action, and – let it be said – by being open to wonderment at the world.

SPIRITUALITY

Wonder is the fuel of wisdom. In paying tribute to the banker Maduke Lot Ndlovu, I quoted his favourite story from Plato:

Socrates, when the young Theaetetus was introduced to him as a lad of brilliant promise, said to him that he felt sure Theaetetus had thought of much. The boy answered “Oh, no – not that but at least I have wondered about much.”  “Ah, that shows the lover of wisdom,” Socrates said, “for wisdom begins in wonder.” (Khoza: 2016b)

Wonder is what regenerates tired concepts and habits, touching our intuition and prompting us to think laterally. Wonder is where the humanities, science and free thought meet.

Moral accountability is not simply a practical matter; it is spiritual. African humanism takes issue with the basic tenet of Western humanism: that man is the measure of all things. African Humanism insists on acknowledging the God Principle and rejects the secular individualism of much Western moral philosophy since Descartes.

In a rather surprising pronouncement some years ago the then Pope Benedict praised the African continent as the world's spiritual centre and a beacon of hope for humanity. The Pope drew this conclusion after finding echoes of his own faith in the philosophy of Ubuntu. Writing as Joseph Ratzinger (the Pope’s real name) he had argued that "Christian faith does not find its starting-point in the atomised individual but comes from the knowledge that the merely individual person does not exist".

Our spirituality implies that no person – however bad - can ever be fully excluded from the human community for there is always the possibility of repentance and forgiveness. The pursuit of restorative justice rather than retribution for wrongdoing is characteristically African. It was exhibited in the proceedings of the SA Truth and Reconciliation Commission after apartheid.

CASES

Very briefly I can illustrate the application of the moral principles outlined above with two contemporary cases.

Brexit: During the recent British referendum on whether to leave the European Union or stay in the Leave campaigners waged a campaign based on racial immigration fears and panic over terrorism. Meanwhile, Prime Minister David Cameron gambled to quash an incipient Eurosceptic Tory revolt in his own ranks. George Osborne, Chancellor of the Exchequer, threatened to introduce an austerity budget if the vote was to leave: this failed to empathise with the jobless since crash of 2008.

Brexit exposed British leadership as a self-obsessed elite without due concern for the interests of stakeholders. The mass of people were ignorant of the likely consequences of their vote and went to the polls in spirit of protest rather than rational deliberation. They were vulnerable to emotive appeals; the mistakes of leadership have been passed on to the electorate who will ultimately pay the price; and neither policymakers nor the media provided well researched information about Brexit’s likely consequences.

Guptas: In South Africa, the President of the country has befriended the Gupta family leading to persistent allegations that the government has favoured them and even taken their advice on Cabinet appointments. This hearkens back to a Supreme Court finding that Jacob Zuma had pursued a “generally corrupt relationship” with Shabir Shaik while Zuma was in charge of Economic Affairs in the provincial government of KwaZulu-Natal during the 1990s. The reinstatement of charges against Zuma in connection with the Shaik case is under appeal at present.

Relationships between politicians and business people are common throughout the world and usually raise questions about the integrity of both. In South Africa the questions have multiplied and led to widely expressed criticism that Jacob Zuma is not fit to be President. There is no doubt that on the President’s watch certain businesses have escaped legal scrutiny and that financial mismanagement at some State Owned Enterprises has been ignored.

When big business descends to purely extractive behaviour, bribing its way to profits, the nation itself is in peril. Efficacy in leadership is the ability and commitment to produce wholesome results or to learn not to repeat mistakes. This takes consideration for the welfare of others and is not given to people who have the crudest motives of self-interest. Defects of character may be curbed by the followership and institutional checks, but in the long run public virtue is achieved only through responsive, resonant leadership.

CONCLUSION

To practice virtue in public office or business is not easy and demands both honest introspection and continual interaction with stakeholders. Where moral authority is lacking, responsible stakeholders need ways to exercise their power over leaders who have gone astray.

It is beholden upon the voting public, the media, shareholders in businesses and stakeholders in the whole economic system to resist patronage and claw back legitimacy in governance. Pressure may also come from the courts, political opposition, labour unions, academia, churches, and international agencies. It is appropriate to add that conservatives and African traditionalists should be calling leaders to account.

After all, the ancient philosophy of Ubuntu was born in African communities and I for one owe great lessons of wisdom to this spiritual source. Truth is the ultimate sanction in a universe of virtue ethics; when we know the truth, we can judge and act in full conscience.

As sychopants, carpetbaggers, corruptors and corruptees, ideologues and maintainers of the status quo scheme and perpetrate unethical deeds; South Africans of goodwill must plan and implement wholesome nation-building programmes, guided by leaders with the requisite moral authority, whose only master is the national interest.

I thank you.