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Who shall guard the guardians?
During 1997,
Justice H.C. Nel handed to President Nelson Mandela the four-volume "The
First Report of the Commission of Inquiry into the affairs of the Masterbond
Group and investor protection in South Africa."
The Commission stated that its task was to deal with
"the circumstances which gave rise to the financial problems of the
Masterbond Group and its associated companies and the losses suffered
by the public as well as the other questions posed in regard thereto".
It said, "upon the collapse of the Group, enormous
losses were suffered by thousands of investors."
We refer to this failed business organisation to draw
attention to some of the extremely disturbing conclusions of the Nel Commission,
in the light of current developments.
The Commission said that its investigation "revealed
an astonishing degree of dishonesty, inefficiency, lack of professional
integrity and lack of independence on the part of some of the auditors
involved with these (Masterbond) companies."
It said it "found it difficult to believe that
some of the auditors concerned with the Masterbond companies could have
been so inefficient or blatantly dishonest as was being gradually revealed
by the forensic investigation".
"The saga of dishonest or inefficient auditors
which further emerged during the course of the investigations conducted
by the Commission, belied the generally perceived honesty, integrity,
efficiency and independence of auditors.
"It became apparent that with a few notable exceptions,
the auditors involved seemed to believe that in addition to auditing the
books of a company, their function was to assist and protect the management
of such company as far as possible. They also seemed to believe that the
end justifies the means."
The instances of malpractice cited by the Commission
included: "Signing of unqualified reports relating to blatantly false
financial statements; changing accounting policies to convert loss situations
into profit situations without proper disclosure; backdating auditors'
reports, financial statements and letters of representation; failure to
scrutinise minutes of relevant directors' meetings; and, assisting in
misleading the Receiver of Revenue."
The Commission said "the standards set by the Reserve
Bank by its philosophy that the end justifies the means and the apparent
acceptance thereof by the auditors concerned, could only have had a negative
influence on the auditing profession in South Africa."
"The auditors were some of the most prestigious
internationally affiliated auditing firms whose members are amongst the
leaders in their profession - leaders who are also perceived to be responsible
for the setting and maintaining of ethical standards and generally accepted
accounting practice."
Many among us will have treated the current headline-catching
fate of US companies affected by the kind of mal-practices spoken of by
Justice Nel, such as Enron and Arthur Andersen, as curious scandals that
will soon disappear from public focus. In any event, they have no material
impact on our lives.
The reality, however, is that these conclusions are
radically wrong. These practices led to the collapse of the companies
concerned, as happened with the Masterbond Group. It is now being confidently
stated that apart from the immediate consequences of these corporate failures
in the US, the US economy itself has been negatively affected. The drop
in investor confidence is resulting in the further slow-down of the US,
and therefore, the world economy.
More broadly, as a relatively small group of companies
gains ever more dominant positions in the global markets, born out of
mergers and acquisitions, the issue of the global social accountability
of these corporations will assume increasing prominence, going beyond
management responsibilities to shareholder and employee interests.
The Nel Commission sought to identify the underlying
problem to the Masterbond failure. It had to make recommendations about
how we should avoid the recurrence of such a disaster. It identified the
problem as "fragmented and inadequate regulation and supervision
of financial institutions and other commercial undertakings."
It reported that: "Divided responsibilities, restricted
powers of inspection, restricted access to information and the resultant
'grey' areas where no supervision by the Registrar of Banks or the Financial
Services Board and its predecessor had taken place, led to inadequate
supervision of the Masterbond, Owen Higgins and Supreme groups of companies
with resultant losses to investors."
The state custodians had failed to discharge their responsibility
to protect investors from being swindled by unscrupulous people who were
determined to enrich themselves at all costs. The conclusion is - the
guardians must organise themselves to do their work properly!
Put thus, the matter is simple. But is it in fact simple?
The reality is that, taken as a whole, it is not. To understand this,
we have to understand the nature of the beast. The animal is contemporary
capitalism.
In its edition of February 18, 2002, the leading newspaper,
the Financial Times (FT), carries an article under the heading: "Greed
is good - in small quantities". The article reports the views of
one Marc Lewis, "a 28-year-old millionaire entrepreneur" who
believes that greed is good. He expresses this in his book, "Sin
to Win".
The FT says, "the book argues that things traditionally
seen as sins, such as avarice, gluttony, anger and self-love, are the
ingredients of both business and personal success, while naked self-interest
is the only criterion of truth."
It quotes Mr Lewis as saying, "the attitudes we
have inherited from religion are all about constraining people. But vice
has a positive side. You cannot aspire to be successful - and it is up
to individuals to define what success means to them - unless you believe
in yourself, grab every opportunity and have no regrets. We have to use
sin, not waste it. Self-interest is eternal - everybody always wants more."
Mr Lewis says: "What I am saying is that we have
got the wrong idea of sin - vice is essential to success and no one should
feel guilty about it. Coveting stops you being complacent."
In his honesty, on which he insists, he says that the
reward of sin is that: "You control the world. You choose how to
live your life. You have the power to believe in yourself. You are number
one. You are a god! You are your god!"
The FT carries the views of various thinkers on the
propositions advanced by Mr Lewis. One of these is Philippa Foster Back,
director of the Institute of Business Ethics, who "admits the line
between greed and self-interest perhaps should not be drawn too rigidly."
"You need a little bit of both," she says.
"But with greed it is a question of degree. There is not a direct
line between greed and crime - but crime may be the outcome of greed."
The newspaper cites Bernard Mandeville's "Fable
of the Bees" of 1714, in which the beehive is used as a metaphor
"to represent a successful trading nation such as the England of
his day."
It goes on to say: "Mandeville singled out dishonesty,
selfishness and devotion to vice as the emotions that lay at the root
of prosperity; the more permissive the attitude to the vices and selfishness
of the bees, the greater the prosperity."
Mandeville concludes: "Thus every part was full
of vice, yet the whole mass an earthly paradise." The honeycombs
were full of honey, whereas "Christian self-restraint and charity
would simply lead to impoverishment."
Though separated by three centuries, Mandeville and
Lewis communicate the truth that the immanent, correct, legitimate and
moral purpose of capitalist enterprise is to make money. They argue, correctly,
that you cannot pursue the accumulation of money unless you are hungry
to have money in increasing quantities.
Lewis argues that saints may be poor, but god is rich.
With justification, he asserts that ordinary human beings would rather
be gods than saints. He proposes that the highest human and social value
is the accumulation of wealth, whose purposive acquisition can only be
propelled by the acquisitive drive, wrongly condemned by all religions
as sinful avarice.
The recognition of these truths about the inherent nature
of capitalist accumulation of wealth, and the way in which capitalist
economic goals become the dominant social value system, leads directly
to the view that society, represented by the state, should police and
regulate the expression of avarice. This is the burden of the recommendations
of the Nel Commission, as is the global response to the Enron and other
failures of what is considered to be good corporate governance.
The position that 'greed is good - in small quantities',
also recognises that every product needs to be marketed. Thus are markets
created, contrary to the claim made that producers merely respond to what
the markets want. Tragically, this includes the deliberate creation of
public perceptions about many problems, regardless of the truth, including
social trends, the performance of the economy, the causes of diseases,
as happened with regard to smoking, and so on, intended to build or maintain
a profitable demand for particular goods and services.
This requires the cultivation of a herd instinct that
follows the advice of 'experts' who make money out of convincing society
as a whole that their view is correct and sacrosanct. Naturally, these
organised and moneyed independent thinkers have and use their means to
ensure that the rest of us think as they do.
In the article to which we have referred, the FT says
"in the section on avarice, the (Lewis) book features PwC, the accounting
and consulting group, admiringly written up because of its 'insatiable
ambition to extend the range of its present professional services into
every corner of the business firmament'."
PwC aggressively pursues the objective to ensure that
society, starting with business, accepts its ideas as the gospel truth,
which acceptance it will authenticate as the duly approved, tradable and
financially profitable truth. It has a product to sell, in its self-interest,
legitimately. With regard to competing products, even in the immaterial
form of the truth, preferably its product must have 100 percent of market
share.
As South Africans, we know the full meaning of the unregulated
expression of avarice, of the unbridled capitalism of the robber barons
experienced also by other societies through time. It is on this practice
that the accumulation of wealth and property in our country was based.
It was possible because there was a black majority to dispossess, subjugate
and exploit, as a matter of state policy.
The Masterbond disaster occurred because the 'way of
life' of the systemic, state sanctioned and enforced defrauding of the
black majority was generalised, enabling the defrauding of the population
in general, including our white compatriots. Those who sought to make
money from elsewhere other than from the black majority, reduced to penniless
poverty, had to target the white population, much of which had become
'bankable', only as a result of the comprehensive expropriation of the
black majority.
It is these 'bankable' whites to whom the Nel Commission
referred when it spoke of 'thousands of investors'. It was appointed by
the apartheid regime because whites had been robbed by (white) business
people, even as its historic task was to protect and advance white minority
interests.
All of us are also aware of how the objective of personal
enrichment pursued relentlessly by the dominant white minority, regardless
of the high human cost, informed the value system of the oppressor and
the oppressed. Thus, Cecil Rhodes and other successful business people
after him, to date, came to represent the very epitome of human success,
which all of us had to emulate.
Today, the best South African is the person, whether
black or white, who is dressed in the most expensive clothes. He or she
owns the most expensive car and lives in the most luxurious house. He
or she consumes the most exotic products and spends holidays at the most
expensive locations in South Africa and the rest of the world. He or she
will have the most expensive coffin and funeral. Anybody who questions
this value system is a moegoe or a mampara.
Within the ranks of our movement, this translates into
a struggle for positions. This is about political power, which ensures
personal access to material resources. Many in our ranks and society in
general, are adherents of the philosophy of legitimate avarice expounded
by Mandeville and Lewis. One outcome of this is that, as Philippa Back
said, crime might result from this ethic of greed. Wrongly, the view has
been projected that corruption is a special preserve of the public sector.
The fact however is that many in this sector have derived
their value system from the private sector. Generically, this latter sector
believes that every person has his or her purchase price. Some in the
public sector are ready to be bought, provided the price is right. They
consider their avarice as legitimate sin.
To respond to this immediate and real danger, we called
for the "RDP of the soul". As a country, we are engaged in a
national campaign for moral renewal.
Justice Nel provided us with a detailed and comprehensive
picture of the incidence of corruption in our society, driven by the natural
corporate requirement to show a healthy bottom line. The Nel Commission
demanded that the democratic, post-apartheid state should, practically,
act as the real guarantor of the interests of all our people, regardless
of race, class and gender.
It is significant that, whether rightly or wrongly,
issues of ethical corporate conduct were raised in connection with the
rapid depreciation of the Rand towards the end of last year.
Justice Nel asked of us that we should ensure that those
whom the people freely elected as their representatives should truly represent
the people. He asked that we must refuse that Lewis' 'self-interest' entices
us into a den of thieves.
The dominant world-view is that without the private
sector, there will be no honey. This sector is an important social partner
for us as well, many of whose members are firmly opposed to unethical
practices. This enables the regulator of avarice to draw on the expertise
and efficiency of those whose actions, according to Lewis, are intrinsically
driven by greed, even as it acts to contain greed.
Many among us believe that to be poor is to be nobody.
We believe that democracy has given us the possibility to prosper. Some
believe they are especially entitled to material success because, personally
or otherwise, they spent many years in active struggle against apartheid.
Some among us see the Truth and Reconciliation Commission
as a vehicle to legitimise our personal demands for financial rewards
for having fought for our own liberation. Perhaps Marc Lewis reflects
the popular view when he says that naked self-interest is the only criterion
of truth.
If this is true, then we must accept that there will
be some who will accept the principle and practice - set a sinner to catch
a sinner - with us too, serving among the sinners! Thus would we agree
that the greedy should be guardians over themselves. Nevertheless, together
with the rest of the world, we would still have to answer the question:
quis custodiet custodes - who shall guard the guardians?
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