KHAYA SITHOLE: Let’s make very clear the consequences of corporate corruption

Seventeen years ago, in an essay titled Corporate Catharsis, Jayati Ghosh reflected on the prevalence of stories regarding private sector corruption that had dominated headlines in the US.

The most prominent of them all — Enron — was unique in that the discovery of its corrupt practices led to its demise and also that of another entity that was complicit in the fraud — Arthur Andersen.

Subsequent scandals, such as WorldCom and Parmalat, had less spectacular collapses that did not drag the enabling agents — bankers, lawyers and auditors — into the vortex of extinction. The role played by such agents in their capacities as gatekeepers, advisers and enablers has come to the spotlight in the South African context as the country tries to make sense of the “nine wasted years”.

The ease with which such entities became central participants in the dismantling of public institutions emanated primarily from the social capital they enjoy throughout the world. When brands such as McKinsey and Bain enjoy universal acclaim and reputation, their capacity to convince overwhelmed civil servants that their ideas are superior to anything else they could contemplate is hugely enhanced by just the brand name, international footprint and sophistication of their business and social networks.

And yet, in the competitive world of bidding for lucrative government contracts, the scope for undermining the rules remains omnipresent.

The various ways of playing the system — ranging from McKinsey’s fronting at Eskom with the Trillian sham, to Bain’s strategy of underpricing the initial services only to escalate fees on the subsequent and unavoidable follow-up tasks — are now well understood by all players in the market. This means the rules underpinning the onboarding of such contracts need to evolve to prevent the type of losses we have witnessed in the past.

In addition, an environment of deterrence across the system needs to be cultivated. If the consequence of being caught on the wrong side of the divide is simply the loss of the contract whose malfeasance has been discovered, that doesn’t do much to permanently alter the errant behaviour. Rather, in addition to the repayment of the ill-gotten gains, exclusion from such contracts with the state needs to become the norm.

This week in parliament, National Treasury’s Ismail Momoniat reiterated that the primary agent of Tom Moyane’s mission of the SA Revenue Service’s (Sars’) destruction, Bain, needs to be permanently barred from contracting with the state. Such an action is in addition to the repayment of the fees Bain levied to Sars for its disastrous dismantling project.

Another agent of destruction — Gartner — has refused to pay back the fees on the basis that its services added value to Sars. It is important to highlight that the mere repayment of the fees is not itself a form of penance simply because the fees were unwarranted in the first place. For a country whose rule of law is continuously undermined, narrowing the gap between actions and consequences is a critical element of rebuilding the state.

While the entities that have been found to be complicit in various state capture projects — KPMG, McKinsey, Bain and China South Rail — have paid back the money, that cannot be the only step towards redemption. We all know it takes a few individuals within such institutions to initiate the path towards moral decay. But each institution should have internal mechanisms to identify and detect the actions of the rogue elements before they infest the entire organisation.

The pathway to redemption is therefore a process of corporate catharsis that starts off with paying back the money, interrogating the nature of wrongdoing, and then — particularly for entities that insist they are acting in the public interest — defining how their accountability mechanisms incorporate a social accountability compact commensurate with the public interest they profess to serve.

Failure to do that puts the onus on society to ensure that such entities never again benefit from the public purse — their professed commitment to the public interest notwithstanding.

• Sithole (@coruscakhaya) is a chartered accountant, academic and activist