People decry corruption in the public sector, but business elites are guilty of a range of ethical and corporate breaches, writes Ivan Fredericks
Unethical behaviour damages not only a company’s health but also public virtues, and reputational capital is difficult to repairCorruption and poor ethics are often associated with the public sector. As a public-sector union, the Public Servants Association of SA is aware of the simplistic narrative of the public sector being synonymous with bad governance, and the private sector being the paradigm of virtue.
Unethical behaviour by business damages not only a company’s health but also public virtues. Reputational capital is difficult to repair once it has been damaged. We saw this with Steinhoff in early 2018, when the company manipulated its financial statements to project a good bill of health when this was, in fact, not the case. Its financial results for two financial years since 2015 could not be relied on and had to be restated.
Companies engage in this deception to avoid shareholder scrutiny that is occasioned by decline in earnings, and which often negatively impacts the company’s share price. The thrust of shareholder capitalism is a singular focus on the metrics of maximising shareholder value above all else. The incentive structure of corporates is tied to profitability rather than a set of values or a maximisation of broader stakeholder outcomes. Given the structure of incentives, it should not be surprising that a singular focus on shareholder value is bound to lead to a dark alley. Accounting firms that should uphold high ethical standards have done their fair share in eroding corporate governance. They are positioned to play a powerful assurance role, which they abuse.
Taking short cuts to show “good” results may be part of an ingrained corporate practice, and therefore acceptable culture in some organisations. There is no trade-off between great performance and ethical conduct. In the long run, businesses that are imbued with an ethical culture and moral leadership do well even on quantitative metrics. There are other questionable practices that corporates engage in that on appearance may not look illegal but come across as clever tactics.
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