Moral hazards: Former British chief rabbi Jonathan Sacks — an exponent of moral leadership — makes the telling point that transparency and accountability are required, even if leaders have impeccable reputations. Picture: REUTERS Jacques Pauw’s riveting tell-all book The President’s Keepers exposed the extent of the morass in which the country has found itself. But while state-owned enterprises and organs of state were fingered, I couldn’t help wonder about the knock-on effect of the weakening of our institutions on the broader economy. Little did I suspect that the decline also permeates the private sector. The collapse of Steinhoff on the back of grand larceny by its former CEO has had international repercussions, with global investment banks reporting elevated credit provisions in the first quarter and local investors still reeling from the decline in the value of their investments. At the annual general meeting a Dutch investor made a call for contrition and atonement to the board. Even the chairwoman of Steinhoff International acknowledged that the scandal had led to a trust deficit for the whole of the South African corporate establishment. Since then, we have had well-publicised issues with the Resilient group, Tiger Brands and the resignation of the Imperial CEO. Traditionally, the agency problem caused by one person making decisions that affect broader stakeholders is solved in finance by ensuring that executives have sufficient “skin in the game” to be good stewards of an organisation and consider the long-term wellbeing of the organisation. But what if, despite the financial incentive, leaders still behave unethically? Similarly, why do politicians choose ill-conceived populist policies or, worse, loot state coffers at the expense of their careers? I had to search for answers from unlikely sources. Former British chief rabbi Jonathan Sacks has published extensively on the issue of moral leadership. He insists transparency and accountability are required even if leaders have impeccable reputations, because when money is at stake leaders face the moral hazard of maximum temptation with maximum opportunity. Sacks quotes as an example of accountability how the biblical Moses insisted the donations of gold collected to build the first Jewish temple had to be independently recorded by Levites. Unfortunately, the VBS Bank scandal has shaken the foundations of the auditing profession, which makes even such independent verification duplicitous.

The scary thing is that this governance malaise we find ourselves engulfed in is mirrored in a number of leading global economies. The CEO of Australian financial services giant AMP had to resign after revealing his company overcharged customers and misled regulators. This led Australian regulators to institute a new criminal penalty regime, which could lead to executives landing in jail for up to 10 years. In the UK, Sir Martin Sorrell of WPP, a prominent figure in business circles and one of the highest paid CEOs in that country, having lorded over the advertising industry for more than three decades, resigned after a whistleblower exposed his personal conduct and the misuse of company funds. In Japan, Prime Minister Shinzo Abe’s third term is being threatened by a scandal over the sale of public land to a school connected to his wife. But even this is no panacea. Eyebrows were raised when the doyen of corporate governance in SA, Mervyn King, was quoted as saying ‘negligent oversight by a director is not a crime’ Far from being a uniquely developed world problem, India’s state-owned Punjab National Bank uncovered a $2bn fraud. While poor governance in a state-owned bank may be met with apathy, this was closely followed by two high-profile cases of poor lending standards at two leading privately owned banks, ICICI and Axis. However, things got more complicated for the CEO of ICICI, when dealings between her husband and the main shareholder of the bank were exposed. Even in India, it would appear that poor governance has permeated from state banks to some of the leading privately owned banks, requiring regulators to insist on stricter rules on board composition. If auditors cannot be trusted, perhaps other insiders can help? Independent nonexecutive board directors may well be the last recourse for investors. Carefully selecting members of the board and regularly engaging with them has become a key tenet of our investment process. But even this is no panacea. Eyebrows were raised when the doyen of corporate governance in SA, Mervyn King, was quoted as saying “negligent oversight by a director is not a crime”. Our society is crying out for more: a better vision for our country, more inclusive thinking from our business leaders and policies that sustainably deliver value for society at large while adhering to sound moral principles. It is clearly inadequate to believe politicians or business leaders whose only promise is greater riches. A track record of success may not even be sufficient. Leadership has morphed from being able to do a job competently to one in which leaders must deliver results while at the same time doing good for society at large. We’re reminded of Cyril Ramaphosa’s #ThumaMina, a call for all of us to rally together. But can this really happen in business? In his 20th letter to Amazon shareholders, Jeff Bezos, one of the richest people in the world, explains how a culture of high standards is key to providing better products and services. What resonates is his mention that standards are contagious: bring someone new to a team with high standards, the founder of Amazon says, and they will adapt. But if low standards prevail, they too will quickly spread. It is time for SA to also demand higher standards and a new style of leadership.

• Rassou is head of equities at Sanlam Investment.