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Leading with Ethics

Leading with Ethics

Tarryn Wright (Moore Durban) and Anusha Ramraj (CCI South Africa Proprietary Limited)

In South African society corruption, fraud and accounting failure have become the norm, so much so that we barely react when the latest scandal hits the headlines. We have become fatigued, but this doesn’t mean that we can give up the fight against these scourges of society. To quote Edmund Burke, “The only thing necessary for the triumph of evil is for good men to do nothing.” We cannot turn a blind eye when we see minor acts of unethical behaviours, as once someone has displayed that he can “get away with it”, what will prevent him from further, more serious unethical behaviours?
 
Looking at the likes of Steinhoff, the Guptas, Tongaat-Hulett, Bosasa and other large corruption, fraud and accounting failure cases, we have to look to the leadership of these entities and, sadly, our country.
 
Using Steinhoff as an example, much has been written on the “accounting irregularities” that took place. Another word for this is fraud. Markus Jooste, the CEO, is often described as a “strong leader”. Another word for this could be “bully”. In his childhood though, there were early warning signs of unethical behaviour. It is alleged that he would write fake sick notes to get out of school. Why, at that early stage, was the behaviour not nipped in the bud? Surely this was an early sign that this person was not cut out for leadership? If he was willing to commit fraud as a child, what would prevent him from committing fraud as an adult? Sadly, his training as a Chartered Accountant (South Africa) gave him the tools to know how to hide it for as long as he did.
 
What about our previous president, Jacob Zuma, who is caught up in not only Gupta-gate, but various other legal challenges as well? As early as 2005, when Shabir Shaik was convicted, he should have been seen as no longer viable for a leadership position. Corruption and bribery cannot happen with only one-party present. It is trite to say “It takes two to tango”. Much has been written about his extra-marital affairs and illegitimate children. What made South Africa think that once he was president, this would change? If he could not be faithful to his wives, what made us think he would be faithful to us?
 
These are not good people. So, why do so many people follow and support them?

There are three main reasons:
 
Position
 
By placing themselves in positions of power, these people assume positions of leadership and respect. Most of us are taught from a young age to respect and obey people in these positions. You defer to the chairman of the board, you listen to your teachers, you do as the police ask, even when they are wrong. People who question the system are considered troublemakers. This is leading through fear and cannot continue forever. As has been seen in the Bosasa matter, once freed from this leadership, people start speaking out and the house of cards will tumble.
 
Expertise
 
If someone knows more about a topic than you do, you are more likely to take his advice or follow his instructions. It is rational do so. Looking at Steinhoff, with senior Chartered Accountants telling the accounting department how to account for transactions and values, why would they not simply do as they were told?
 
Relationships and Charisma
 
Once you’ve known somebody for a period of time and have built a relationship with him, you are more likely to want to assist him. If you like that person, the willingness to assist increases exponentially. Most leaders are charismatic and likeable in their professional personas. They are able to hide who they are from the outside world and therefore it comes as a surprise when we discover a fraud or corruption matter. Bernie Maddoff is a case in point. He was the former non-executive chairman of the NASDAQ stock market. He also ran the largest Ponzi scheme in the world for over twenty years.
 
So, how do we lead ethically and ensure that we are running ethical businesses?
 
As the saying goes, the fish rots from the head. It comes down to leadership. Do you want a high-flying CFO, with a penchant for creative accounting or the CFO who is not afraid to challenge accounting treatments or out of the ordinary transactions? Do you want a CEO who leads by bullying subordinates into submission or the CEO whom people genuinely respect because she always does the right thing for the company given the circumstances? Do you really want to be fellow directors with the person who is having an affair? What makes you think he would be loyal to the company and the board? You cannot simply draw a line in the sand and state that the way people behave in their personal lives does not impact on their professional lives. It does and it will. You may not know when and how it will transpire, but it will.
 
Compliance with the King IV report on corporate governance is a statutory requirement for entities listed on the JSE. Private entities are strongly encouraged to adopt as much of King IV as is reasonably possible. The definition of ethics included in King IV is as follows: “Considering what is good and right for the self and the other, it can be expressed in terms of the golden rule, namely, to treat others as you would like to be treated yourself. In the context of organisations, ethics refers to ethical values applied to decision-making, conduct, and the relationship between the organisation, its stakeholders and the broader society.”
 
According to King IV, ethical leadership requires integrity, competence, responsibility, accountability, fairness and transparency. It complements effective leadership, which is results-driven. Do you live these principles outside of your professional environment, in your relationships and in your communities? Being ethical may cost you a contract here and there. However, being unethical can cost you your reputation. And that is a much higher cost.
 
So, the question is - What is Ethical leadership? It’s definitely not about trying to avoid a scandal!
 
The Oxford Dictionary defines ethics as: “Moral principles that govern a person’s behaviour or the conducting of an activity.”
 
Ethical leadership is about acting responsibly and modelling the right behaviours to be able to inspire and lead your employees into achieving more; and to create the most value for society. Ethical leaders should always display ethical and appropriate behaviour in all facets of their lives and should lead by example. In addition, they should always strive towards creating an ethical work environment articulated by policies and rules best for the business and its stakeholders and not by politics or personalities. Decisions and outputs need to be value-based and in line with the organisation’s vision and mission.
 
This is in line with the King IV Code and Principles (17 principles which include one extra for institutional investors) that replaced King III. Mervyn King, chairperson of the King Committee, said that: “An updated code became necessary because of the international and local developments in corporate governance. In drafting the King IV report, the committee revised the ‘apply or explain’ approach and replaced it with an ‘apply and explain’ approach. King IV advocates that the governing body must disclose the means through which it is being held accountable to deliver. With the code bringing to the forefront ethical and effective leadership, the first three principles especially intensify the importance of ethics in an organisation.
 
Let us examine these a bit further:
 
Principle 1- The Governing Body Should Lead Ethically and Effectively:
 
This principle encompasses the six ethical characteristics of integrity, competence, responsibility, accountability, fairness and transparency. In any organisation, the Board of Directors must adhere to all its duties by acting with due care and diligence. In addition, the Board must be composed of competent individuals who can steer and set the tone for the organisation, set the strategic direction, review and approve policies, be risk adverse and, very importantly, ensure accountability.
 
Principle 2: The Governing Body Should Govern the Ethics of the Organisation in a Way that Supports the Establishment of an Ethical Culture:
 
This principle further exacerbates the need for ethics to be endorsed by organisations. Ethical foundations must be established. A few examples of how this can be achieved and managed is by way of documenting and implementing a Code of Ethics and Conduct, endorsing policies around corruption and anti-bribery, Whistle Blowers, gifts and the establishment of a Social and Ethics Committee.
 
Principle 3: The Governing Body Should Ensure that an Organisation be a Responsible Corporate Citizen:
 
In order to become a good corporate citizen, the board must at minimum assess its activities in the following areas: the workplace (health and safety of its employees, fair and equal pay, the relevant labour legislation requirements, BBBEE etc.), the economy (economic transformation, tax legislation etc.), society and the environment.
 
Overall, the King IV Code calls for leaders to be ethical and to break away from results and compliance-based leadership styles. Leaders should become more strategic by applying their minds to the manner in which they conduct their day to day business, and to be held accountable for their actions.
 
In an ever-changing world, as ethical leaders within our organisations, we need to strive towards creating a culture in which people do the right thing. Leading from the top is not always pleasant and it requires a demonstration of courage. You are never going to please everyone and some of your decisions may leave you questioning whether you have done the right thing. However, the running of an organisation ethically and responsibly is never going to be an easy task.
 
We are at a time where the world is experiencing great difficulty and it is becoming increasingly difficult for businesses to decipher between what is right and what is wrong. Ethics, Integrity, Competence, Responsibility, Accountability, Fairness and transparency have never been more important. Make the right choice!