The last decade has seen South Africans go from enduring the darkest days of state capture to living in hope that the outcomes of the recent Judicial Commission of Inquiry into Allegations of State Capture, better known as the Zondo Commission, will herald a new dawn. In many ways, little has changed since 2012, when South Africa’s score on Transparency International’s ‘Corruption Perceptions Index’ was 43 and it ranked 69th out of 176 countries. In 2021, with a score of 44, South Africa ranked 70th out of 180 countries. The National Business Initiative (NBI) is taking a multipronged approach to addressing ethical leadership and anti-corruption in the private sector. NBI’s Programme Manager of Social Transformation Thuthula Ndunge explains.
Corruption in the South African context
There is an urgent need to curb corruption in the private sector in South Africa. Economic and financial crimes pose a significant barrier to achieving sustainable development objectives and the private sector has a critical role to play in addressing these challenges by encouraging businesses to take a firm stand against corruption.
Corruption is defined as the abuse of entrusted power to acquire illicit benefits for personal gain. Corrupt activities take on different forms and can be identified through behaviours such as:
- Public servants demanding money or favours in exchange for services.
- Politicians misusing public money, granting public jobs and contracts to their sponsors, friends and families.
- Companies bribing officials to get lucrative deals.
Corruption occurs in a state with inadequate regulatory frameworks or institutions to support them. This enables
exploitation across different areas and operations of government. In the case of state capture, we witnessed grand corruption in which systemic political corruption allowed private interests to significantly influence the state’s decision-making processes to their own advantage.
But taking on corruption is not just about fighting crime; it’s about securing our democracy and our future. The Zondo Commission revealed widespread corrupt activities in both the public and private sectors in South Africa, debunking any notion that the private sector is more ethical than the public sector.
Key areas and forms of corruption
In South Africa, procurement, especially in the public sector, is particularly prone to corruption, which is a high risk for businesses. In PricewaterhouseCoopers’ (PwC) Global economic crime and fraud survey 2020 South Africa, nearly two out of five companies indicated that they had experienced procurement fraud in the preceding two years.
Meanwhile, Corruption Watch has documented other common forms of corruption, including maladministration and the misappropriation of resources.
Many make the mistake of thinking corruption is a victimless crime, but the real costs of corruption are not just financial loss, reputational damage and penalties. They include the loss of jobs that would otherwise have been created, a loss of income tax due to illegal cash outflows, and negative impacts on socioeconomic growth and service delivery. In addition, the competitiveness and dynamism of the country is stunted, and citizens are forced to pay more for goods and services. Corruption is a multifaceted problem requiring multidimensional solutions that are cross-sectoral and take an integrated approach.
Business corruption is a universal problem. Exploring corrupt activities within the context of business can include false or misleading financial reporting, procurement fraud, embezzlement, bribery and a range of other acts. Some common manifestations of corruption in business include commercial bribery and kickbacks; extortion and solicitation; gifts and hospitality; fees and commissions; collusion; trading of information; trading in influence; embezzlement; and favouritism, nepotism, cronyism and clientelism (see box above).
Common examples of manifestations of corruption in business
- Commercial bribery and kickbacks: Involve employees of a company giving payments, undue advantage, or expensive gifts to employees of another company to secure an advantage. Examples include paying procurement staff to sway their decision in favour of the paying company, giving an expensive gift to a bank manager to secure a loan and various forms of kickbacks.
- Extortion and solicitation: Occur when an employee of a company requests a payment, undue advantage, expensive gifts, or sexual favours in return for conducting specific business-related tasks or making particular decisions.
- Gifts and hospitality: Excessive gifts and hospitality are given to employees to influence business decisions or tasks. This kind of gift might be travel, luxury items, or tickets to sporting events.
- Fees and commissions: Agents and intermediaries are paid fees and commissions beyond what is considered the industry standard, to alter business decisions or tasks. Characterising a payment as a ‘fee’ or ‘commission’ might be a way of disguising the payment of a bribe.
- Collusion: Occurs when for instance, a labour union employee and a member of the company’s management team exchange favours that result in employees’ interests not being accurately represented.
- Trading of information: This happens when a business employee offers or receives a bribe in exchange for confidential information; the bribe could take several different forms. When confidential information is the basis for trading in a company’s stock, bonds, or other securities, this constitutes an offense called ‘insider trading’.
- Trading in influence: Sometimes referred to as ‘influence peddling’, occurs when an employee gives payments, undue advantage, or expensive gifts to a public official, expecting to receive an undue advantage from the public authority in return.
- Embezzlement: This happens when employees misappropriate anything of value that was entrusted to them because of their position.
- Favouritism, nepotism, cronyism, clientelism: These forms of corruption occur when a person or group of persons are given unfair preferential treatment at the expense of others.
Practical steps to implement an anticorruption programme
South Africa has a robust anti-corruption framework, but laws are inadequately enforced. The Prevention and Combating of Corrupt Activities Act, 2004 (Act No. 12 of 2004) (PCCA) criminalises corruption in the public and private sectors, including attempted corruption, extortion, active and passive bribery, bribing a foreign public official, fraud and money laundering. It also criminalises failure to report corrupt activities in certain circumstances.
Preventing corruption requires a substantive framework that is based on a thorough understanding of the lie of the land, that is, gaining insights into the current ecosystem and how that influences your objectives. Reviewing documents such as the King IV Report on Corporate Governance for South Africa (King IV), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), the Global Impact, the Organisation
for Economic Co-operation and Development (OECD) recommendations, and the Ethics Institute’s handbook are good reference models to build an effective anti-corruption, ethics and compliance programme.
Ensuring an effective anti-corruption ethics and compliance programme requires a comprehensive understanding by the private sector that business integrity and ethics share similar characteristics even if different models are used.
An anti-corruption strategy, supported by policies, ethics programmes, and a strong commitment from the C-Suite members would assist the maturity of the risk and integrity culture.
Five steps for building an effective anti-corruption, ethics and compliance programme:
1. Conduct a Risk Profile
- By conducting a survey
- By conducting interviews
- By conducting an investigation.
- The Ethics Assessment is concluded once the themes are identified in the organisation.
2. Develop an Ethics Strategy and Management Plan
- Run an Exco workshop
- Unpack the problem areas and these will be determined by the risk profile
- Reporting quarterly on the strategy and implementation plan.
3. Aligning Compliance Framework with Ethics Strategy
- Review the values, the vision and the mission, and assess if they are aligned with the new strategy
- Review the codes of conduct and supporting policies such as gifts, conflict of interest, whistle-blowing, anticorruption, harassment and disability.
4. Training and Communication
- Institutionalisation of the solutions
- Storytelling campaigns
- Linking training to key performance indicators (KPIs).
5. Monitoring and Evaluation
- Reporting performance progress on the strategy
- Ensuring key risk indicators account for the progress made
- Consequence management.
The causes of private-sector corruption
In her 2016 paper ‘What do corrupt firms have in common? Red flags of corruption in organizational culture’, Alison Taylor explains that a culture normalises corruption through three processes: institutionalisation (the embedding of corrupt practices in company structures and processes); rationalisation (self-serving ideologies that justify corrupt practices); and socialisation (new employees being socialised into systems and norms that tolerate or permit corruption).
Peer pressure can socialise employees into corrupt practices. In the context of private-sector corruption, peer pressure refers to actions undertaken by way of an executive or management order. A corporate culture of corruption is brought about by a multiplicity of factors, such as competition and growth orientation, complicated
leadership structures, and high levels of autonomy and discretion, with a lack of transparency, accountability and ethics.
Preventing private-sector corruption
Reform measures will always be specific to the circumstances, but the following will assist:
- Functional approaches: improving institutions, public financial management, systems and controls
- People-centred approaches: building networks and coalitions of supporters
- Monitoring approaches: strengthen oversight groups and their independence
- Justice and rule-of-law approaches: prosecuting, raising confidence and improving laws
- Transparency approaches: making visible what others wish to keep hidden
- Integrity approaches: motivating, and instilling pride and commitment
- Civil society and media: creating space for external voices
- Incentives and nudge approaches: aligning stakeholders, economics and behavioural knowledge.
Collective action and public-private partnerships against corruption
In the early 1990s, Transparency International had developed tools to facilitate collective action to help lower corruption risks in the public procurement space. ‘Collective action’ can be defined as a group of companies, or the whole industry sector committing to higher standards to solve a problem. Such collaborations involve private-sector companies working together with government or other involved stakeholders (often local communities.
Jointly reviewing unhelpful regulation
Companies are faced with slow processes and red tape, due to long approval chains or procedures when it comes to state-owned organisations. Most of the time, the regulations and working practices are not the reality of their marketplace. The companies end up with conflicting processes to deal with and they opt to ‘help’ the process along by paying bribes.
The Center for International Private Enterprise (CIPE) has produced a document called ‘Combating corruption: a private sector approach’ whose purpose is to mobilise the private sector to raise anticorruption standards and advocate for reforms. It examines root causes of private-sector corruption such as ‘complex and contradictory laws and regulations, the discretionary power of public officials, lack of transparency in public procurement, inconsistent enforcement, and absence of competitive market.
Essential resources for embedding a healthier governance culture
- Code of conduct and ethics
- Ethics programmes
- Ethics training for internal and external stakeholders
- Independently managed lifestyle audits of senior management
- Subscribe to King IV
- Adhere to the Companies Act, 2008 (Act No. 71 of 2008)
- Anti-corruption policy
- Whistle-blowing policy
- Sexual harassment policy
- Social transformation policy
- Independently managed whistle-blowing/grievance/ethics hotline.
Changing the narrative of corruption
Changing the ethical culture and corruption landscape in South Africa will take a long time.
To achieve this, everyone in business needs to undergo ethics and anti-corruption training that enables them to understand what individual and collective accountability looks like. Those who speak out against corruption and unethical behaviour need to be applauded. These efforts need to be supported by an accountability and transparency infrastructure that enhances cooperative action across both the private and public sectors.
The private sector understands that it cannot operate in isolation and equally cannot thrive in a failing society. Business should play a much larger role in helping to cultivate a strong, cohesive and sustainable South Africa.
To this end, the NBI’s Building Trust and Accountability (BTAcc) Programme aims to strengthen ethics and governance while enhancing the capacity for responsible business practices and accountability, which in turn will strengthen the relationship between business and broader society. A key area of work is capacitating the private sector by filling critical knowledge gaps on how policy, best practice, formal and informal structures, systems and controls, as well as corporate cultures need to develop. The BTAcc programme integrates these elements and looks for innovative ways to address complex structures of systemic corruption. Visit the NBI’s website at https://www.nbi.org.za for more information about this programme.
- Rose-Ackerman, S. (2007). Measuring Private Sector Corruption. Bergen, Norway: U4 Anti-Corruption Resource Centre, Chr. Michelsen Institute.
- Taylor, A. (2016). ‘What Do Corrupt Firms Have in Common? Red Flags of Corruption in Organizational Culture’. Center for the Advancement of Public Integrity, Columbia Law School.
- Shipley, T. and Pyman, M. (2021). ‘Curbing Corruption in the Private Sector: Reform experience and strategies’. National Business Initiative. Toolkit for Business and Human Rights in South Africa. [Online].
- National Business Initiative. ‘Benchmark Report Understanding the Private Sector’s Approach to Anti-Corruption.’ [Online].
- National Business Initiative. ‘Transparency in Corporate Reporting South Africa 2020’. [Online].