At tipping point, it can’t be business as usual
When two Boeing 737 Max 8 aircraft crash within five months of one another due to technical malfunctions, killing 346 passengers and crew between them, one suspects all is not well at the company.
Similarly, though far less tragically, when US bank Wells Fargo admitted in 2016 to creating 3.5-million unauthorised bank accounts, or brand-leader Johnson & Johnson was found guilty of involvement in promoting opioid addiction, it is obvious that there is something materially wrong within the corporate sector, not only in the US but globally.
For most trustees environmental, social and governance (ESG) considerations have at best been either a “nice to have” or a “must have” but only from a compliance perspective, in a trustee pack. For most lay investors, it is one of those annoying topics that gets squeezed into investment conference agendas. Arguably, recent events such as those described above are changing that paradigm.
Corruption does not take place in a vacuum. It cannot simply be the public sector at fault. On the other side of every deal sits a businessperson.
Aside from the many global examples, in SA Steinhoff, Resilient, Tongaat, EOH, Sasol and others have seen share prices decimated, severely and negatively affecting investor returns. SA, which for decades had scored in the top few places globally in the World Economic Forum global competitiveness survey in such areas as quality of audit and reporting, corporate board efficacy and the protection of minority interests, has seen those rankings plummet, and for good cause. The corruption that so bedevilled the Zuma administration found its counterpart in the business community.
At the recent Business Against Corruption conference in Johannesburg it was pointed out that corruption does not take place in a vacuum. It cannot simply be the public sector at fault. On the other side of every deal sits a businessperson.
The corporate sector, in all humility and urgency, needs to take a good, hard look at itself. Material and deep-rooted change is required. The “G” so long touted by corporates and asset managers as a South African strength, needs to be critically challenged, with recent events at JSE stalwarts Old Mutual and Sasol adding further grist to the mill.
And it’s not just the “G” that is problematic. The “E” issues are now more relevant than before. The climate change problems are well documented and accepted, not only in scientific circles but among the vast majority of the general populace. Arguably, only those with an alternate motive, misguided incentive structure or conflict of interest can pretend to differ. Admittedly, some of the deniers hold high office, as in the US, or have huge power, budgets and effective lobbyists, as in the case of the oil companies, and can obfuscate, delay and damage the urgently required move to a greener world.
Yet the planet protests louder, on a daily basis. Recent examples include the hottest temperatures in multiple European cities, huge degradation of the Amazon forests and the loss of critical bee populations (Brazil), the loss of the enormous Okjokull glacier (Iceland) and many more. For many corporates these issues have a direct financial and reputational effect. On the positive side, getting one’s positioning right provides an enormous opportunity too.
Lest we forget the “S”, its effect is felt too. The social contract is being severely tested around the world. Harsh and valid criticisms are being levelled at leaders at governmental and corporate level. The status quo is under attack, whether that be in China (communism), with respect to human rights issues (Hong Kong and protests not often reported on in the mainland), or in the West with respect to the unbridled excesses of capitalism and their effect on inequality, perceptions of abuse and excess and more. And this is before consideration of the looming consequences of technology under the banner of the fourth industrial revolution (4IR).
Aside from the obvious, huge and potentially negative effects on jobs, there are wider issues — moral, ethical and social — where the important and necessary debates have not even begun. In his book Human vs Technology — The Coming Clash Between Man and Machine, author and futurist Gerd Leonhard raises critical questions. For example, “just because we can, should we?”, and “which team are you on, team machine or team human?”
And what of geopolitics — the move to the right in global politics, the wave of populism sweeping the West, the effects of extreme political correctness, and SA’s own difficult, internal issues (past, present and future)? Or of financial repression, another megatrend, which has not only continued after the global financial crisis but has arguably intensified. How do investors deal with a world with more than $17-trillion of negative yielding bonds? Do the old paradigms, models and techniques even still apply?
It seems clear that we have reached a tipping point, within each of the E, S & G sectors, yet arguably more broadly than that. No longer is it, or can it be, business as usual. The stake are too high, the issues too widespread, the news out too quickly and globally. The issues in those trustee packs, and raised at investment conferences, will not go away, nor will they be silenced, however much some might wish to remain in the dark ages.
What might the effects of each of the above be on society? On government and corporates? On markets and investment returns? These are weighty questions, requiring all of our attention.
New ideas, new solutions, new approaches will be required. We can wait no longer. The time to ask, to act, is now.
• Silverman is an investment and asset management consultant.