Sponsored
Picture: ISTOCK
Picture: ISTOCK

Say “Enron” and memory takes us back to one of the most well-known symbols of reputational meltdown of modern business. Once hailed by Fortune magazine as the most innovative US company for six consecutive years, it eventually filed for bankruptcy in 2001 at the cost of 20,000 jobs, jail sentences for executives and the dissolution of the accounting firm Arthur Andersen.   

Several lessons stand out from the Enron scandal. Directors, managers and accountants must stick to their roles and stay independent of mind. There is no excuse for bad governance. The relationship between money and morality should be carefully managed. Reputation is priceless. Society is not stupid. Truth prevails. But do we learn? 

We see how greed never hunts alone as it needs the corroboration of unscrupulous directors, managers and accountants

In corporate South Africa, we seem to be in Enron territory again. In a society inundated by scandal after scandal, we observe how boards ignore early warning signals and forsake their fiduciary duties. We hear executives swear by the truth only to be eventually exposed for their lies and cover-ups. We see how greed never hunts alone as it needs the corroboration of unscrupulous directors, managers and accountants to pave the way for its selfish and corrupt purposes. When the truth eventually comes out, we see how the culprits seek protection behind power, money and connectedness in high places. Will we ever learn? 

What we do learn as these narratives of corruption, collusion and fraud unfold is that boards, as the ultimate custodians of corporate value and values, often say they never saw it coming. They governed in the hallowed assurance of overseeing a successful enterprise with a good reputation. Whatever ethical deficit there was, caught them by surprise. Whoever acted unscrupulously did so beyond the reach of their attention. However, these are unacceptable excuses for either a lack of competence or the gross negligence of duty resulting in a business losing the support of its customers, the respect and trust of society and the confidence of investors. There is indeed a high cost to low ethics.

Granted that human beings are fallible, ethical failures in business can be prevented – but how? Beloved and trusted business brands are built on practices that are lawful, ethical, responsible and sustainable. Businesses that do this well enjoy the loyalty and respect of employees, customers, suppliers, shareholders and communities. However, to maintain such love and trust from stakeholders demands hard work and constant moral vigilance. According to Mark Moody-Stuart, the seasoned chairman of several multinational companies, “the honest delivery of sound-quality goods and services in exchange for money is an essential part of any society and can be a vocation, depending on the approach to the task, and the values that shape how it is done”.

Unethicality seeks company in the dark while ethicality thrives in transparency and a shared values environment

What then is this vocation about? It starts with the embrace of business as a noble task through which human beings engage in what is meaningful, creative and valuable. For the employee, it happens at the smaller scale as an opportunity to exercise talent and build a career. The owner or manager is called to the higher and more complex purpose of combining the capacity of people and systems into a beloved and successful business that creates financial value and social capital for stakeholders on the inside and outside thereof. At the level of governance, the ultimate purpose is to ensure that the business plays its part, together with government and civil society, in securing a productive economy, a just and fair society and a well-cared-for environment. Why then should any business person ever want to sacrifice that which is the best that she or he is capable of – namely to combine creativity with ethicality and create value on a grand scale – for selfish and short-lived gain and the pain and shame of a tarnished reputation?

How to get this right is the question that remains. A values-driven and value-creating business is a team effort. Unethicality seeks company in the dark while ethicality thrives in transparency and a shared values environment. Moral muscle needs to be built as directors, managers and employees engage in robust conversations and align on the values, ethics and agreement on quality and integrity they want to be known for among their stakeholders. Furthermore, it is important to award the right behaviour, to be attentive to the signals from whistle-blowers and to have zero tolerance for unethical behaviour, irrespective of rank or power.

In business, money and morality never stand far apart. The temptation to give up the tension between the two and choose the former over the latter is the classical grey zone of business decision-making. It needs to be kept in check by both individuals and decision-making bodies. Failing to do may put the licence to operate in Enron-like territory.

The late Peter Drucker once wrote that “a man might himself know too little, perform poorly, lack judgment and ability, and do not too much damage as a manager. But if he lacks in character and integrity – no matter how knowledgeable, how brilliant, how successful – he destroys. He destroys people, the most valuable resource of the enterprise. He destroys spirit. And he destroys performance.”

Prof Arnold Smit is an associate professor of business in society and the head of social impact at the University of Stellenbosch Business School.

This article was paid for by the University of Stellenbosch Business School.

Please sign in or register to comment.