Picture: 123RF/hxdbzxy
Picture: 123RF/hxdbzxy

There are a few disturbing themes that characterise SA’s current governance crises: "accounting irregularities" missed by the auditors; directors claiming they were misled; sudden departures of CEOs; and investors who have lost their scepticism amid the glow of sterling past profits.

Of course, the finger-pointing is all just academic for the pensioners, retrenched workers and vulnerable communities who have lost money in these debacles.

It is clearly a time for reflection. Some have questioned whether the King 4 governance code is failing; others even suggest the code may be a danger to investors who are, ostensibly, misled by it.

But the truth is, King 4 is a convenient scapegoat, trotted out so that people can avoid doing the hard work of understanding the interdependence of the elements in the governance ecosystem.

It reminds me of the Sufi story of Mullah Nasruddin, who is found by a villager on his hands and knees under the light of a street lamp late at night. The mullah tells the villager that he is looking for his house keys. The villager offers to help but after searching fruitlessly, he asks whether the mullah was sure that this was where he had lost his keys.

"No," the mullah responds. "I lost the keys inside the house." The villager responds: "Then why are we searching under the street lamp?" To which the mullah replies: "Because this is where the light is."

Similarly, we need to expand our search for answers beyond the principles laid down in King 4. To imbue King 4 with an intrinsic power to dupe investors is absurd. It is equivalent to asking whether the constitution is a danger to citizens.

Directors have to be proficient in the science and art of corporate governance

Whether the aspirations of King 4 and the constitution are brought to life depends entirely on those who apply them. All they both do is to propose systems of accountability consisting of checks and balances.

It starts with boards of directors, who are the focal point of the governance eco-system. And it may be true that directors often do not know about the shenanigans happening at their companies. But simply groping for the missing keys under the street lamp, and then crying foul when things go awry doesn’t pass for due diligence. Directors have to be proficient in the science and art of corporate governance: this is how oversight converts the previously unknown to the known.

It’s also true that there are several other governance gatekeepers besides the board. Investors are arguably the most powerful of them, because of their legal right to hire and fire directors. The problem arises when investors are absentee landlords, or when they usurp the powers of the board, disturbing the ecosystem. In the private sector, the former tends to happen; in the public sector, there are many examples of the latter, through political interference.

But it gets more complicated. The entire investment value chain — including institutional investors (such as pension funds), fund managers, proxy advisers and investment analysts — have considerable influence and must also be held accountable for their actions.

It is alarming that the day before Markus Jooste resigned as CEO of Steinhoff in 2017, 11 of the 17 analysts who covered Steinhoff recommended it as a buy, and six as a hold. Where were the objective, sceptical and inquiring minds?

There are further gatekeepers down the line, too, including the auditors, regulators, the media and civil society.

Trust in our audit profession is at a record low, not only in SA but globally. Correcting this will not be a quick fix, even over the long term, unless the profession works together to address the structural causes of this problem.

These governance crises come from deep-rooted systemic issues and behavioural challenges arising out of both incompetence and a wider lack of ethics. As a starting point, let’s recognise this and let our search for answers befit that complexity, rather than creating easy (and false) scapegoats.

Ramalho is a member of the King committee and a nonexecutive director on various boards