Pravin Gordhan

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The Minister of Finance, Pravin Gordhan, shared his reflections on the role of corporate governance in South African society during an interview with business journalist Bruce Whitfield and EY Senior Researcher, Jess Schulschenk, on 19 March 2012. The video interview is included above, and reflections from both this and the longer research interview are given below. These findings were made possible by the Gordon Institute of Business Science (GIBS) and form part of the ongoing Corporate Governance Research Programme with the Albert Luthuli Centre for Responsible Leadership (University of Pretoria) supported by Ernst & Young.

South Africa’s financial systems, audit practices and legal faculties are in good shape and rank exceptionally well internationally. Contributing to this progress the Minister included improvements in the codification of transparency, accountability, responsibility and stakeholder awareness. He felt that it was beneficial to the business sector as a whole to have evolving standards that aim to keep in touch with unfolding realities, domestically and internationally.

Gordhan put forward that the role of corporate governance is not only to guide companies to be accountable to their internal missions but also to the broader stakeholder community. South Africa’s corporate governance principles, as embodied in the King Codes of Governance Principles, have successfully developed and refined an arguably much stronger definition of the purpose of corporate governance than the traditional Anglo-American models, by taking into consideration the role of business in society and placing strong emphasis on stakeholder inclusivity, long term sustainability and, ultimately, responsible leadership.

“The danger with corporate governance is that it's a set of formalities that you follow without necessarily providing a social context within which those formalities are to be exercised or providing a framework of obligations which would ensure that corporations within an emerging market context, but even within a developed country, today play an active social role.

In the South African context much of the discourse is what governments should and must do and much less about what corporations can do. You can have an absolutely perfect corporate governance set of rules and practices which have an absolutely insignificant impact on the society in which you find yourself. Now how you connect that is crucial and you want a mindset which is able to understand the complexity of your environment, the diversity of your stakeholders, how each of the obligations play themselves out depending on the socio-economic environment in which you find yourself in and, rather than responding to push factors, generate your own pull factor which would allow you not only to innovate within the spectrum of your core business but innovate in terms of what type of contribution you can make to a country’s economy or society.

There are any number of things that corporations could be doing without impacting negatively on their bottom line and, I’m not saying that they don’t do it, but I would like to see a lot more of it if it is happening. Too much of it is trapped within the corporate social responsibility or CSI paradigm. Given the kind of legacy that we come from, we require more structural interventions to happen which change the character of poverty and educational opportunities and skill opportunities and work experience in our environment.”

Gordhan recognised that codes, such as King III and CRISA, have an important role to play in identifying aspirational value sets, but that translating such values into behaviour is quite another story.

“There are many more complex drivers which determine consumerism and patterns of saving and the short-termism that we are talking about which can’t be sometimes resolved within a country but at a global level. On the other hand there are societies like Scandinavian societies that give a different kind of balance where social obligation is an important part of what they do, where there are better balancing acts in those societies in the space of the self and the individual on the one hand and the common good of the society on the other hand. So the voice is arguing for the balance to be tilted for common good and more ethical behaviour that needs to become stronger and further institutionalised. You need a system of incentives and disincentives, rewards and penalties, which reinforce the right kind of behaviour but if you look at our media for example there is a serious illiteracy around these issues. There is probably one writer who raises these issues”.

The Minister further emphasised the critical role that society has to play in asking “what values and behaviours do you recognise and applaud and what is it that you condemn?”. He went on to state that rewarding more values based conduct will encourage people to move in such direction whilst only celebrating narrow bottom lines, through the media and other mechanisms, exclusive of the values elements provides incentives for the wrong types of behaviour. Similar concerns on state of executive remuneration in South Africa today were raised by other thought leaders in the interview series.

Debates need to start taking place in the investment community whereby actions aren’t driven by codes but rather by awareness of one’s environment and the fact that both commercial and social returns are possible. This means working to remove skepticism in the South African investment sectors about the often politicised issues of sustainability. Furthermore, he finds that “there is too much finger pointing going on in South Africa which is not helpful in creating an environment where there is better recognition of some of these imperatives on the one hand and getting the right kind of momentum to develop so this becomes a dominant way of thinking”. He called for businesses to actively consider their citizenry in South African society.

Gordhan is advocating for a change in culture, attitudes and mindsets away from compliance, to redesign what drives human behaviour and find new ways of managing human conduct. A tall task, certainly, but an important one. He further raised an important question regarding whether the progress and evolution of corporate governance to date is “sufficient in order to inhibit the worst of human behaviour, the greed, stealth factor, the tendency to take advantage of lapses if you like within systems and it's only practice at the end of the day which tells us whether we are moving in the right area. So there would be a few areas, such as remuneration practices, the powers of audit committees, internal and external auditors for example, which will be ongoing areas of, let’s call it, creative tension hopefully”. This sentiment was echoed by others interviewed in the interview series. Ultimately, debates on governance, stakeholder inclusivity and sustainability performance come down to a question of responsible leadership.

Gordhan further sees the opportunity for the role that universities can play: “It's a discourse that I think our universities can play a bigger role in promoting and get our students while they don’t have any serious commitments to BMW’s and houses. And even there as a former activist, and still an activist I suppose, there is a lot of scope for taking these excellent ideas and giving them social currency and making them part of social activism in some form”. His call for a new type of social activism around values and ethical behaviour is an idea whose time certainly appears to have come.

We asked the Minister for a radical vision of what would need to change by 2030 in order to realise a just and equitable South Africa and he shared the following:

“So looking back from 2030, corporations have a senior executive very close to the status of a CFO who is responsible for what we call in today’s terms social responsibility, secondly there would be a codified part of any business strategy which incorporates on one hand any assessment of social impact of what they do but also incorporates a 10 year plan in terms of intended and committed actions taken by a corporation whether it's to the environment, social upliftment or to the key priorities of society at that time which will still remain issues of competitiveness, innovation, opportunities for young people and so on”.

Finally, the Minister called for ‘imaginative leadership’ in the corporate sector, coupled with selective cohesion and will: “Corporations must also have leaders who can spell out a responsible social philosophy, who can persuade people to actually change the paradigms in which they work, who can show in practical terms what concrete things can be done to change and make a difference in one’s social environment. Now there are many individuals that I know in the business sector who provide marvelous leadership in the spectrum of different kinds of projects and the question one marvels at is what if one institutionalised that in some form? What if that could be synergised to the point that you now reach scale in the spectrum of some of those interventions, the benefits are just unimaginable”.