In light of the recent SASSA debacle, Kris Dobie reread King IV and suggests that CPS could do well to do the same. Around the dark cloud of poor judgement, he also finds a silver (or at least light Gray) lining.
Everybody should just do what they are supposed to do.
25 March 2017 - In the recent SASSA debacle, it is clear that there are many parties who didn’t do what they were supposed to. Until it ended up in the Constitutional Court, and the men and woman who sat there again gave South Africa a lesson in wisdom. But the Constitutional Court is literally the end of the line for matters. While I am thankful that they do well what they are supposed to do, it should not preclude the rest of us to develop some wisdom in dealing with matters.
National Treasury, who were also put under pressure, seemingly managed to navigate the waters, but they were also just doing what they are supposed to (albeit courageously).
I don’t here want to talk too much about the many others who did not do what they were supposed to do or to speculate about their reasons for that. And I also know that there are many others who probably went beyond what they were supposed to do.
But I do specifically want to ask whether CPS did what they were supposed to do.
CPS CEO, Serge Belamant, now infamously stated that as a company, they are there to make money for their shareholders. In this, he was echoing the economist Milton Friedman who said that the social responsibility of business is to increase its profits. So, we could argue that they were also just doing what they were supposed to. Although Friedman said that back in 1962, and the world is today a very different place, at the heart of it, isn’t business still there to make a profit for shareholders? If they don’t make that profit, there will, after all, be no tax money to distribute to the needy in the form of social grants.
But because the world is a very different place today, being in business does not only require making money, it also requires wisdom to deal with multiple competing interests. It requires wokeness. (It is a word. Look it up – but not in an old dictionary.)
The phenomenon of being woke is a cultural push to challenge problematic norms, systemic injustices and the overall status quo through complete awareness. ... The phrase itself is an encouragement for people to wake up and question dogmatic social norms.
Which brings us to King IV.
In his foreword, Mervyn King shows that the brave new world which the leadership of organisations need to navigate (and create value in), includes global realities such as “inequality, globalised trade, social tensions, climate change, population growth, ecological overshoot, geopolitical tensions, radical transparency and rapid technological and scientific advancement.”
He adds that “No governing body today can say it is not aware of the changed world in which it is directing an organisation. Consequently, a business judgment call that does not take account of the impacts of an organisation’s business model on the triple context” (of the economy, society and the environment) “could lead to a decrease in the organisation’s value.”
If this is true of the rest of the world, it is perhaps even more tangibly true in South Africa where businesses, daily face a questioning of their legitimacy. It is perhaps for this reason that King IV specifically mentions legitimacy as one of the four key outcomes that governing bodies need to achieve in their organisations (the others being an ethical culture, good performance, and effective control).
Legitimacy is inextricably linked to corporate citizenship and stakeholder inclusivity. It requires seeing the company as part of society, and that it has rights and responsibilities. It requires acknowledging that the company has a responsibility not only to its shareholders but also to the society which gives it a license to operate.
It is, however, easy to see how CPS missed this responsibility. Their actions show old-school thinking about governance. They are currently the only ones in a position to move us out of the immediate crisis (which they possibly did not have had a hand in creating). In classic economic theory, the supply and demand tables are stacked in their favour. They should, therefore, use the opportunity to make a healthy profit on performing this service.
They, however, seemed to miss the detail that their initial contract was declared invalid by the Constitutional Court. It is an unprecedented situation that calls for clear thinking and wisdom, and consideration of their impact on the vulnerable millions who are immediately dependent on them.
We should be careful of thinking that business now has a responsibility to become a philanthropic organisation. King IV is quite clear that the governing body should make decisions giving consideration to the “legitimate and reasonable” interests of material stakeholders, but still in the interest of the organisation itself. The new governance thinking is, however, clear that we are talking about the best long-term interest of the company, with due cognisance of the company’s legitimacy and long-term value creation. It might even mean that the best interest of the company is not always the same as the best short-term interest of the shareholders.
Enter CPS shareholder Allan Gray, who have either read King IV or just applied wise judgement in a complex situation. The Business Day reported on 17 March, that Allan Gray, in an unprecedented business move, said that they may be calling a CPS shareholder meeting and advocating for the removal of CPS’s board. They furthermore indicated that as a shareholder they would in this instance not require a profit on the extension of the SASSA contract.
They realised that different situations call for different responses. There are times to be profit-driven, and there are unprecedented situations, such as when the poorest of South Africa’s poor are in a vulnerable situation (and the contract which you were awarded was declared invalid by the Constitutional Court), that might call for different action. In short, they realised their responsibility as corporate citizens and thereby ensured social legitimacy and long-term value creation for the company.
In the end, they only did what they were supposed to do. But perhaps, because it is a new understanding of what that entails, they need to be commended for getting it right and setting an example of what corporate citizenship and active shareholding might mean in practice.