tag:theconversation.com,2011:/fr/topics/executive-2516/articlesExecutive – The Conversation2017-03-30T11:01:26Ztag:theconversation.com,2011:article/754132017-03-30T11:01:26Z2017-03-30T11:01:26ZWhy South Africa’s courts cannot rein in a delinquent government<figure><img src="https://images.theconversation.com/files/163276/original/image-20170330-15591-1dp1w6u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>South Africans sighed with relief when the Constitutional Court recently handed down a <a href="http://www.saflii.org/za/cases/ZACC/2017/8.pdf">judgment</a> in the country’s social grant <a href="http://amabhungane.co.za/article/2017-02-03-social-grants-officials-turn-on-rogue-dlamini-over-her-support-for-cps">saga</a>, averting a catastrophic constitutional crisis. About 17 million social grant beneficiaries would not be left without support. Unfortunately, while the court saved the country from one constitutional crisis, it also revealed the depth of the crisis South Africa is still in: one that’s worsening daily.</p>
<p>The crisis the country faces is that no matter how hard the courts try to protect the public from its delinquent government, they are failing. This is partly because most of the executive demonstrates repeatedly that it sees the orders of the court as a mere obstruction to be overcome, and considers the moral authority of the court irrelevant.</p>
<p>The courts can, as done in this case, push further into monitoring, but the truth is they have no capacity to monitor effectively and no force at their disposal to make the government obey them. The police, prison services and defence force answer to the executive, not to them.</p>
<h2>The Constitutional Court’s two main jobs</h2>
<p>When the Constitutional Court decides a case, it has two main jobs: to make a finding on the law, and to construct a remedy that will solve the problem. The Constitution allows the court a wide latitude to issue “<a href="http://www.justice.gov.za/legislation/constitution/SAConstitution-web-eng-08.pdf">any order that is just and equitable”</a>. </p>
<p>But the court needs to ensure that it doesn’t intrude on the other two branches of government, namely the legislature and the executive. So when it finds legislation unconstitutional, it will, where possible, not reword the legislation itself, but suspend its declaration of invalidity to give the legislature time to pass a new law which fixes the problem.</p>
<p>Even if it declares executive conduct unconstitutional, the court will be careful not to dictate what conduct should replace it. This is in keeping with the principle that the executive is tasked to formulate policy and put laws into effect. </p>
<p>Trouble is: what if the other two branches of government are either dysfunctional or uninterested in fulfilling their obligations? </p>
<h2>Minister’s defiance</h2>
<p>The Constitutional Court has had to rule on the contract between the South African Social Security Agency (SASSA) and Cash Paymaster Services (CPS) three times: in 2013, 2014 and 2017. In 2013 the court found major flaws in the tender process that awarded the R10 billion job of distributing social grants. Among other flaws was the manipulation of the tender process to favour CPS.</p>
<p>In fashioning a remedy, the court faced a serious problem: CPS was already distributing the grants nationwide. Simply to order the company to stop, when nobody else was ready to take over, would deprive South Africa’s most vulnerable people of their only support. </p>
<p>The court thus requested further information from the parties before handing down its final order. In 2014, it produced a nuanced remedy, invalidating the granting of the contract, but suspending its declaration of invalidity for the period in which the tender process was rerun. </p>
<p>SASSA also had the option to distribute the grants itself, in which case the declaration of invalidity would be suspended for the entire term of the original CPS contract. The court did, however, impose a “structural interdict”, a remedy which requires the department to report to it regularly until it has complied with the order. This remedy was meant to ensure that the department conducted a proper, competitive tender process this time, or took over the work itself.</p>
<p>But it didn’t work out this way. In March 2017, less than a month before expiry of the CPS contract, no new tender had been awarded and SASSA was in no position to distribute the grants itself.</p>
<p>It’s been established from SASSA’s court submissions that it was aware a year before the expiry of the CPS contract that it wouldn’t be able to take over the job it had told the court it would do. It received legal advice to report the change of circumstances to the Constitutional Court. It didn’t. </p>
<p>The SASSA papers claim that the Minister of Social Development, <a href="http://www.news24.com/Tags/People/bathabile_dlamini">Bathabile Dlamini</a>, was informed about this problem in <a href="https://www.moneyweb.co.za/news/bathabile-dlamini-solely-responsible-for-grants-crisis-concourt/">October 2016</a>. She did nothing to solve it or report it to the court, dodged questions on the issue from the opposition in Parliament and failed to attend meetings called by the parliamentary portfolio committee for Social Development. </p>
<p>The minister was defying both the letter and the spirit of the Court’s 2014 judgment by once again taking the steps needed to conclude a contract with CPS, without a competitive bidding process, creating yet more profit for CPS and its parent company, Net1 and exposing South Africa’s poorest to <a href="http://amabhungane.co.za/article/2017-03-16-serge-belamant-sassa-and-the-war-chest-of-poor-people">exploitative</a> business practices. The court might as well not have made any order at all.</p>
<p>In its latest judgment on 17 March 2017, the Constitutional Court held the minister responsible for SASSA’s failure to set up a new distribution mechanism, and also took the unprecedented step of holding her personally liable for all the legal costs of the proceedings (she has until Friday, 31 March to persuade the court that she shouldn’t have to pay these costs from her own pocket). </p>
<p>But it then allowed the invalid contract with CPS to be extended for 12 months, once again suspending the order of invalidity for this period under its supervision. In other words, the court imposed another structural interdict.</p>
<p>One school of thought critiques this remedy because it failed the first time round. Its argued that the earlier failure arose because the court lacks the competence, expertise and institutional resources to monitor SASSA.</p>
<p>The counter-argument suggests that this wasn’t a question of competence. The argument is, SASSA did have the institutional capacity to rerun the tender process and also to distribute the grants. But SASSA, or at least the minister, is alleged to have lied. She had no intention of awarding the tender to anybody else or allowing SASSA to take over the job. </p>
<p>In one, terrifying sense, both views are right. Courts don’t have the institutional capacity to run a government department, lacking the staff, expertise, institutional resources and, not least, the political accountability. But the courts also cannot prevent dishonesty on the part of the executive, even if they are in a position to detect it. However – and this is the point where our real, ongoing constitutional crisis is exposed – the problem of defiance by the executive is not likely to be solved by the second structural interdict either.</p>
<p>It’s worth noting that the response of the relevant officials to the court’s judgment of 17 March 2017 is no different from its responses in 2013 and 2014. Despite being declared responsible for the crisis by the court, the minister hasn’t accepted responsibility, resigned or even apologised. </p>
<p>The majority in Parliament has not called the minister to account or expressed regret that it defended her so vigorously over the months leading up to the judgment. </p>
<p>And President Jacob Zuma himself has shown <a href="https://www.businesslive.co.za/rdm/politics/2016-04-07-jacob-zuma-vs-the-constitution-its-a-fight-to-the-bitter-end/">no sign</a> of taking the court seriously.</p>
<p>So we have no reason to expect the executive to comply with the court order this time, either. What if they simply find another way out of it? Will we have another strong judgment and another structural interdict? Or, finally, a finding of contempt of court? A sentence of imprisonment? And, in that case, will the police execute the order against the executive official?</p>
<p>This isn’t a time for relief that the court has saved the country. It can’t. The people must save themselves.</p><img src="https://counter.theconversation.com/content/75413/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cathleen Powell does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The social grant saga shows how South African courts are doomed to fail to protect the public from its government.Cathleen Powell, Senior Lecturer in Public Law, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/661132016-09-28T20:11:44Z2016-09-28T20:11:44ZWe need to change more than pay for executives to do better<p>The pay of executives of a company, whether in salary, bonuses or other types of remuneration, is usually justified as an incentive to improve the financial performance of a company. This has led to ever more complex performance packages with increasing percentage of variable, <a href="https://www.ft.com/content/9265406a-eaaf-11e4-96ec-00144feab7de">performance-based payments</a>.</p>
<p>But what is increasingly evident is that this definition of a role of an executive needs to change, as do the incentives, to act not only in the best financial interests of the company but to focus on how it serves the wider community.</p>
<h2>How executive pay changed for the worst</h2>
<p>Executives payments are <a href="https://theconversation.com/australia-should-compare-ceo-and-average-worker-pay-like-the-us-and-uk-65898">in the spotlight in Australia</a> and <a href="https://www.theguardian.com/business/2016/sep/16/legal-general-warns-firms-over-bonuses-executive-pay">overseas</a>, yet again as companies report this information. </p>
<p>As the market for top executives is global, there is a limited talent pool. In essence, if an Australian company is not prepared to pay the going rate, the talent will go elsewhere in the world to where a company is prepared to pay. </p>
<p>The design of executive pay in Australia has undergone significant change since the mid 1990s, when executive pay began to pick up. A smaller percentage of an Australian executive’s reward package was subject to performance incentives 20 years ago. A majority were on fixed pay or with short-term bonuses payable when they reached a specific measurable target. Today, the variable component of executive pay is much higher.</p>
<p><a href="https://www.ahri.com.au/resources/reports-and-white-papers/2009_pay_check_executive_remuneration.pdf">Findings from a survey</a> on executive remuneration by the Australian Human Resource Institute shows that within Australia, executive pay is typically comprised of three components: fixed remuneration and short and long-term incentives. </p>
<p>This three-part structure is endorsed by the human resource profession as it acknowledges not only the skill and experience an executive brings to a role (fixed remuneration) but the effort an individual executive makes to change performance and culture leading to better financial performance (short-term incentive) and improvement to shareholder returns (long-term incentives). </p>
<p>However, an increasing number of studies show these type of performance schemes <a href="http://highpaycentre.org/files/_hpc_Essays_FINAL_04_%281%29.pdf">do not lead to better organisational performance</a> and <a href="https://hbr.org/2016/02/stop-paying-executives-for-performance">actually have dangerous outcomes</a>. This is because it incentivises executives’ risk-taking and short-term orientation and <a href="https://dash.harvard.edu/handle/1/12025608">can lead to disastrous outcomes</a>, such as the Bear Stearns and Lehman Brothers collapses. </p>
<p><a href="http://www.psa.asn.au/Oldsite/news/files/The_Buck_Stops_here.pdf">A 2003 Australian study</a> shows that performance-based executive remuneration has not lead to increased performance by Australian companies. Current executive remuneration focuses heavily on short-term financial performance ignoring other success factors, such as customer satisfaction. </p>
<p>For example, Commonwealth Bank CEO Ian Narev is one of the <a href="https://theconversation.com/australia-should-compare-ceo-and-average-worker-pay-like-the-us-and-uk-65898">highest paid executives in Australia in 2016</a> despite a series of recent <a href="http://www.smh.com.au/business/banking-and-finance/comminsure-scandal-to-hit-cba-brand-again-20160308-gndj4y.html">scandals that shook the bank</a>.</p>
<p>Another distortion created by finance based incentives is the temporary effects of executive payment packages. BHP CEO Andrew Mackenzie’s pay was halved due to the company’s loss and he was <a href="http://www.theaustralian.com.au/business/opinion/terry-mccrann/bhp-and-chief-andrew-mackenzie-get-raw-deals/news-story/dd34539799c35597d92e0120b4fb98ec">left to deal with decisions made by his predecessor</a>. The former CEO, Marius Kloppers, walked away with a sizeable pay package in large part due to his term coinciding with very favourable economic conditions for mining and the fact that he could vest both his short and long-term incentives before leaving.</p>
<p>These limitations of current performance-based payment schemes have led to the proposal of payment packages that enable executives to <a href="http://www.law.harvard.edu/faculty/jfried/How%20To%20Tie%20Equity%20Compensation%20to%20Long%20Term%20Results.pdf">sell only a fraction of shares awarded to them each year</a>. This includes a specified number of years after retirement, combined with limitations on unwinding. </p>
<p>Such schemes still reward executives for improving companies’ performance but do not lead to short-term thinking and risk-taking. Unfortunately, changes to performance payment schemes are still rare. </p>
<h2>The alternatives</h2>
<p>While some companies in the US have started to bind performance payments to long-term results, such as Goldman Sachs, Procter & Gamble and Morgan Stanley, companies in Australia still haven’t followed suit. One Australian organisation that has made changes to address the above challenges in executives’ remuneration is fund management agency <a href="http://www.futurefund.gov.au/news-room/2016/05/23/Long-term-investing-as-an-agency-problem">the Future Fund</a>.</p>
<p>There are more radical suggestions such as completely <a href="https://hbr.org/2016/02/stop-paying-executives-for-performance">abolishing pay-for-performance</a>. The suggestion to abolish performance payment is aligned with the concept of stewardship. </p>
<p>Stewardship is about placing others’ long-term interests ahead of personal goals that serve an individual’s self interests. According to stewardship theory, executives are custodians of their organisations and are intrinsically motivated to contribute to their welfare and prosperity. It’s their personal beliefs and intrinsic motivation that drives their performance, not performance-based payments.</p>
<p>Revising performance structures is just one measure to increase stewardship among executives. Stewardship is based on fundamentally different assumptions about human nature than financial performance incentives. It emphasises the <a href="https://www.bkconnection.com/static/Stewardship_2nd_EXCERPT.pdf">social orientation and profession-like behaviour of managers</a>. </p>
<p>However you can’t rely on human nature alone, other measures are needed to change the <a href="http://highpaycentre.org/files/_hpc_Essays_FINAL_04_(1).pdf">institutional context in which businesses operate</a>. </p>
<p>These include changing the laws to reflect that the role of business in society goes beyond financial performance. Another measure is <a href="http://press.princeton.edu/titles/8463.html">changing business education</a> to cultivate future business leaders in moral judgement and accountabilities.</p>
<p>The recruiting process can also change to select candidates with demonstrated long-term orientation and care for all stakeholders, <a href="http://www.forbes.com/sites/joeltrammell/2015/02/09/what-are-the-right-criteria-for-selecting-a-new-ceo/#374de4ad381b">rather than based on the current focus on past financial performance</a>. Another measure is introducing external remuneration committees with employee representation and excluding current directors.</p>
<p>Such changes to the institutional context require a significant rethink of current business and economic practices and government policies. Despite calls for such changes <a href="http://www.psa.asn.au/Oldsite/news/files/The_Buck_Stops_here.pdf">in Australia</a> and <a href="http://www.highmeadowsinstitute.org/about/our-perspective/">overseas</a>, there is little we can be optimistic about at the moment.</p><img src="https://counter.theconversation.com/content/66113/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Studies show performance-based incentives for CEOs do not lead to better organisational performance.Natalia Nikolova, Senior Lecturer in Management, University of Technology SydneyRobyn Johns, Senior Lecturer in Human Resource Management and Industrial Relations, University of Technology SydneyWalter Jarvis, Course Director, Master of Management; Lecturer in Managing, Leading & Stewardship, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.