tag:theconversation.com,2011:/au/topics/kpmg-3515/articlesKPMG – The Conversation2023-11-22T04:55:10Ztag:theconversation.com,2011:article/2182562023-11-22T04:55:10Z2023-11-22T04:55:10ZPolitics with Michelle Grattan: Greens Barbara Pocock on the quest for greater transparency<p>Greens Senator Barbara Pocock – who has a background in economics and industrial relations and formerly worked at the Reserve Bank, in the federal public service and as an academic – has been in parliament only since the 2022 election, But she has already made a mark.</p>
<p>Pocock has been one of the federal parliamentarians who has been holding the big consultancy firms to account this year.</p>
<p>PWC especially has felt the heat over its improper use of confidential government tax information for its commercial gain. The behaviour of the other consultancies has also been under strong scrutiny. Pocock and other members of parliament have shown how the parliamentary committee system can be used to great effect to hold big companies accountable when other avenues fail.</p>
<p>In this podcast, the Greens senator talks of the need for action to bring greater transparency.</p>
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<p>We need to have better protection for whistleblowers and we also need to deal with the really significant problems where entities within the government, in our tax architecture, have failed to be able to share information and really respond to bad behaviour.</p>
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<p>Pocock details how the findings have been damning against PWC, pointing to:</p>
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<p>that first report made by our Senate committee into the PWC scandal, where very strong language is used about the betrayal of the public sector and of the Australian people.</p>
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Read more:
<a href="https://theconversation.com/self-interest-versus-public-good-the-untold-damage-the-pwc-scandal-has-done-to-the-professions-206857">Self-interest versus public good: the untold damage the PwC scandal has done to the professions</a>
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<p>There was collaboration across parties to get to the bottom of this issue:</p>
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<p>It is very collaborative and often you’ll see a senator asking questions followed by a senator from another party pursuing the same issues, trying to get to the bottom of what’s happened and really think hard about what remedies are needed to fix this.</p>
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<p>On the issue of the recent High Court ruling that people cannot be held indefinitely in immigration detention, Pocock says: </p>
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<p>For me, it feels very reminiscent of the Tampa moment where I happened to be working in the Parliament in the year 2000, 2001 for [the Australian Democrats’] Natasha Stott Despoja as an adviser. And it feels like the creation of, you know, another group of people who we are meant to despise and feel frightened of.</p>
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<p>On the party’s prospects at the next election, Pocock is confident the Greens represent what many Australians want:</p>
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<p>We’re very keen to continue the conversation that began in that last election with people talking about the need to see a really strong, independent and environmentally inclined a party like the Greens, which stands up for climate action and stands up on social justice.</p>
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<p class="fine-print"><em><span>Michelle Grattan 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>In this podcast, The Greens Senator joins us today to talk about consultancy reform, whistleblower protection, and other issuesMichelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2096872023-07-24T05:47:56Z2023-07-24T05:47:56ZIt’s not just tax. How PwC, KPMG and other consultants risk influencing public health too<figure><img src="https://images.theconversation.com/files/538467/original/file-20230720-17-1g1ldx.jpg?ixlib=rb-1.1.0&rect=5%2C5%2C992%2C660&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/people-working-office-building-london-511423942">Shutterstock</a></span></figcaption></figure><p>Concerns about the <a href="https://publicintegrity.org.au/research_papers/big-four-contracts-increase-1276">use</a> of private consultancy firms advising government – such as PwC, KPMG, Deloitte and EY – has led to a <a href="https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Finance_and_Public_Administration/Consultingservices">Senate inquiry</a>.</p>
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<p>Until now, much <a href="https://www.theguardian.com/business/2023/may/12/disgraceful-breach-of-trust-how-pwc-one-of-the-worlds-biggest-accountancy-firms-became-mired-in-a-tax-scandal">media interest</a> has centred on PwC’s advisory role to the Australian Tax Office while also advising private clients on tax matters.</p>
<p>But <a href="https://kpmg.com/au/en/home/industries/health.html">such companies</a> <a href="https://www.theguardian.com/business/2023/jul/20/pwc-tax-scandal-project-synergy-scrapped-government-trial-innowell">also advise</a> government <a href="https://www.croakey.org/concerns-raised-about-kpmg-conducting-national-health-and-climate-strategy-consultation/">on health issues</a>. And there’s <a href="https://www.croakey.org/role-of-consultancy-firms-in-health-policy-under-growing-scrutiny/">growing concern</a> about the potential for conflicts of interest and undue influence on health policy.</p>
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Read more:
<a href="https://theconversation.com/my-3-point-plan-to-untangle-the-public-service-from-consultants-such-as-pwc-210050">My 3-point plan to untangle the public service from consultants such as PwC</a>
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<h2>How do these firms consult on health?</h2>
<p>Private consultants offer a <a href="https://www.pwc.com.au/health.html">range of health services</a> and <a href="https://www.ey.com/en_au/health">advice</a> to government. These <a href="https://kpmg.com/au/en/home/industries/health.html">include</a> contracts about electronic health systems, policy, taxation, program design and evaluation, improving hospital performance, and health sector restructuring. Firms also <a href="https://www2.deloitte.com/au/en/pages/human-capital/solutions/health.html">develop</a> major public and private health-care initiatives.</p>
<p>There might be an argument for engaging external consultants when that expertise does not already exist in the public service. However, when consultants are engaged more widely, we have potential problems.</p>
<p>For example, we’ve raised concerns about <a href="https://www.croakey.org/concerns-raised-about-kpmg-conducting-national-health-and-climate-strategy-consultation/">KPMG’s involvement</a> in the <a href="https://www.health.gov.au/our-work/national-health-and-climate-strategy">National Health and Climate Strategy</a>, which aims to prepare the health system for the impacts of climate change. The firm also advises the <a href="https://www.croakey.org/role-of-consultancy-firms-in-health-policy-under-growing-scrutiny/">fossil fuel industry</a>.</p>
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<p>Senator Barbara Pocock, Greens spokesperson for finance and the public service, <a href="https://www.croakey.org/role-of-consultancy-firms-in-health-policy-under-growing-scrutiny/">shares our concerns</a>:</p>
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<p>KPMG’s work on the National Health and Climate Strategy is the latest worrying example. This is core public service work that should be conducted by a robust public sector where there is no risk of a conflict of interest between a consultant with a fossil fuel client list and the public interest.</p>
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<p>Pocock <a href="https://www.theguardian.com/australia-news/2023/jun/27/kpmg-australia-launches-internal-review-after-potential-conflict-of-interest-concerns-raised">is also concerned</a> about KPMG auditing aged care facilities for government at the same time as charging others for advice on audits and accreditation. The firm says it has launched an internal inquiry.</p>
<p>The use of consultants to government has been noted at the state level too. New South Wales is running its own <a href="https://www.parliament.nsw.gov.au/committees/inquiries/Pages/inquiry-details.aspx?pk=2963">public inquiry</a>, <a href="https://www.medicalrepublic.com.au/infestation-of-pwc-consultants-on-public-boards/94014">including</a> looking into how consultants are used <a href="https://www.theaustralian.com.au/business/nsw-parliament-consultancy-inquiry-questions-pwc-acting-chiefs-role-on-health-body/news-story/90133dc872748571d480c20ef7b18ec0">in health</a>.</p>
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Read more:
<a href="https://theconversation.com/blacklisting-pwc-wont-stop-outsourcing-here-are-3-reasons-it-has-become-embedded-in-the-australian-public-service-206772">Blacklisting PwC won't stop outsourcing: here are 3 reasons it has become embedded in the Australian public service</a>
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<h2>What are the concerns?</h2>
<p><strong>1. No scrutiny</strong></p>
<p>Contracts between consultancies and government, and advice that arises, are not easily publicly available. So we cannot say if we’re getting good advice. There’s <a href="https://theconversation.com/my-3-point-plan-to-untangle-the-public-service-from-consultants-such-as-pwc-210050">the risk</a> consultants give answers government wants to hear, instead of the “<a href="https://theconversation.com/after-robodebt-heres-how-australia-can-have-a-truly-frank-and-fearless-public-service-again-209488">frank and fearless</a>” advice from public servants. </p>
<p>Then there’s the issue of whether that advice, or contracted service, provides value for money.</p>
<p>University College London economist <a href="https://www.ucl.ac.uk/bartlett/public-purpose/people/mariana-mazzucato">Mariana Mazzucato</a> refers to the extensive use of commercial consultants to government in her book <a href="https://marianamazzucato.com/books/the-big-con">Big Con</a>. She says neither theory nor evidence show private sector consultancy is more <a href="https://theconversation.com/after-robodebt-heres-how-australia-can-have-a-truly-frank-and-fearless-public-service-again-209488">efficient and cost effective</a> than what the public sector can provide.</p>
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Read more:
<a href="https://theconversation.com/who-needs-pwc-when-consultancy-work-could-be-done-more-efficiently-in-house-207330">Who needs PwC when consultancy work could be done more efficiently in-house?</a>
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<p><strong>2. Conflicts of interests</strong></p>
<p>There’s the risk of conflicts of interest, as we’ve highlighted above. This arises, for instance, when firms have both government clients, and private sector ones, and information is shared.</p>
<p>There are also conflicts of interest in the <a href="https://theconversation.com/the-revolving-door-why-politicians-become-lobbyists-and-lobbyists-become-politicians-64237">revolving doors</a> phenomenon. This is the term used for staff movements between consultancy firms, government departments, revenue authorities or corporate regulators.</p>
<p>This has been well-documented for the <a href="https://theconversation.com/we-worked-out-how-many-tobacco-lobbyists-end-up-in-government-and-vice-versa-its-a-lot-205382">tobacco industry</a>, among others. </p>
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<p><strong>3. Impact on health policy</strong></p>
<p>Consultants have <a href="https://www.tandfonline.com/doi/full/10.1080/09692290.2022.2161112">extensive influence</a> over health policy due to recurring government contracts. Such influence includes supporting a neoliberal policy agenda. This promotes small government, and puts profits above the public’s wellbeing and public interest. This risks influencing health outcomes.</p>
<p>For instance, our <a href="https://www.adelaide.edu.au/stretton/ua/media/568/sa-heaps-unfair-state-final-report.pdf">own research</a> in South Australia points to policymakers outsourcing government functions to private firms being a factor in increasing health inequities. </p>
<p>Changes to the public sector since the 1980s have resulted from the adoption of “managerialism” or the growing reliance on professional managers and business models. This leads to a decline in evidence-based health policies and helpful collaboration between different sectors, and a shift away from addressing health inequities.</p>
<p>One example is the <a href="https://grattan.edu.au/news/what-do-we-get-for-the-millions-spend-on-covid-consultancies/">millions of dollars paid</a> to private consultancies during the COVID pandemic. This did not prevent numerous failures in the rollout. Delays increased the risk of critical health impacts including outbreaks and community lockdowns. The secrecy around these contracts is unacceptable.</p>
<p><strong>4. Impact on the public service and governance</strong></p>
<p>A <a href="https://www.finance.gov.au/sites/default/files/2023-05/Audit%20of%20Employment%20-%20Report_1.pdf">government audit</a> showed outsourcing to consultants in 2021–2022 was equal to the cost of paying 954 full-time public sector staff. This, and other forms of outsourcing, forms a so-called “shadow public service”.</p>
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<a href="https://images.theconversation.com/files/538468/original/file-20230720-25-cbbw6u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Two women and man looking at computer screen in office, one woman pointing to screen" src="https://images.theconversation.com/files/538468/original/file-20230720-25-cbbw6u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/538468/original/file-20230720-25-cbbw6u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/538468/original/file-20230720-25-cbbw6u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/538468/original/file-20230720-25-cbbw6u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/538468/original/file-20230720-25-cbbw6u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/538468/original/file-20230720-25-cbbw6u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/538468/original/file-20230720-25-cbbw6u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">When governments rely on private firms, knowledge and expertise are lost from the public service.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/mature-older-ceo-businesswoman-mentor-glasses-2025930416">Shutterstock</a></span>
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<p>When governments rely on private firms, knowledge and expertise are lost from the public service. This makes it hard for governments to plan ahead to reduce long-term health policy problems. Consultants shaped by the neoliberal environment tend to <a href="https://www.adelaide.edu.au/stretton/ua/media/568/sa-heaps-unfair-state-final-report.pdf">offer solutions</a> that are likely to stress more privatisation and use of consultants, as <a href="https://www.toronto.ca/ext/digital_comm/inquiry/inquiry_site/cd/gg/add_pdf/77/Procurement/Electronic_Documents/Miscellaneous/privateinterest.pdf">Canadian research has shown</a>. </p>
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Read more:
<a href="https://theconversation.com/after-robodebt-heres-how-australia-can-have-a-truly-frank-and-fearless-public-service-again-209488">After robodebt, here's how Australia can have a truly 'frank and fearless' public service again</a>
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<h2>How can we fix this?</h2>
<p>These firms hold power due to their expert knowledge and insufficient regulation. So we need strong commitment by the major political parties to:</p>
<ul>
<li><p><strong>reinvest in the public sector</strong> to foster the skills for planning long-term health policies in the public interest </p></li>
<li><p><strong>ensure full transparency over contractual arrangements</strong> and remove “commercial in confidence” legal clauses when consultants are used</p></li>
<li><p><strong>manage conflicts of interests transparently</strong>, especially when private firms advise both industry sectors and governments</p></li>
<li><p><strong>ban political donations</strong> <a href="https://www.consultancy.com.au/news/4891/how-much-pwc-kpmg-ey-and-deloitte-donate-to-political-parties">from firms</a> with extensive government contracts to avoid <a href="https://www.adelaide.edu.au/stretton/ua/media/568/sa-heaps-unfair-state-final-report.pdf">undermining</a> principles of accountability.</p></li>
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Read more:
<a href="https://theconversation.com/pwc-scandal-shows-consultants-like-church-officials-are-best-kept-out-of-state-affairs-205560">PwC scandal shows consultants, like church officials, are best kept out of state affairs</a>
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<h2>In a nutshell</h2>
<p>While commercial firms can make a positive contribution to society, they can potentially <a href="https://www.thelancet.com/series/commercial-determinants-health">increase</a> ill health, inequity, and harm to the planet via the advice or services they provide.</p>
<p>For as long as consulting firms act as a “shadow public service” in Australia, health and equity will continue to be undermined. This must change.</p><img src="https://counter.theconversation.com/content/209687/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Fran Baum receives funding from the National Health and Medical Research Council and the Australian Research Council
I am the immediate past co-chair of the People's Health Network's Global Steering Council and current member of their Advisory Council
I am a member of the Board of the Cancer Council SA and Australia 21 </span></em></p><p class="fine-print"><em><span>Julia Anaf 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>There’s growing concern about the potential for conflicts of interest and undue influence on public health policy.Julia Anaf, Postdoctoral research fellow, Stretton Health Equity, Stretton Institute, University of AdelaideFran Baum, Professor of Health Equity, The Stretton Institute, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1704362021-11-10T16:18:35Z2021-11-10T16:18:35ZConsulting firms are the ‘shadow public service’ managing the response to COVID-19<figure><img src="https://images.theconversation.com/files/431185/original/file-20211109-27-jcqn06.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3936%2C2292&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">As governments depend on multinational consulting firms not just for advice on COVID-19 but for core policy-making functions, we should question the extent to which such partnerships have really augmented government capacities — or hollowed them out. </span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><iframe style="width: 100%; height: 175px; border: none; position: relative; z-index: 1;" allowtransparency="" src="https://narrations.ad-auris.com/widget/the-conversation-canada/consulting-firms-are-the--shadow-public-service--managing-the-response-to-covid-19" width="100%" height="400"></iframe>
<p>In March 2020, as governments were implementing lockdown mandates at the onset of the COVID-19 pandemic, the consulting firm McKinsey <a href="https://ipolitics.ca/2021/02/09/mckinsey-won-1-6-million-contract-after-cold-call-to-premiers-office/">made a call</a> to someone in the Ontario premier’s office. Soon after, the firm was put in charge of setting up the Ontario government’s pandemic command structure — at a price of $1.6 million. </p>
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<img alt="A woman with dark hair sits at a desk behind a microphone with a large binder in front of her and flags behind her." src="https://images.theconversation.com/files/431183/original/file-20211109-19-s5ev38.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/431183/original/file-20211109-19-s5ev38.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=417&fit=crop&dpr=1 600w, https://images.theconversation.com/files/431183/original/file-20211109-19-s5ev38.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=417&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/431183/original/file-20211109-19-s5ev38.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=417&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/431183/original/file-20211109-19-s5ev38.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=524&fit=crop&dpr=1 754w, https://images.theconversation.com/files/431183/original/file-20211109-19-s5ev38.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=524&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/431183/original/file-20211109-19-s5ev38.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=524&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Bonnie Lysyk, auditor general of Ontario, answers questions during a news conference on her annual report in December 2020.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Frank Gunn</span></span>
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<p>The story drew public attention months later when the auditor general of Ontario published a <a href="https://www.auditor.on.ca/en/content/specialreports/specialreports/COVID-19_ch1EMO_en20.pdf">damning report</a>, arguing that the pandemic response was being led by political staff instead of public health experts. The reliance on consultants, she maintained, resulted in needlessly complex structures, delays and a totally fragmented response. </p>
<p>This has happened a lot, more often than Canadians are aware. Since the start of the pandemic, the federal and provincial governments have turned to private consultants, who have little or no prior expertise in public health, granting them substantial responsibility and influence in managing the pandemic response. </p>
<p>Indeed, spending on consultants increased dramatically with the onset of the pandemic. In March 2021, <a href="https://nationalpost.com/news/politics/costs-for-consultants-hired-by-government-rise-by-6-billion-under-liberals">the federal government estimated annual spending on third-party consultants would rise to $16.4 billion</a> per year by 2022, up from $10.4 billion in 2016. </p>
<p>Two months later, <a href="https://nationalpost.com/news/politics/third-party-consultancy-fees-paid-by-federal-government-to-leap-another-1-3-billion">the estimate was revised</a> to $17.7 billion, signifying a further increase in the already ballooning costs spent on consultancy services.</p>
<h2>Taking stock following crises</h2>
<p>It’s perhaps not surprising that consulting firms have played such a key role during the pandemic. After a major crisis, governments often turn to consulting firms to take stock, assessing how they might do things better. </p>
<p>Along these lines, governments across Canada have commissioned these firms to provide advice on issues such as the impact of the pandemic on <a href="https://buyandsell.gc.ca/procurement-data/tender-notice/PW-20-00915494">Canadian industry</a>, the capacities of the national <a href="https://buyandsell.gc.ca/procurement-data/award-notice/PW-21-00944821-001">biomanufacturing sector</a>, as well as assessing the <a href="https://calgaryherald.com/news/local-news/after-delay-alberta-releases-third-party-review-into-first-wave-pandemic-response">first wave response</a> of governments and the governance of <a href="https://archive.news.gov.bc.ca/releases/news_releases_2020-2024/2021HLTH0019-000129.htm">long-term care homes</a>.</p>
<p>Yet what’s distinctive about these firms today is the sheer scope and the scale at which they are intervening in policy-making.</p>
<p>Beyond providing ad hoc advice to governments, these firms are increasingly engaged in core aspects of governance, including developing the strategies and implementing the structures and processes through which the pandemic response has been organized.</p>
<figure class="align-left ">
<img alt="A pedestrian walks past a blue and white Deloitte sign." src="https://images.theconversation.com/files/431182/original/file-20211109-13-n8gk9f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/431182/original/file-20211109-13-n8gk9f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=364&fit=crop&dpr=1 600w, https://images.theconversation.com/files/431182/original/file-20211109-13-n8gk9f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=364&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/431182/original/file-20211109-13-n8gk9f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=364&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/431182/original/file-20211109-13-n8gk9f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=458&fit=crop&dpr=1 754w, https://images.theconversation.com/files/431182/original/file-20211109-13-n8gk9f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=458&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/431182/original/file-20211109-13-n8gk9f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=458&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A pedestrian walks past a Deloitte sign in downtown Ottawa.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Sean Kilpatrick</span></span>
</figcaption>
</figure>
<p>For example, while McKinsey developed Ontario’s pandemic response command structure, Deloitte has played a major role in setting up Québec’s COVID-19 <a href="https://www.cbc.ca/news/canada/montreal/covid-19-screening-quebec-dube-health-minister-1.5772541">screening system</a>, developing the <a href="https://www.cbc.ca/news/canada/toronto/ontario-covid-19-vaccine-task-force-deloitte-consulting-1.5909515">vaccination campaign</a> in Ontario and, perhaps most noteworthy, managing the vaccine rollout federally in a lucrative <a href="https://www.theglobeandmail.com/canada/article-deloitte-to-track-canadas-vaccine-efforts/">$16 million contract</a>.</p>
<p>The changing scale of consulting operations is also notable, with <a href="http://www.cba.org/cba/cle/PDF/constr10_swick_paper.pdf">sole-sourced contracts</a> going to transnational professional service firms with immense organizational footprints. Indeed, the so-called Big Four firms — Deloitte, PwC, KPMG and Ernst & Young (EY) — have significantly extended their range of operations as they’ve pivoted from advising to professional services and IT infrastructures. </p>
<h2>Consulting firms now tech companies</h2>
<p>As noted in <a href="http://www.canadian-accountant.com/content/business/why-deloitte-canada-won-ottawa-s-lucrative-vaccine-platform-contract"><em>The Canadian Accountant</em></a>, Deloitte’s vaccine contracts show these firms “are no longer strictly auditors but technology companies as well.” </p>
<p>And while the field remains diverse, <a href="https://www.ibisworld.com/canada/market-research-reports/management-consulting-industry/">there is evidence</a> these firms have been able to consolidate their influence through <a href="https://medium.com/evergreen-business-weekly/scale-as-competitive-advantage-when-scale-is-your-ultimate-weapon-and-how-to-use-it-917d0d0c58d5">scale advantages</a>, changing procurement practices and mergers and acquisitions. </p>
<p>As of 2020, Deloitte, PwC, KPMG and EY employed more than <a href="https://www.statista.com/statistics/250503/big-four-accounting-firms-number-of-employees/">1,148,000 people</a> in 150 countries. Through operating at such a scale, they command a significant degree of power and are capable of mobilizing personnel around the world.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/431184/original/file-20211109-27-epl2tw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Ernst & Young is spelled out vertically in red neon lights on the side of a building." src="https://images.theconversation.com/files/431184/original/file-20211109-27-epl2tw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/431184/original/file-20211109-27-epl2tw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=900&fit=crop&dpr=1 600w, https://images.theconversation.com/files/431184/original/file-20211109-27-epl2tw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=900&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/431184/original/file-20211109-27-epl2tw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=900&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/431184/original/file-20211109-27-epl2tw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1131&fit=crop&dpr=1 754w, https://images.theconversation.com/files/431184/original/file-20211109-27-epl2tw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1131&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/431184/original/file-20211109-27-epl2tw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1131&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The headquarters for Ernst & Young (known as EY) accounting firm in New York.</span>
<span class="attribution"><span class="source">(AP Photo/Mark Lennihan)</span></span>
</figcaption>
</figure>
<p>They form a “<a href="https://pipsc.ca/news-issues/outsourcing">shadow public service</a>” instrumental in designing and implementing policies, according to a report from the Professional Institute of the Public Service of Canada, but there is almost <a href="https://www.propublica.org/article/how-mckinsey-makes-its-own-rules">no oversight or accountability</a>. </p>
<p>The organization also notes these firms play by “an entirely different set of rules: they are not hired based on merit, representation, fairness or transparency; they are not subject to budget restraints or hiring freezes; and they are not accountable to the Canadian public.” </p>
<p>Currently, many governments are refusing to disclose either the contracts or the services produced by these firms in response to access-to-information requests. For instance, in response to our requests to the province of Ontario in June, we were informed that McKinsey contracts and deliverables were being withheld on the basis of cabinet discretion (Sec. 12 of the <a href="https://www.ontario.ca/laws/statute/90f31/v47#BK24">Freedom of Information and Protection of Privacy Act</a>). </p>
<h2>‘Scant expertise’ in public health</h2>
<p>So we’re unable to determine the reasoning behind why these firms — with scant expertise in public health — came to assume responsibility for managing the pandemic response, or to understand the nature of the services they’re providing, often through sole-sourced contracts. </p>
<p>The evidence is not very promising. </p>
<p>For instance, Alberta’s $4.3 million contact-tracing app was launched by Deloitte in May 2020, despite major <a href="https://www.politico.com/news/2020/09/12/trump-vaccine-tracking-system-412968">documented problems</a> with the firms’ work on a similar system in the United States. That raises questions about why Deloitte won the contract.</p>
<p>As of October 2021, <a href="https://www.cbc.ca/news/canada/edmonton/158-albertans-with-covid-19-reported-their-illness-to-province-s-multimillion-dollar-app-1.6202636">just 158 people</a> out of 306,000 had reportedly entered positive test results into the app.</p>
<p>As governments come to depend on these firms not just for advice but for core policy-making functions, we should question the extent to which such partnerships have really augmented government capacities — or hollowed them out.</p><img src="https://counter.theconversation.com/content/170436/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>Since the beginning of the pandemic, governments in Canada have spent hundreds of millions of dollars on outside consulting firms like McKinsey, Deloitte and EY with almost no public oversight.Chris Hurl, Assistant Professor, Dept of Sociology and Anthropology, Concordia UniversityLeah Barrett Werner, Research Assistant, Sociology and Anthropology, Concordia UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1679192021-09-16T15:10:21Z2021-09-16T15:10:21ZWhy it makes good business sense to attract more employees from working-class backgrounds<figure><img src="https://images.theconversation.com/files/421366/original/file-20210915-25-1le5jhp.jpg?ixlib=rb-1.1.0&rect=0%2C180%2C5655%2C3827&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-sunset-view-on-business-modern-310935740">Shutterstock/dade72</a></span></figcaption></figure><p>The business world has made <a href="https://www.weforum.org/agenda/2019/04/business-case-for-diversity-in-the-workplace/">some progress</a> in tackling entrenched barriers of gender, ethnicity and sexuality in the work place. But inequalities related to income and education continue to attract much less attention. </p>
<p>Yet the social and economic position of a person’s family remains a key factor when it comes to <a href="https://www.suttontrust.com/wp-content/uploads/2020/07/Social-Mobility-in-the-Workplace-An-Employers-Guide-Updated-1.pdf">career opportunities</a>. Fairer employment is about access – and this is where employers can make a difference.</p>
<p>Plans recently announced by accountancy firm KPMG to make sure 29% of its senior staff are <a href="https://www.bbc.co.uk/news/business-58485825">from a working class background</a> are therefore welcome. It is a bold move which recognises that social class is a root cause of inequality – and that big companies have an important role to play in addressing social mobility.</p>
<p>That role will involve being aware of the many challenges and entrenched practices which have so far impeded progress.</p>
<p>To begin with, education is the single most important factor that can help people from disadvantaged backgrounds. The home learning environment has an important impact on development, and on readiness for school <a href="http://eprints.lse.ac.uk/28344/1/CASEreport60.pdf">from an early age</a>. </p>
<p>Access to education depends on the material and social resources of the family, including their ability to develop networks (related to job opportunities, for example, or other forms of influence). Research has shown that social class differences in identity, feelings, and behaviour make it <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5901394/">less likely</a> that working‐class families can benefit from educational and occupational opportunities to improve their material circumstances. </p>
<p>Employers can address some of the worst effects of this structural imbalance. They could, for instance, set up mentoring programmes in secondary schools. And they could strive to become more accessible by providing role models within firms or avoiding jargon in communication with young potential employees. </p>
<p>Employers should also explain that numerous career paths are available for people from poorer backgrounds. Offering alternative routes into an organisation for skilled individuals is valuable for all concerned. To make things fairer they could also start by recruiting from a wider pool of universities, rather than primarily targeting <a href="https://www.researchgate.net/publication/272164028_What_is_preventing_social_mobility_A_review_of_the_evidence">Russell Group members</a> in the UK. </p>
<p>And they should also be mindful that there are higher levels of debt aversion among poorer families, so students from low-income backgrounds are <a href="https://www.bbc.com/news/education-40112033">less likely to go to university</a> in the first place. Employers could step in to sponsor student placements through university and work with job centres, providing internships and routes to part-time degrees. </p>
<h2>Creativity and insight</h2>
<p>Another important issue concerns workplace inequalities that are ignored. <a href="https://www.researchgate.net/publication/320013984_Paradoxes_of_Diversity">Research shows</a> how conversations around diversity can even neutralise potential gains. For instance, upbeat talk about diversity can actually <a href="https://www.dukeupress.edu/Assets/PubMaterials/978-0-8223-5236-5_601.pdf">downplay many of the problems</a>, if the focus is on assimilation rather than considering and embracing difference. </p>
<p>In this way, good intentions to address discrimination can end up seeing others as inferior and in need of help, with the expectation that they will eventually adjust to the <a href="https://journals.sagepub.com/doi/full/10.1177/1350508418812585">existing hierarchical order</a>. It is also important to consider the ways unspoken norms and discrimination patterns are <a href="https://www.palgrave.com/gp/book/9783319989167">deeply rooted in some organisations</a>.</p>
<figure class="align-center ">
<img alt="KPMG offices in London." src="https://images.theconversation.com/files/421569/original/file-20210916-23-c8ka3x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/421569/original/file-20210916-23-c8ka3x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/421569/original/file-20210916-23-c8ka3x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/421569/original/file-20210916-23-c8ka3x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/421569/original/file-20210916-23-c8ka3x.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/421569/original/file-20210916-23-c8ka3x.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/421569/original/file-20210916-23-c8ka3x.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Breaking glass ceilings?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-england-oct-12-kpmg-uk-118068757">Shutterstock/Gordon Bell</a></span>
</figcaption>
</figure>
<p>Rightly, KPMG says it intends to monitor its workforce data in terms of social mobility, to track the improvement that needs to be addressed. It is to be hoped that other large companies seeking to attract the best talent follow their lead.</p>
<p>Firms which take a long-term strategy on recruitment and staffing will be the ultimate winners if they actively seek to attract people from disadvantaged backgrounds. They will also do well to consider the root causes of socio-economic inequality and what they can do to tackle it.</p>
<p>Put simply, this is because diversity is <a href="https://www.unstereotypealliance.org/en/resources/diversity-and-inclusion/2020/12/diversity-wins-report-by-mckinsey#:%7E:text=Originally%20publishetrying%20to%20increase%20the%20diversity%20of%20their%20staffd%20by%20McKinsey.%20Diversity%20wins%20is%20the,likelihood%20of%20financial%20outperformance%20has%20strengthened%20over%20time">good for business</a>. Diverse groups of people learn from one another, leading to improvements in creativity, knowledge, insight, and <a href="https://www.gov.uk/government/publications/the-business-case-for-equality-and-diversity-a-survey-of-the-academic-literature">ultimately success</a>. But there is also broader moral imperative, which will hopefully see more companies take on this approach – working towards the fair treatment of all members of society is just the right thing to do.</p><img src="https://counter.theconversation.com/content/167919/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marianna Fotaki 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>Accountancy firm KPMG’s plans for greater social balance should be applauded.Marianna Fotaki, Network Fellow, Edmond J Safra Center for Ethics, Harvard University and Professor of Business Ethics, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1301362020-01-23T10:25:44Z2020-01-23T10:25:44ZCorruption in South Africa: echoes of leaders who plundered their countries<figure><img src="https://images.theconversation.com/files/311158/original/file-20200121-117921-1a946yj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Anti-corruption protesters march on Parliament in Cape Town in 2017.</span> <span class="attribution"><span class="source">shutterstock/Aqua Images</span></span></figcaption></figure><p>One of the shameful achievements of the African National Congress (ANC) in its 25 years of governing post-apartheid South Africa is that it’s living up to the political stereotype of what is <a href="https://www.harpercollins.com/9780060934439/in-the-footsteps-of-mr-kurtz/">wrong</a> with post-colonial Africa – unethical and corrupt African leaders who exercise power through patronage. </p>
<p>The widespread corruption in post-apartheid South Africa is epitomised by what is now referred to as <a href="https://beta.mg.co.za/article/2018-09-14-00-definition-of-state-capture/">“state capture”</a>. The effects of the entrenched corruption are exemplified by frequent power cuts <a href="https://www.moneyweb.co.za/news/companies-and-deals/this-is-how-eskom-throttles-the-economy/">devastating the economy</a>. Another example is the government’s failure to <a href="https://www.news24.com/SouthAfrica/News/watch-three-hour-train-delay-for-ramaphosa-during-anc-election-campaigning-20190318">keep the trains running</a>.</p>
<p>Democratic South Africa appears to have morphed into a fully fledged predatory state. The lobby group Corruption Watch <a href="https://www.corruptionwatch.org.za/global-corruption-barometer-africa-2019/">reported last year</a> that more than half of all South Africans think corruption is getting worse. They also think the government is doing a bad job at tackling corruption.</p>
<p>Characteristics include using public office and resources to promote the private interests of ANC politicians and those connected to them. It also includes an entrenched culture of being <a href="https://www.dailymaverick.co.za/article/2019-03-01-state-capture-wipes-out-third-of-sas-r4-9-trillion-gdp-never-mind-lost-trust-confidence-opportunity/">untouchable</a>.</p>
<p>Events in South Africa have echoes in countries across the continent. These range from the <a href="https://www.bbc.com/news/world-africa-51128950">Dos Santos family in Angola</a> to <a href="https://www.africanexponent.com/post/8617-mobutu-sese-seko-was-a-heartless-dictator">Mobutu Sese Seko’s</a> decades of thieving in Zaire. Mobutu is <a href="https://www.harpercollins.com/9780060934439/in-the-footsteps-of-mr-kurtz/">credited</a> with the invention of modern African kleptocracy.</p>
<p>Of course, African leaders are not the only corrupt political leaders in the world. For example, Noah Bookbinder, a former trial attorney for the US Justice Department’s Public Integrity Section, <a href="https://www.newsweek.com/trumps-alleged-abuses-power-make-2019-one-most-corrupt-years-history-former-federal-1479715">recently argued </a> that US president Donald Trump’s </p>
<blockquote>
<p>increasingly egregious abuses made 2019 one of the most corrupt years in US history.</p>
</blockquote>
<p>But the fact of the matter is that sub-Saharan Africa is in a league of its own. In the <a href="https://www.transparency.org/cpi2018">2018 Corruption Perception Index</a>, published by Transparency International, it appears at the bottom. The report released with the index stated that <a href="https://www.transparency.org/files/content/pages/2018_CPI_Executive_Summary.pdf">the region had</a> “failed to translate its anti-corruption commitments into any real progress”. In 2019, the region again appears at the bottom. Transparency International <a href="https://www.transparency.org/files/content/pages/2019_CPI_Report_EN.pdf">remarked</a>: </p>
<blockquote>
<p>Sub-Saharan Africa’s performance paints a bleak picture of inaction against corruption.</p>
</blockquote>
<h2>Moral decay</h2>
<p>The ANC once represented a political tradition of opposition to apartheid <a href="http://www.mandela.gov.za/mandela_speeches/before/6105_nac.htm">rooted in altruism</a>. But the events that have unfolded since it took over running the government in 1994 suggest that it has become a corrupt machine. </p>
<p>It seems the party appears intent on following in the footsteps of the likes of the late Mobutu. </p>
<p>State corruption has taken hold with utter disregard for ethics and democratic norms in a cynical exploitation of the post-apartheid transformation agenda. For example, large-scale corruption is often framed around the liberation struggle rhetoric of <a href="https://theconversation.com/why-corruption-in-south-africa-isnt-simply-about-zuma-and-the-guptas-113056">empowering black people</a>.</p>
<p>The reality is that the black elite enrich themselves and their families through government tenders and other questionable and unethical means.</p>
<p>Former president Jacob Zuma is the “poster boy” for this black kleptocracy. He and his associates, the <a href="https://www.timeslive.co.za/sunday-times/opinion-and-analysis/2017-07-22-how-to-be-a-gupta/">Gupta family</a>, captured the post-apartheid state with the sole purpose of exercising power <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=240555">to shape</a> policy making, and to control political institutions to their own advantage.</p>
<p>Dishonest politics has become a defining feature of post-apartheid politics while the legitimate fight against corruption is being made <a href="https://city-press.news24.com/News/zondo-commission-targets-blacks-20190629">analogous to racism</a>. It is a politics that is characterised by lack of ethics, morals, and logic, and has no legitimate place in a democratic society. </p>
<p>Yet it continues to trickle down to other societal institutions. Transport minister Fikile Mbalula recently <a href="https://www.heraldlive.co.za/news/2020-01-16-broken-organisation-prasa-lost-r1bn-in-two-years/">described</a> the Passenger Rail Agency of the country as a</p>
<blockquote>
<p>broken organisation, struggling to provide an efficient and committed passenger rail service.</p>
</blockquote>
<p>Meanwhile, South African Airways has been forced into a voluntary <a href="https://theconversation.com/south-african-airways-is-in-business-rescue-what-it-means-and-what-next-128409">business rescue</a> after its working capital dried up and the national treasury refused another bailout. </p>
<p>Of course, the private sector is not corruption free. Corporate businesses that have been associated with state capture <a href="https://www.dailymaverick.co.za/article/2020-01-16-the-dirt-on-deloittes-consulting-deals-at-eskom-part-two/?tl_inbound=1&tl_groups%5b0%5d=80895&tl_period_type=3&utm_medium=email&utm_campaign=Business%20Maverick%20Thursday%2016%20January%202020&utm_content=Business%20Maverick%20Thursday%2016%20January%202020+CID_282a9da853386128d4e197c64e93802c&utm_source=TouchBasePro&utm_term=The%20dirt%20on%20Deloittes%20consulting%20deals%20at%20Eskom%20Part%20Two">include</a> Deloitte, McKinsey, KPMG, Bain & Company.</p>
<p>The breakdown in social order reveals a dysfunctional political system that rewards sycophants, con artists, thugs, greed, and antisocial attributes. The development of this patronage network is the product of the ANC’s <a href="https://www.researchgate.net/publication/321223498_The_African_National_Congress_ANC_and_the_Cadre_Deployment_Policy_in_the_Postapartheid_South_Africa_A_Product_of_Democratic_Centralisation_or_a_Recipe_for_a_Constitutional_Crisis">cadre deployment policy</a>. This values party membership over ability and probity.</p>
<h2>Lessons from history not learnt</h2>
<p>The history of democratic South Africa shows that the ANC has failed to learn from the experiences of post-colonial Africa, and thus avoid its unsavoury parts.</p>
<p>Instead, it has chosen to walk in the footsteps of other corrupt post-colonial African leaders. Small wonder that its frustrated citizens have turned to the courts to force the government to govern in their interests.</p>
<p>The latest example of this the Makhanda High Court ruling that the Makana Municipality be dissolved and placed under administration for failing to carry out its constitutional obligations to its citizens. The court <a href="https://theconversation.com/landmark-court-ruling-highlights-crisis-in-south-africas-cities-and-towns-130140">found that </a> the ANC-run municipality had failed to “promote a healthy and sustainable environment for the community”, as required by the country’s constitution.</p>
<p>More such political collisions between the country’s cherished democratic norms and the corrupt post-colonial political elites are needed to change the current political trajectory of corruption and incompetence. That is the only antidote.</p><img src="https://counter.theconversation.com/content/130136/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mandisi Majavu 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>In South Africa, state corruption has taken hold with utter disregard for ethics and democratic norms in a cynical exploitation of the post-apartheid transformation agenda.Mandisi Majavu, Senior Lecturer, Department of Political and International Studies, Rhodes UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1111012019-02-06T14:26:28Z2019-02-06T14:26:28ZA democracy or a kleptocracy? How South Africa stacks up<figure><img src="https://images.theconversation.com/files/257252/original/file-20190205-86213-uvn9y7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The commission chaired by Justice Raymond Zondo has heard shocking testimony on the extent of corruption in government.
</span> <span class="attribution"><span class="source">EFE-EPA/Kim Ludbrook</span></span></figcaption></figure><p>South Africans have been held spellbound by the torrent of evidence of corruption emerging from two parallel commissions of inquiry – into <a href="https://www.sastatecapture.org.za/">state capture</a>, and the <a href="https://mg.co.za/article/2019-01-23-mokgoro-inquiry-on-hold-after-over-jibas-fair-trial-rights">fitness to hold office</a> of two senior officials of the National Prosecuting Authority.</p>
<p>These strengthen perceptions that South Africa under former <a href="https://www.sahistory.org.za/article/jacob-zuma-presidency-2009-2017-march">President Jacob Zuma</a> – from May 2009 to March 2018 – <a href="https://www.news24.com/SouthAfrica/News/zuma-turned-sa-into-mafia-style-lawless-kleptocracy-saftu-20170805">transformed</a> from a democracy into a <a href="http://www.oxfordreference.com/search?q=kleptocracy&searchBtn=Search&isQuickSearch=true">“kleptocracy”</a>: a country ruled by thieves.</p>
<p>The country scored only 43 out of 100 on Transparency International’s Corruption Perceptions Index for 2018 <a href="https://www.transparency.org/country/ZAF">Corruption Perceptions Index for 2018</a>, down from 47 in 2009. </p>
<p>So the question is: is it indeed the case that South Africa has become a kleptocracy? Has it travelled far along the road to joining states such as Russia and Equatorial Guinea, notorious for being ruled by authoritarian leaders in league with corrupt oligarchs at the expense of ordinary people? If this is so, is that condition reversible?</p>
<h2>Understanding kleptocracy</h2>
<p>Derived from the Greek words for thieving and ruling, the word “kleptocracy” entered the modern social science lexicon through the work of the Polish-British sociologist <a href="https://www.theguardian.com/news/2007/nov/20/guardianobituaries.obituaries">Stanislav Andreski</a> in the 1960s. His book <a href="https://www.questia.com/library/3139053/the-african-predicament-a-study-in-the-pathology">The African Predicament</a> identified post-independence African regimes as kleptocratic. </p>
<p>Basically, he presented kleptocracy as government by corrupt leaders who use their power to exploit the people and national resources of their countries to extend their personal wealth and political powers. But, the notion of kleptocracy didn’t gain much leverage until the present decade. This reflects a widespread belief that corruption is <a href="https://www.journalofdemocracy.org/article/rise-kleptocracy-dark-side-globalization">gaining ground</a> at an unprecedented rate in the world.</p>
<p>Key to contemporary understandings is that kleptocracy now extends beyond the boundaries of the countries that kleptocrats plunder, and is becoming a <a href="https://www.journalofdemocracy.org/article/rise-kleptocracy-challenge-democracy">danger to democracy globally</a>. </p>
<p>Whereas there was previously a strong tendency to see kleptocracy as primarily a pathology of countries in what used to be referred to as the <a href="https://pdfs.semanticscholar.org/de46/c4490c84d705062c389dd8a60633e3c43786.pdf">“third world”</a>, today it is recognised that the scourge has <a href="https://www.journalofdemocracy.org/article/rise-kleptocracy-challenge-democracy">gone global</a>.</p>
<p>President Vladimar Putin’s Russia is widely cited as leading the pack of <a href="https://www.journalofdemocracy.org/article/rise-kleptocracy-power-and-plunder-putin%E2%80%99s-russia">kleptocrats</a>. It is strongly followed by other “emerging market economies” (such as Turkey and Malaysia), with African countries (such as Equatorial Guinea and Nigeria) continuing to feature strongly. Sub-Saharan Africa is the lowest scoring region – that is, the most corrupt – in <a href="https://www.transparency.org/cpi2018">Transparency International’s index</a>.</p>
<p>The most distinctive development of the contemporary era is that advanced capitalist democracies are viewed as under <a href="https://www.journalofdemocracy.org/article/rise-kleptocracy-challenge-democracy">threat from kleptocracy</a>. For instance, there are accusations aplenty that the presidency of the US is being systematically used to <a href="https://www.vox.com/world/2017/7/31/15959970/donald-trump-authoritarian-children-corruption">enrich the family and companies</a> of President Donald Trump. </p>
<p>Also, it is widely recognised that despite the virtuous platitudes of the British government, London has become a major centre for <a href="https://www.independent.co.uk/news/uk/crime/london-is-now-the-global-money-laundering-centre-for-the-drug-trade-says-crime-expert-10366262.html">money-laundering</a>. So what has changed? </p>
<p>Simply put: globalisation and <a href="https://www.theguardian.com/news/2017/aug/18/neoliberalism-the-idea-that-changed-the-world">neo-liberalism</a> have hugely increased the capacity of rulers, corporations, oligarchs and criminal networks to obscure their movements of money through the international financial system,</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/257237/original/file-20190205-86228-k0rxy3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/257237/original/file-20190205-86228-k0rxy3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/257237/original/file-20190205-86228-k0rxy3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/257237/original/file-20190205-86228-k0rxy3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/257237/original/file-20190205-86228-k0rxy3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/257237/original/file-20190205-86228-k0rxy3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/257237/original/file-20190205-86228-k0rxy3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Retired Judge Yvonne Mokgoro is probing the fitness of two powerful national prosecutors to hold office.</span>
<span class="attribution"><span class="source">Thulani Mbele/Sowetan</span></span>
</figcaption>
</figure>
<p>A combination of neoliberalism and globalisation has led to the development of a massive industry servicing kleptocrats. This spreads outwards from London and New York to offshore jurisdictions and real estate hotspots, often arranged by Western financial services providers. Offshore finance has become critical. Untraceable shell companies are being used to shift money <a href="https://www.journalofdemocracy.org/article/rise-kleptocracy-laundering-cash-whitewashing-reputations">from one country to another</a>.</p>
<p>Once money has been “cleansed”, it is increasingly invested in luxury housing and valuable real estate. Amid this, the laundering of reputations becomes critical. This often requires the hiring of politicians and lobbyists to re-brand kleptocrats as philanthropists and engaged global citizens. </p>
<h2>The case of South Africa</h2>
<p>South African President Cyril Ramaphosa recently referred to the years of his predecessor Zuma as <a href="https://city-press.news24.com/News/ramaphosa-backtracks-on-nine-wasted-years-under-zuma-20190202">“wasted”</a>. But, typical of his style, this was an understatement. South Africa under Zuma advanced far down the road to becoming a kleptocracy.</p>
<p>Corruption became increasingly organised, politicians and parastatal managers being bought by <a href="https://ewn.co.za/2018/10/28/gordhan-says-anti-graft-efforts-face-dangerous-fightback">external private interests</a>. The Jacob Zuma Foundation appears to have served as a front for <a href="https://www.timeslive.co.za/news/south-africa/2019-01-29-zuma-got-r300k-per-month-from-bosasa-says-agrizzi/">outright theft</a> and appropriation of public monies. Intermediaries like <a href="https://businesstech.co.za/news/banking/262921/new-report-highlights-the-scale-of-kpmgs-losses-in-south-africa/">KPMG</a> and other auditing companies were used to hide the private appropriation of state resources from public gaze.</p>
<p>The London-based <a href="https://theconversation.com/how-pr-giant-bell-pottinger-made-itself-look-bad-83529">Bell Pottinger</a> public relations company was used to explain away the scandals of the Zuma regime. While by its nature money laundering is obscure, there can be little doubt that money has been squirrelled away in offshore accounts.</p>
<p>Revelations emanating from the two commissions of inquiry indicate that South Africa stands in great peril of falling prey to kleptocracy. Under Ramaphosa, the government of the African National Congress (ANC) has taken important steps to reverse the trend. These include the <a href="https://ewn.co.za/2018/12/04/president-appoints-shamila-batohi-as-new-ndpp-head">appointment</a> of a highly respected advocate to be the country’s chief prosecutor. But much will depend on the political will of the ANC to rid its ranks of its in-house kleptocrats for this promise to bear fruit.</p>
<h2>Battle to defeat kleptocracy</h2>
<p>Tackling kleptocracy is enormously complex. Eliciting information from myriad international (often reluctant) sources takes time, money and patience. Legal action is time consuming and costly. Kleptocrats and their allies fight back strongly.</p>
<p>The good news is that South Africa has made a good start with the establishment of the commissions of inquiry. </p>
<p>The bad news is that the ANC government’s pursuit of the country’s kleptocrats may drop off once it has won the national elections in May. It will be up to opposition parties, the media and civil society to ensure that that doesn’t happen.</p><img src="https://counter.theconversation.com/content/111101/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Roger Southall has previously received funding from the National Research Foundation</span></em></p>Corruption in South Africa became increasingly organised under former President Jacob Zuma.Roger Southall, Professor of Sociology, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1047022018-10-10T10:18:19Z2018-10-10T10:18:19ZMoral courage and decency irrelevant as South Africa’s finance minister resigns<figure><img src="https://images.theconversation.com/files/240031/original/file-20181010-72103-g6a9i1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Nhlanhla Nene's departure means that South Africa has had six finance ministers in four years. </span> <span class="attribution"><span class="source">GCIS</span></span></figcaption></figure><p>South Africa’s once-lauded, lately beleaguered Finance Minister, Nhlanhla Nene, has had his <a href="https://www.businesslive.co.za/bd/national/2018-10-09-full-speech-cyril-ramaphosa-appoints-tito-mboweni-as-finance-minister/">resignation accepted</a> by President Cyril Ramaphosa. His successor, Tito Mboweni, becomes the country’s sixth finance minister in four years.</p>
<p>The President is desperately trying to dig South Africa out of an unholy mess created by his predecessor Jacob Zuma and his multiple cronies in and out of the governing African National Congress (ANC). The particularly odious <a href="https://www.iol.co.za/news/politics/who-are-the-guptas-2080935">Gupta family</a> have loomed large in what a succession of <a href="https://pari.org.za/betrayal-promise-report/">research projects</a>, commissions of <a href="https://www.sastatecapture.org.za/">inquiry</a>, <a href="https://theconversation.com/two-books-that-tell-the-unsettling-tale-of-south-africas-descent-87044">books</a> and <a href="http://www.gupta-leaks.com/">investigative journalism</a> projects, have labelled <a href="https://www.penguinrandomhouse.co.za/book/republic-gupta-story-state-capture/9781776090891">state capture</a>.</p>
<p>Nene was formerly regarded as “clean”, having <a href="https://theconversation.com/why-zumas-actions-point-to-shambolic-management-of-south-africas-economy-52174">been fired</a> by former President Zuma for refusing to fund his more ludicrous rent-seeking projects. He was replaced by <a href="https://www.news24.com/SouthAfrica/Politics/weekend-special-van-rooyen-should-only-speak-on-saturdays-and-sundays-ndlozi-20160517">Des van Rooyen</a> for a weekend, and then left in the cold while Pravin Gordhan became Finance Minister (before in turn being fired by Zuma). Nene was <a href="https://www.cnbc.com/2018/02/27/ramaphosa-cabinet-reshuffle-sees-investor-favorites-return-to-run-south-africa-economy.html">rehabilitated</a> by Ramaphosa – who defeated the entire Zuma strategy by winning the ANC (and then national) <a href="https://theconversation.com/the-anc-has-a-new-leader-but-south-africa-remains-on-a-political-precipice-89248">presidency</a>. Nene’s reinstatement as Minister of Finance was widely regarded as both politically astute and market-friendly.</p>
<p>But then Nene dropped <a href="https://www.news24.com/SouthAfrica/News/statecaptureinquiry-5-revelations-from-nenes-testimony-20181003">two bombshells</a>: one, that he had met the Gupta brothers at their homes and offices between 2010 and 2014, but had not shared this with Ramaphosa; two, that he had refused to sign off a nuclear deal with Russia that would have simply broken the country financially for decades to come. </p>
<p>And now he is gone.</p>
<p>Did anyone pause to reflect on the fact that after a decade of impunity, this was an act of decency and moral courage? Ignore the party colours, and look at the human being. That is clearly a test all South African politicians <a href="https://theconversation.com/top-political-executives-in-south-africa-dont-resign-they-only-quit-under-duress-72546">failed abysmally</a>. If they have a conscience they clearly forgot to dust it off and use it.</p>
<h2>Widespread guilt</h2>
<p>Almost by definition, anyone who is found to have past dealings with the Guptas – themselves now safely ensconced in mansions <a href="https://www.news24.com/SouthAfrica/News/gupta-fight-goes-to-dubai-20180331">abroad</a> – is unclean. And by definition that includes huge swathes of the political and business classes, whom the Guptas seem to have variously seduced, corrupted, cajoled, threatened or by-passed, depending on the strength of character at stake. </p>
<p>The brilliance of their <a href="https://www.news24.com/SouthAfrica/News/download-the-full-state-of-capture-pdf-20161102">state capture</a> project – laid out recently by the <a href="https://mg.co.za/author/amabhungane">investigative journalists</a> as well as <a href="http://witspress.co.za/catalogue/shadow-state/">various academics</a> – is a roll-call of virtually every senior political figure in South Africa, alongside many business elites. </p>
<p>Some stood up – but a great many folded, seduced by cash or a crass Sun City <a href="https://theconversation.com/is-the-net-about-to-close-on-zuma-and-his-gupta-patronage-network-90395">family wedding invitation</a> or rotten contracts.</p>
<p>Many are in parliament, some are in civil society, others in the private sector – including the consultancy firm <a href="https://www.iol.co.za/business-report/companies/kpmg-to-lay-off-400-people-after-numerous-scandals-15301363">KPMG</a>, and UK-based now defunct PR company <a href="https://theconversation.com/how-pr-giant-bell-pottinger-made-itself-look-bad-83529">Bell Pottinger</a> – and elsewhere. Not all are sitting on ANC benches. Perhaps that is why the President had no option but to remove Nene. Politically, the liability was too great as an election approaches – national elections are due next year – and none are so shrill as those with something to hide.</p>
<p>Nene went to the <a href="https://www.sastatecapture.org.za/">Zondo Commission into state capture</a> and ‘fessed up. Yes, he had met the Guptas. No, he had not taken bribes (well, he would say that, right?). Yes, he had been put under immense pressure to sign off on the nuclear deal which would have opened South Africa’ coffers to looters. Yes, he refused to sign, and was fired.</p>
<p>Remarkably, he had not told Ramaphosa about the earlier meetings with the Guptas. But, he took responsibility – unlike the lies and bluster of others caught in the act. Nene <a href="https://www.iol.co.za/news/politics/read-nhlanhla-nenes-full-statement-on-his-meetings-with-the-guptas-17366241">said to South Africa</a>: </p>
<blockquote>
<p>In return for the trust and faith that you have placed on me, I owe you conduct as a public office bearer that is beyond reproach. But I am human too, I do make mistakes, including those of poor judgement.</p>
</blockquote>
<p>This was followed by his offer to resign. This is accountability and decency. </p>
<h2>Lacking empathy</h2>
<p>In any version of the world, this was a man seeking an honourable redemption. He acknowledged his own mistakes, sought forgiveness, and asked to be relieved of the trappings of office for which so many continue to drool and slobber. </p>
<p>Were there questions to be asked? Absolutely. </p>
<p>But what did he get in return? The Economic Freedom Fighters (EFF), whose leadership has repeatedly been <a href="https://ewn.co.za/Topic/Tax-evasion-and-fraud-charges-against-Julius-Malema">accused of corruption</a>, leapt to the offence, claiming Nene was <a href="https://www.dispatchlive.co.za/news/2018-10-04-nene-is-lying-says-the-eff/">“corrupt as hell”</a> and promising to release more compromising details – which are yet to appear. The opposition Democratic Alliance (DA), desperately seeking the front foot it has lost since Ramaphosa’s ascendancy, <a href="https://www.sowetanlive.co.za/news/south-africa/2018-10-08-ramaphosa-must-accept-nenes-offer-to-resign-das-maynier/">demanded Nene’s axing</a> and wanted other possible conflicts of interest investigated.</p>
<p>Empathy is the ability to understand or feel what another person is experiencing from within their frame of reference. In simple terms, to put yourself in their shoes. It is singularly lacking in politics – from Trump <a href="https://edition.cnn.com/2018/10/02/politics/trump-mocks-christine-blasey-ford-kavanaugh-supreme-court/index.html">mocking abuse survivors</a> to South Africa today. Shout down the other side, win by volume and crassness, see honesty as weakness, but above all win – nothing else seems to matter.</p>
<p>Not one politician had the decency to say ‘that was a decent thing to do.’ The lack of empathy was deafening. A lack of empathy is part of <a href="https://www.psychologytoday.com/us/conditions/narcissistic-personality-disorder">narcissistic personality disorder</a> – an inability or refusal to identify with the feelings of others. This is a rather neat description of politicians, confirmed repeatedly.</p>
<p>If politicians see only personal advantage, especially from the ‘weakness’ of others – weakness defined here as honesty, seeking forgiveness, repentance – then the future is bleak. </p>
<p>But to all those self-serving, smug TV chasing politicians and others, whose own meetings with the Guptas, or other corrupt activities, have yet to come to light, remember one aphorism: people who live in glass houses shouldn’t throw stones.</p><img src="https://counter.theconversation.com/content/104702/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Everatt 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>Nhlanhla Nene was highly regarded for refusing to fund former President Zuma’s ludicrous rent-seeking projects.David Everatt, Head of Wits School of Governance, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/952232018-04-30T20:16:27Z2018-04-30T20:16:27ZThe big four accounting firms struggle to shake their sexist pasts<figure><img src="https://images.theconversation.com/files/215354/original/file-20180418-163971-1eksrt3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/gender-discrimination-concept-society-1040973067">Kang Hyejin/shutterstock.com</a></span></figcaption></figure><p>In many ways, the big four accounting firms – Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers (PwC) – have influenced how we work, how we manage, how we invest and how we are governed. </p>
<p>Apart from their staff, the brands themselves are the big firms’ most valuable assets. The value of those brands is grounded in the firms’ histories. But looking into their past reveals many stories of discrimination that the firms may have to face up to to re-brand their future.</p>
<p>Globally, the firms dominate key markets for accounting, tax and audit services. Nearly all the largest businesses in the United States and the United Kingdom, for example, are audited by one or more of the firms.</p>
<p>In 2016 their total revenue exceeded <a href="https://economia.icaew.com/en/news/december-2017/kpmg-remains-smallest-of-big-four">US$130 billion</a>. With <a href="https://www.statista.com/statistics/250503/big-four-accounting-firms-number-of-employees/">almost one million staff</a>, the firms are collectively one of the world’s top employers. The number of people who have worked for a big four auditing firm at some point in their career is much larger still.</p>
<p>Today, however, the auditors are facing challenges to their power from <a href="https://www.icaew.com/en/technical/audit-and-assurance/faculty/the-future-of-audit/the-future-of-audit-technology">technology</a> and <a href="https://www.ft.com/content/c1231f40-f695-11e7-88f7-5465a6ce1a00">regulators</a>. But perhaps the most gravest challenge is cultural.</p>
<h2>A chequered past</h2>
<p>All four firms trace their history back to 19th century England. In the firms’ earliest incarnations, their partners and staff were all male. </p>
<p>As the firms spread out across the globe, they retained their overwhelming maleness. As late as 1940, for example, only 175 of the 16,000 certified public accountants in the United States <a href="https://www.thebhc.org/sites/default/files/beh/BEHprint/v023n1/p0241-p0252.pdf">were women</a>.</p>
<p>Strong forces in society kept things that way. Colleges and universities discouraged women from majoring in accounting. If a woman did graduate with an accounting qualification, she found it difficult to find a position in a major firm. </p>
<p>Arthur Andersen, a firm founded by a former Price Waterhouse partner, waited till 1965 before hiring female accountants. Those accountants were mostly confined to junior and administrative roles – comptometrists, ledger-posting clerks – and they <a href="http://www.sciencedirect.com/science/article/pii/S1045235485710337/">had to leave when they married</a>.</p>
<p>At professional gatherings, men opined gravely on the question of women, and <a href="https://www.thebhc.org/sites/default/files/beh/BEHprint/v023n1/p0241-p0252.pdf">what they might be able to do</a>. The opinions awkwardly foreshadowed today’s conversations about digital automation. What accountants said then about women, they say now about robots. </p>
<p>The accounting monoculture’s defining features included blokey, locker-room humour, a competitive, hothouse atmosphere, and a staff induction process that has been <a href="https://www.amazon.com/Final-Accounting-Ambition-Arthur-Andersen/dp/0767913833/">likened to brainwashing</a>.</p>
<p>When inevitably the monoculture began to wane, the clash with modern ideas was ferocious, and often appalling. </p>
<p>In 1990, for example, Ann B. Hopkins of Price Waterhouse alleged she’d been denied promotion to the partnership on grounds of sexual discrimination. A <a href="https://supreme.justia.com/cases/federal/us/490/228/case.html">US judge</a> ordered the firm to offer Hopkins a partnership, and around US$400,000 in back pay.</p>
<p>In 2008, former PwC partner Christina Rich received a significant settlement after a series of alleged incidents that included male partners talking about her breasts. The boys club culture had allegedly thwarted her progression at the firm. In 2014, Erik Pietzka <a href="https://www.telegraph.co.uk/men/relationships/fatherhood/11206484/Father-wins-sex-discrimination-case-after-request-to-work-part-time-rejected.html">won a discrimination case</a> against PwC on the grounds that his requests to work part-time for family reasons had damaged his prospects for promotion.</p>
<h2>Are they really progressing?</h2>
<p>In light of this history, the big four in Australia have recently adopted proactive policies that promote equality, diversity and flexibility. Examples include Deloitte’s <a href="https://www2.deloitte.com/au/en/pages/about-deloitte/articles/globe.html">GLOBE leadership forum</a> and Inspiring Women strategy, aimed at getting an “<a href="https://www2.deloitte.com/au/en/pages/about-deloitte/articles/inspiring-women.html">unfair share of female talent</a>”.</p>
<p>Yet there is a real risk that these policies will not lead to the substantive culture shift that the firms need. The continued emergence of <a href="https://www.wsj.com/articles/ernst-young-partner-files-federal-sexual-harassment-complaint-1524086458">sorry episodes</a> suggests that more work is needed.</p>
<p>The dilemma for the firms’ leaders is this: How to retain the best of their histories while renouncing the prejudices and behaviours that defined the old monoculture? How best to embrace change without dumping much of what defined the firms for so many years?</p>
<p>Beyond further strengthening policies and standards, the firms are becoming more nuanced in the stories they tell about themselves and their past. That past, though, includes an abundance of horrors and blunders.</p>
<p>Sooner or later, the firms will have to fully reckon with their past. When that moment comes, the firms might have to let go of a good deal of their history, their culture, their structure and even their brands.</p>
<hr>
<p><em>Dr Stuart Kells and Professor Ian Gow are the authors of <a href="https://www.blackincbooks.com.au/books/big-four">The Big Four: The Curious History and Perilous Future of the Global Accounting Monopoly</a>.</em></p><img src="https://counter.theconversation.com/content/95223/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>The big four accounting firms’ brands are grounded in their histories. But looking into their past reveals many stories of discrimination.Stuart Kells, Adjunct Professor, College of Arts, Social Sciences and Commerce, La Trobe UniversityIan Gow, Professor and Director of Melbourne Centre for Corporate Governance and Regulation, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/928632018-03-05T15:48:26Z2018-03-05T15:48:26ZGender pay gap reporting rules should extend to ethnicity and class – here’s why<figure><img src="https://images.theconversation.com/files/208880/original/file-20180305-65533-pnhss1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">All for one?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/directly-above-shot-creative-business-people-344608976?src=mQSuUDyff7xYWPJNcjZZ1Q-3-42">Andrey_Popov</a></span></figcaption></figure><p>Ever since the BBC <a href="https://theconversation.com/government-media-policy-means-bbc-pay-inequality-is-likely-to-grow-worse-81411">published</a> the pay of its highest earning talent last July to reveal a big gap between male and female earnings, the issue of gender pay has never been far from the news. We have seen headlines on similar disparities between men and women everywhere from <a href="https://www.thetimes.co.uk/article/revealed-mps-gender-pay-gap-glzhtb0g7">the houses of parliament</a> to the <a href="http://www.bbc.co.uk/sport/43240059">Football Association</a>. </p>
<p>A fuller picture will soon emerge as all UK employers with 250 or more employees <a href="http://www.bbc.co.uk/news/business-39502872">have to</a> publish their gender pay gap by April – with the vast majority <a href="https://www.ft.com/content/353e031c-1cad-11e8-aaca-4574d7dabfb6">still to</a> do so. This gender transparency is welcome and the gaps that have already been revealed show major systemic inequalities among UK employers. But the disclosures won’t tell the whole story. Much of the full picture about gender pay will remain obscured, along with other worrying disparities around socioeconomic background and ethnicity. </p>
<p>First a quick word about what gender pay means in this context. It should not be confused with equal pay, which relates to paying men and women the same rate for the same job. Gender pay relates to the difference in total average pay. A company could pay all men and women at the same grade the same amount (so would have equal pay) but could still have a gender pay gap if women are concentrated in lower grade positions with lower pay rates.</p>
<h2>Data drawbacks</h2>
<p>So what’s wrong with the requirements? They will tell workers how male and female pay levels compare at their employer but they won’t tell them how their pay compares with workers at other, similar, firms. The new rules also only apply to firms employing 250 or more employees, so won’t reveal the gender pay gaps in smaller firms.</p>
<p>Take the case of a female chartered accountant. The “big four” international firms which dominate the profession – KPMG, PwC, Deloitte and Ernst & Young – <a href="https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2017/12/pay-gap-report-2017.pdf">have</a> already <a href="https://www.pwc.co.uk/press-room/press-releases/pwc-reports-its-gender-pay-gap-under-the-governments-new-regulations.html">revealed</a> their <a href="https://www2.deloitte.com/uk/en/pages/press-releases/articles/deloitte-publishes-gender-pay-gap-data.html">gender</a> pay <a href="http://www.ey.com/Publication/vwLUAssets/ey-pay-gap-report-2017/$File/ey-pay-gap-report-2017.pdf">gaps</a>. At these firms, female employees earn 14%-22% less than male employees on average (this is known as the median gender pay gap).</p>
<p>Women are also concentrated in lower levels at these organisations, so are less likely to reach the top and earn the highest salaries. The big four acknowledge this and have all committed to implementing policies aimed at addressing these inequalities.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/208882/original/file-20180305-65507-1ft0xkb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">By all accounts …</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/successful-business-woman-economist-formal-wear-727157914?src=-sgWXj2HWRuhFUfgj-YdNA-1-19">Roman Samborskyi</a></span>
</figcaption>
</figure>
<p>Outside the big four, the gender gap looks even worse – according to new data just published in <a href="https://www.icas.com">The CA</a>, the monthly magazine of ICAS (the Institute of Chartered Accountants of Scotland). A survey of over 1,200 Scottish chartered accountants working in all parts of the UK, employed across a wide range of sectors and occupations, which we analysed on behalf of The CA, showed a median gender pay gap of 31.8%. </p>
<p>The gaps in financial services and oil and gas are particularly worrying – 38% and 32% respectively. And for all newly qualified female chartered accountants, the data shows an 8% gap. This raises serious questions about frequent arguments that gender pay gaps are because women are more likely than men to work part-time and have career breaks once they have children. </p>
<p>With women comprising a third of ICAS members and just over 40% of trainees, the data reflects what is happening to a lot of people. The females who qualify as chartered accountants have done well at school and nearly all are high flying graduates, so the fact that their gender pay gap starts so early in their careers shows there are systemic challenges that need to be addressed.</p>
<h2>More gaps</h2>
<p>Besides gender, other factors affect pay too. At the 2017 general election, both the <a href="https://www.conservatives.com/manifesto">Conservative</a> and <a href="https://labour.org.uk/manifesto/">Labour</a> party manifestos included a commitment to get large employers to report on their ethnicity pay gaps. So far, the government has been preoccupied with other things and there is no prospect of ethnicity pay gap legislation appearing any time soon.</p>
<p>The big four accountancy firms <a href="https://assets.kpmg.com/content/dam/kpmg/uk/pdf/2017/12/pay-gap-report-2017.pdf">have</a> taken <a href="https://www.pwc.co.uk/press-room/press-releases/PwC-publishes-BAME-pay-gap.html">the lead</a> and <a href="https://www2.deloitte.com/uk/en/pages/press-releases/articles/deloitte-uk-publicly-reported-ethnicity-pay-gap.html">voluntarily</a> published <a href="http://www.ey.com/Publication/vwLUAssets/ey-pay-gap-report-2017/$File/ey-pay-gap-report-2017.pdf">ethnicity</a> pay gap data, however. This shows a gap of between 8% and 13%, which is high if not as high as the gender gap; again these firms have committed to tackling it. New figures meanwhile <a href="https://www.theguardian.com/society/2018/mar/02/sadiq-khan-vows-action-over-london-public-workers-ethnicity-pay-gap">show that</a> London’s public workers have an ethnicity pay gap of up to 37%. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=383&fit=crop&dpr=1 600w, https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=383&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=383&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=481&fit=crop&dpr=1 754w, https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=481&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/208886/original/file-20180305-65519-16uo70.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=481&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Brown barrier.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/handsome-black-business-man-three-employees-552201988">Uber Images</a></span>
</figcaption>
</figure>
<p>Then there is social background. <a href="https://www.ft.com/content/8001d074-dcc9-11e6-86ac-f253db7791c6">Research</a> last year by the London School of Economics and University College London for the Social Mobility Foundation showed that a wide range of professionals from working-class backgrounds, including lawyers, accountants, doctors and engineers, earned £6,800 less than more affluent colleagues. </p>
<p>The ICAS data bears this out. Chartered accountants who were privately educated earned on average £12,109 more than their comprehensive school counterparts, a 14% gap. Graduates from the <a href="http://russellgroup.ac.uk">Russell Group</a> of 24 leading UK universities earned £5,500 more than other graduates (a 7% gap). </p>
<p>Those who had a father who had been employed in a higher professional or managerial occupation (such as a doctor, lawyer or chartered accountant) earned £5,000 more than those who came from non-professional or managerial backgrounds (a 6% gap).</p>
<p>In short, the government needs to look again at this area. The rules around gender pay gap reporting need widened. Not only should they include more organisations and make comparisons between them possible, there also needs to be reporting requirements around ethnicity and socioeconomic background. The effects in these areas are substantial enough that there is no justification for focusing on gender alone.</p><img src="https://counter.theconversation.com/content/92863/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>This article includes reference to data drawn from an ICAS salary survey published in the March issue of The CA. Catriona is a member of Council of ICAS but the comments in this article are made in a personal capacity and are not made on behalf of ICAS.</span></em></p><p class="fine-print"><em><span>Betty Wu 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>Big new accountancy survey highlights the limitations in UK government’s approach to pay gap reporting.Catriona Paisey, Professor in Accounting, University of GlasgowBetty Wu, Lecturer in Accounting and Finance, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/889052017-12-17T10:19:21Z2017-12-17T10:19:21ZSteinhoff scandal points to major gaps in stopping unethical corporate behaviour<figure><img src="https://images.theconversation.com/files/199413/original/file-20171215-17848-1jrt0o0.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><em>A corporate scandal unfolding around one of the largest businesses coming out of South Africa, <a href="https://www.iol.co.za/business-report/steinhoff-shares-nosedive-after-ceo-markus-jooste-resigns-12286137">Steinhoff</a>, has become a major cause for concern. It threatens to wipe out hundreds of billions of rand invested on behalf of many people – rich as well as ordinary South Africans. Sibonelo Radebe asked Jannie Rossouw to interrogate the saga.</em></p>
<p><strong>What do you read from these allegations of corporate corruption?</strong></p>
<p>The Steinhoff scandal is disturbing because it points to a serious gap in the checks and balances in the investment management space. A scandal of this magnitude should not have occurred if the systems with their multiple layers were working.</p>
<p>It’s still early days but it seems as if a multiple of highly paid professional layers failed investors. This includes auditors, asset managers and non executive directors who in their different roles should ensure that the company’s accounts are as close to the truth as possible.</p>
<p>Steinhoff share price <a href="https://www.timeslive.co.za/sunday-times/business/2017-12-08-no-way-back-for-steinhoff-as-share-price-plunge-nears-90/">collapsed</a> by more than 90%, wiping off nearly €10 billion in shareholder value in about three days following the resignation of the company’s CEO, Markus Jooste, after news that German prosecutors were investigating the company for alleged massive <a href="https://www.fin24.com/Companies/Retail/german-prosecutors-still-probing-steinhoff-for-possible-accounts-fraud-20171207">accounting fraud</a>. Steinhoff is listed on both the Johannesburg Stock Exchange and Frankfurt Stock Exchange.</p>
<p>Steinhoff shares were the darling of most fund and asset managers in South Africa and across the globe. We must ask questions why these entities, which draw enormous fees, <a href="https://www.fin24.com/Opinion/magda-wierzycka-asks-hard-questions-about-steinhoff-and-asset-managers-20171207">failed to pick up</a> the alleged irregularities when it seems like they should have done so if they were doing their jobs properly.</p>
<p><strong>How big is the damage caused by this scandal?</strong></p>
<p>It’s still early days but some people are already tagging this scandal as the <a href="https://www.timeslive.co.za/sunday-times/business/2017-12-08-no-way-back-for-steinhoff-as-share-price-plunge-nears-90/">biggest corporate failure</a> in the history of the Johannesburg Stock Exchange. With more than 40 retailing brands in over 30 countries, Steinhoff was positioned as one of the largest companies by market capitalisation on the exchange. Its market value of close to R300 billion as recorded earlier this year placed it in the <a href="https://businesstech.co.za/news/business/164635/the-biggest-companies-in-south-africa-by-market-cap/">top 10</a>, flanked by other South African corporate giants like media giant Naspers, luxury products specialist Richemont, resources giant Anglo American, petrochemicals firm Sasol as well as two big banks Standard Bank and Firstrand.</p>
<p>If Steinhoff’s stock doesn’t recover the capital losses of share investors who bought at inflated prices will be massive. </p>
<p>Steinhoff started off as a South African based company but built itself into a global retail business with significant interests in western Europe. As a result it attracted <a href="https://www.moneyweb.co.za/news/economy/collateral-damage-who-owns-steinhoff/">prominent</a> investors. In South Africa, these include the Public Investment Corporation which invests on behalf of the Government Employees Pension Fund among other public entities. The Public Investment Corporation is reported to hold <a href="https://www.moneyweb.co.za/in-depth/investigations/pic-reacts-to-steinhoff-implosion/">10%</a> of Steinhoff’s total shares which means its losses reached more than R10 billion after the share price collapsed.</p>
<p>It is therefore of the utmost importance and in the interest of all involved – particularly direct and indirect investors – that the Steinhoff matter be brought to a swift closure. Swift closure should be followed by legal action against and punishment of all those implicated. </p>
<p><strong>How wide spread is such behaviour?</strong></p>
<p>Each time a major scandal surfaces, regulatory gaps are identified and new measures are put in place to plug the apparent holes. But the scandals keep coming.</p>
<p>South Africa has had its fair share of corporate scandals with the most recent being a list of companies linked to the Gupta family inspired<a href="https://www.fin24.com/Opinion/the-gupta-master-plan-meticulously-executed-state-capture-20170830"> state capture</a>. Big names like <a href="https://www.biznews.com/sa-investing/2017/12/06/naspers-links-gupta-corruption/">Naspers</a>, KPMG, McKinsey and SAP have been caught in the extensive web of corruption allegedly driven by the Guptas who have close ties to the country’s president. </p>
<p>Some <a href="https://www.facebook.com/search/top/?q=tim%20cohen%20steinhoff">commentators</a> have linked the Steinhoff saga to the broader ethical challenges facing South Africa. The integrity of some people in key positions of authority in both the public and private sectors is being questioned. This includes the country’s President Jacob Zuma who stands accused of <a href="https://www.news24.com/SouthAfrica/News/zuma-breached-oath-of-office-de-vos-20160405">violating</a> the oath of office. </p>
<p><strong>What must be done?</strong></p>
<p>Despite the best efforts, it’s impossible to regulate for integrity and ethical behaviour. The one effective way that behaviour can be changed is through legal process and by means of tough punishment.</p>
<p>At this point in time we are still unsure of the degree of corporate rot in Steinhoff. Numerous <a href="https://mg.co.za/article/2017-12-07-steinhoff-the-largest-corporate-failure-on-the-jse">allegations</a> have been made, but the world now waits for the company’s delayed audit report to see the full extent of possible corporate fraud. Steinhoff must act swiftly in informing shareholders and other stakeholders about the true financial health of the company.</p>
<p>The Board of directors of Steinhoff is responsible for the financial health and the financial reporting of the company. The problems at the company resulting in the serious decline in the share price, raise the question whether the Board members should continue to hold office. Under the watch of the current Board a massive destruction in shareholder value took place. </p>
<p>No Board replacing the current one can do worse, as there is simply hardly any shareholder value left to destroy. Will the current Board do the honourable thing and step aside?</p>
<p>If fraud is proven, I want to see Steinhoff executives serve jail terms. They have caused immeasurable harm to many people. This is the only way in which unethical and fraudulent behaviour can be out-rooted and integrity restored.</p>
<p>From a proper investigation of the affairs of Steinhoff, possible regulatory gaps should also be identified and eradicated. Nevertheless, no structure of regulation and supervision can replace the single most important requirement for successful business conduct: Ethical behaviour. In South Africa we need ethical behaviour at all levels, namely the government, businesses and civil society.</p>
<p>The board of directors of Steinhoff is responsible for the financial health and the financial reporting of the company. The problems at the company resulting in the serious decline in the share price, raise the question whether the board members should continue to hold office. Under the watch of the current Board a massive destruction in shareholder value took place.
No board replacing the current one can do worse, as there is simply hardly any shareholder value left to destroy. Will the current board do the honourable thing and step aside?</p><img src="https://counter.theconversation.com/content/88905/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jannie Rossouw has a NRF research rating and receives financial assistance for research from the NRF. He owns shares in Steinhoff. </span></em></p>A suit of highly paid professional services seem to have failed investors in the unfolding Steinhoff corporate scandal.Jannie Rossouw, Head of School of Economic & Business Sciences, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/890372017-12-13T14:52:35Z2017-12-13T14:52:35ZSouth Africa’s race relations laid bare in Steinhoff corporate scandal<figure><img src="https://images.theconversation.com/files/198973/original/file-20171213-27597-xa4vda.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 are fond of debating whether public or private sector failings are the bigger problem. It does not take too long to realise that they are really talking about race.</p>
<p>This is evident as the country faces an unusual scandal – one involving a private company called <a href="https://www.timeslive.co.za/sunday-times/business/2017-12-08-no-way-back-for-steinhoff-as-share-price-plunge-nears-90/">Steinhoff</a>. The multinational furniture company is in trouble after <a href="https://www.moneyweb.co.za/news/companies-and-deals/not-possible-to-say-when-steinhoff-probe-will-end-german-prosecutors/">German investigators</a> began looking into it, for allegedly doctoring financial information to mislead the markets.</p>
<p>This was not the first time fingers were pointed at a private company. Auditors <a href="https://theconversation.com/lessons-from-kpmg-be-on-guard-south-africans-are-on-your-case-84478">KPMG</a> have been accused of unethical practice on behalf of the Gupta family who are linked to President Jacob Zuma and are accused of using money to influence government appointments and policies. Media conglomerate <a href="https://www.biznews.com/sa-investing/2017/12/06/naspers-links-gupta-corruption/">Naspers</a> is also facing corruption accusations. Its subsidiary MultiChoice is accused of paying large sums to the formerly Gupta-owned television channel ANN7 in the hope of influencing <a href="https://mg.co.za/article/2015-05-28-multichoice-accused-of-hijacking-digital-tv">government decisions</a>.</p>
<p>But Steinhoff stands out because it does most to shake the confidence of one side of the argument and to get the other claiming it is vindicated.
For much of the past few years, corruption has been seen almost exclusively as a public sector problem. Attention has focused on Zuma and his <a href="https://www.fin24.com/Opinion/the-gupta-master-plan-meticulously-executed-state-capture-20170830">relationship with the Guptas</a>. The private sector (Gupta-owned firms excepted) has, by default, been painted as a corruption-free zone. </p>
<p>The KPMG and Naspers cases may involve prominent private firms, but are seen by the national debate as yet another sign of the Guptas’ baleful influence. The villains remain the same and so does the problem: public sector corruption.</p>
<p>Steinhoff is a different matter entirely. The state plays no role at all and the company is a pillar of the private economy. Its leadership is <a href="http://www.steinhoffinternational.com/executive-management.php">overwhelmingly white</a> and its attitude to the post-apartheid government seems to range from indifference to scepticism. </p>
<p>No wonder that its failings have been gleefully seized upon by people who insist that <a href="https://www.news24.com/SouthAfrica/News/mahlobo-corruption-is-corruption-20171211">private sector corruption</a> is as big a problem as its public equivalent. Or that many of the people who usually insist that public corruption is the problem have reacted to Steinhoff with <a href="https://www.fin24.com/Opinion/magda-wierzycka-asks-hard-questions-about-steinhoff-and-asset-managers-20171207">shock</a>.</p>
<p>On the surface, this sounds like the standard debate in most democracies over the past few decades in which one side favours letting business do as it pleases and the other wants it to be reined in by the state. But, in a country in which whites remain dominant in private business while blacks largely control the government, it is really about the country’s racial divides.</p>
<h2>Colour of merit</h2>
<p><a href="http://www.sahistory.org.za/article/history-apartheid-south-africa">Apartheid</a> was underpinned by strong beliefs in white superiority – these don’t simply melt away because political rules change. People are used to seeing one racial group in skilled jobs, giving orders to the other: inevitably, this becomes seen as natural and so being white is associated with merit, being black with lacking it. </p>
<p>Since 1994, when policies promoting <a href="https://www.thedti.gov.za/economic_empowerment/bee_codes.jsp">black advancement</a> in business and the professions were adopted, this is often expressed in the view that black people in senior positions are there because they were given a free pass by the system, not because they deserve it.</p>
<p>This way of thinking also shapes attitudes to government and business. For those used to the racial pecking order of the past, government is run by people who hold posts because they are black, not because they are competent. Business continues to be run mainly by <a href="https://theconversation.com/corruption-in-south-africa-business-leader-answers-questions-on-how-bad-it-is-85406">people</a> who were judged to be competent in the past and who are therefore assumed now to be honest and to know what they are doing. Calls to assign more government functions to businesses or business people are often a way of saying that white people or black people approved by them should be running the country.</p>
<p>This attitude is particularly evident in how people in the suburbs react to <a href="https://www.fin24.com/Companies/Industrial/construction-cartel-firms-agree-to-pay-r15bn-to-fund-20161020-2">private monopolies</a> or dominant corporations.</p>
<p>Government departments are almost always associated with waiting in long lines for surly officials who have no idea what they are doing. In most cases, this is a caricature; in some, the Department of Home Affairs passport office for example, it is flat wrong. But similar long waits, indifference to customers and incompetence at the dominant digital television corporation or one of the mobile phone companies is accepted cheerfully as normal business practice.</p>
<h2>Delighted black voices</h2>
<p>Black people are perfectly well aware of these attitudes. This is why those who insist that the private sector is as bad if not worse than its public equivalent are almost always black. And why many <a href="https://www.timeslive.co.za/sunday-times/business/2017-12-07-black-business-condemns-steinhoffs-alleged-unethical-corrupt-behaviour/">black voices</a> are delighted at what has happened at Steinhoff because it shows that a pillar of white business can behave at least as badly as black government.</p>
<p>It also explains why many white people have reacted to Steinhoff with such shock – and why Steinhoff happened in the first place.</p>
<p>The editor of the country’s leading business daily, Tim Cohen, has <a href="https://www.businesslive.co.za/bd/opinion/columnists/2017-12-11-tim-cohen-a-few-saw-it-coming-but-nobody-listened/">pointed out</a> that Steinhoff’s failings should not have been a surprise since several market analysts warned a while ago that something was amiss and were ignored. He offered some explanations but, given the realities described here, the most likely answer is that no-one believed the specialist nay-sayers because they assumed that a major white-owned company must know what it is doing and that the critics must have an axe to grind.</p>
<p>Cohen also ran into <a href="https://twitter.com/tim_cohen/status/938801915105824769">trouble</a> on social media for suggesting that reduced capacity at state regulators allowed Steinhoff to happen. Predictably, black people felt (wrongly in his view) that they were being blamed for white business failings.</p>
<p>There is another explanation for the regulators’ inaction. It is that they were not eager to look into a large white-owned company because they feared that this would be seen as yet another case in which incompetent black people wanted to bully competent whites. It is standard in the South African debate that any attempt by government, however mild, to intervene in business is branded a threat to the market economy so it would hardly be surprising if regulators feared this.</p>
<h2>Correcting wrong perceptions</h2>
<p>The Steinhoff scandal would do South Africa a huge service if it made the point that corruption and mismanagement have nothing to do with race. It would also help if it alerted everyone in the marketplace to watch as carefully over private companies as they do over government departments.</p>
<p>But, given how entrenched racial attitudes are, it is more likely that it will be dismissed as a once-off freak by those who assume that white led business is always competent and as further evidence of white prejudice by black people reacting to the label often stuck to them. If that happens, some private businesses will continue to get away with behaviour which would never be tolerated in government.</p><img src="https://counter.theconversation.com/content/89037/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Friedman 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 Steinhoff corporate scandal will do South Africa a huge service if it makes the point that corruption and mismanagement have nothing to do with race.Steven Friedman, Professor of Political Studies, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/854062017-10-15T10:23:43Z2017-10-15T10:23:43ZCorruption in South Africa: business leader answers questions on how bad it is<figure><img src="https://images.theconversation.com/files/190147/original/file-20171013-11677-8cn7c1.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Business Leadership South Africa new CEO, Bonang Mohale, is leading a brave fight against corruption. </span> <span class="attribution"><span class="source">Supplied by BLSA</span></span></figcaption></figure><p><em>Business Leadership South Africa, the biggest business lobby group in the country, has become increasingly <a href="https://www.ujuh.co.za/bonang-mohale-becomes-blsa-ceo-what-does-it-mean/">vocal</a> about rising levels of corruption and mismanagement of public assets. <a href="https://theconversation.com/why-patronage-and-state-capture-spell-trouble-for-south-africa-64704">Concerns</a> have been growing in the country that corrupt practices, particularly the looting of state assets, has become embedded in the way business is done. As the organisation – which represents large businesses and multinationals in South Africa – takes on a new political posture, Steven Friedman put questions to its CEO <a href="https://www.blsa.org.za/news-and-articles/media-statements/blsa-appoints-bonang-mohale-as-ceo/">Bonang Mohale</a>.</em></p>
<p><strong>How representative is Business Leadership South Africa of the country’s private sector?</strong></p>
<p>The organisation represents around 75% of the largest businesses in South Africa. Clearly their interests are not identical to those of smaller businesses. Big business, for example, is able to adapt to onerous government edicts which drive up the cost of business much easier.</p>
<p>But what we have in common is much greater than what separates us – namely the desire to have growth-fostering economic policies under the rule of law. Right now business confidence in South Africa is at a 30-year low due to factors beyond our control but also due to actions that we can control, such as government bringing more policy certainty in areas such as mining for example– this is disastrous for large and small business alike.</p>
<p>BLSA has committed its members to changing practices which might impede economic growth and inclusion. </p>
<p><strong>Are your members buying the change agenda? How do you plan to ensure that they endorse it?</strong></p>
<p>Yes they are. Business Leadership South Africa has taken a much more active role over the last year in terms of getting the voice of business better heard, shaping government policy and speaking out against corruption. We have requested significant resources to achieve this and our members have backed us. </p>
<p>They understand the critical importance of the issues we are dealing with – achieving a policy backdrop that will allow us to grow the economy, create jobs and deliver transformation. </p>
<p>In terms of endorsement, we have set out our vision in a <a href="https://www.blsa.org.za/business-believes/our-contract-with-south-africa/">Contract with South Africa</a>, and our <a href="https://www.blsa.org.za/business-believes/integrity-pledge/">integrity pledge</a>, which establishes our business values. We expect our members to honour these. If they are in breach, they cannot be members. We showcased our commitment to the contract and the pledge through the <a href="https://www.ujuh.co.za/blsa-suspends-eskom-and-transnet-membership-it-needs-to-be-consistent/">suspension</a> of three major corporations KPMG, Eskom and Transnet. </p>
<p><strong>You’ve suspended Eskom and Transnet due to what you say is behaviour at odds with the organisation’s values. What do you mean by this?</strong></p>
<p>The integrity pledge makes clear that we have a zero-tolerance policy on corruption. There is a lot of <a href="http://www.huffingtonpost.co.za/2017/06/01/the-new-gupta-emails-are-a-lot-heres-what-they-say-in-5-quick_a_22120706/">prima facie evidence</a> that both of these organisations have been involved in corrupt conduct. They were not able to satisfy us that they recognised the seriousness of the charges and were determined to address them. So the suspension of their membership was appropriate.</p>
<p><strong>There is a view that Business Leadership South Africa is tougher on public sector corruption and lenient where the private sector is concerned. What’s your view?</strong></p>
<p>This is not true. Where there have been instances of bad behaviour in the private sector, accountability has followed. For example, construction industry executives involved in rigging bids around the World Cup are no longer in office. More recently there’s been the case of KPMG. The executives responsible for the decisions that landed the firm in trouble have <a href="http://ewn.co.za/2017/09/15/kpmg-sa-ceo-chair-and-6-top-staff-resign-over-gupta-scandal">left</a>. And it’s been <a href="https://mg.co.za/article/2017-09-22-blsa-hits-out-at-kpmg">suspended</a> from BLSA. </p>
<p>By contrast, in government and state owned enterprises there is no accountability. Executives behave with impunity. And while corruption is wrong wherever it occurs, we must resist the spurious symmetry of discussing public and private sector corruption as though South Africa is facing a problem of equal gravity in both. Unfortunately, we now have a government that is corrupt from top to bottom. By contrast we have a private sector that is overwhelmingly law abiding. That is a very significant difference.</p>
<p><strong>How far are you prepared to take your anti-corruption mission? Some of your members have been found guilty of abusing vulnerable consumers. Will you act against them?</strong></p>
<p>Business Leadership South Africa will act against any member whose behaviour is against its own values and damages the reputation of business. These values are encapsulated in the organisation’s integrity pledge and the contract with South Africa. Taken together, these outline a zero tolerance attitude to corruption, a belief that business should behave with courage, integrity and consistency, and a strong belief that business can be a force for good.</p>
<p>Sometimes business will make mistakes and that can be accepted provided the organisation takes suitable action to address the problem.</p>
<p><strong>Do you accept that business itself needs to change its ways of doing business if it’s going to win public confidence in its mission against corruption?</strong></p>
<p>Yes, we do. There is clearly a large “trust gap” between parts of the public and business. Some of this is down to ignorance. Some of it can be explained by the deliberate misinformation as seen in the toxic <a href="https://theconversation.com/white-monopoly-capital-an-excuse-to-avoid-south-africas-real-problems-75143">White Monopoly Capital</a> campaign. As we now know this was a highly racialist narrative that sought to blame everything that’s gone wrong in South Africa on an imaginary lily white private sector. We believe this particular line of attack is being used to detract attention away from the real issue - which is increasing corruption.</p>
<p>And some of the mistrust is rooted in <a href="http://www.justice.gov.za/trc/media%5C1997%5C9711/s971110b.htm">history</a>, with business still regarded by many as having collaborated with the apartheid system and furthering its legacies. </p>
<p>But some of it is also attributable to business’s own behaviour including <a href="http://www.engineeringnews.co.za/article/construction-majors-fined-r146bn-for-collusion-2013-06-24">collusive conduct</a> in certain industries and <a href="https://www2.deloitte.com/za/en/pages/human-capital/articles/executive-compensation-report.html">inflated executive compensation</a>. </p>
<p>But business is a national asset, not the problem. So it is in everybody’s interest that the South African public improves its understanding of business, and its overall reputation. </p>
<p>Business needs to explain and demonstrate that it is part of society and does not stand apart. That it shares the same vision and goals, notably of combating the scourges of unemployment, inequality and poverty.</p>
<p>Business also needs to help society understand that the major problems the country is facing don’t just lie at its doorstep. Certainly, there are things business can do better, but the much larger problem is the havoc being wreaked by <a href="https://theconversation.com/why-patronage-and-state-capture-spell-trouble-for-south-africa-64704">state capture</a> and poor policy development and execution. </p>
<p><em>This is part of a series called Face-to-face that The Conversation Africa is running in which leading academics interview prominent individuals in the public, private and not for profit sectors.</em></p><img src="https://counter.theconversation.com/content/85406/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Friedman 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>Business Leadership South Africa has in the recent past assumed a stinging position against public sector corruption. Bonang Mohale explains the stance taken by the lobby group.Steven Friedman, Professor of Political Studies, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/845402017-09-27T17:04:38Z2017-09-27T17:04:38ZWhat the South African KPMG saga says about shareholder activism<figure><img src="https://images.theconversation.com/files/187763/original/file-20170927-24149-ko2oer.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">KPMG South Africa stands accused of advancing state capture and has come under immense pressure.</span> <span class="attribution"><span class="source">Isabelle OHara/Shutterstock</span></span></figcaption></figure><p>Accounting and consulting firm, KPMG South Africa, is <a href="https://www.dailymaverick.co.za/article/2017-09-11-op-ed-the-kpmg-failure-ethical-test-for-sa-business-and-company-directors/#.Wbjzr7Kg_IU">reeling</a> after it was exposed to have played a part in the <a href="https://www.enca.com/coverage/gupta-high-flyers">Gupta inspired</a> state capture activity. The <a href="http://www.fin24.com/Companies/Financial-Services/kpmg-bleeds-clients-20170924-3">fallout</a> has been remarkable. Some major firms have fired KPMG as an auditor and more Johannesburg Stock Exchange listed companies are expected to follow suit.</p>
<p>KPMG offers tax, advisory and auditing services and is one of the Big Four auditors, along with Deloitte, Ernst & Young, and PricewaterhouseCoopers (PwC).
Despite their integration into the economy, all four of these audit firms have experienced significant <a href="https://www.businesslive.co.za/bd/opinion/2017-09-26-conjuring-fears-of-systemic-risk-from-kpmg-disgrace-delays-the-remedy/">lapses of judgement</a>.</p>
<p>The KPMG case provides a potential example of how shareholders can attack the soft underbelly of the private sector state capture enablers. Globally, the number of <a href="https://www.weforum.org/agenda/2017/08/shareholder-activism-business-response-explainer/">shareholder challenges</a> has increased dramatically from 520 episodes in 2013 to 758 in 2016. Around <a href="https://www.bcgperspectives.com/content/articles/corporate-development-hardware-software-shareholder-activism-silicon-valley/">two thirds</a> of these challenges were successful, double the rate of just a decade ago.</p>
<p>South Africa’s shareholder activism is following international trends. This is partly function of the fact that that <a href="https://theconversation.com/white-monopoly-capital-an-excuse-to-avoid-south-africas-real-problems-75143">over 50%</a> of the market capitalisation of the Johannesburg Stock Exchange is owned by foreigners. </p>
<p>Shareholder activists are using their powers as company owners to examine company financial reports, monitor executive remuneration, enforce good corporate governance, and push for increased sustainability and transparency.</p>
<p>KPMG has a <a href="http://www.biznews.com/global-investing/2017/08/10/kpmg-gupta-state-capture/">client base</a> of about 70 listed companies in South Africa. This means that pressure from shareholder activists is likely to pile up. <a href="http://www.fin24.com/Companies/Financial-Services/sasfin-drops-kpmg-after-18-years-over-gupta-and-sars-saga-20170919">Some companies</a> have already cancelled their use of KPMG services and others have stated that they are reconsidering their relationship. But most of <a href="https://citizen.co.za/business/1660727/jse-listed-companies-are-divided-on-kpmg-relationship/">KPMG’s clients</a> have either remained silent. Others said they’re waiting for the outcome of reviews by the country’s regulator, the Board for Auditors, as well as KPMG International.</p>
<p>The directors of companies that have chosen not to take a stand fail to realise one critical thing. In a world of shareholder activism, they may soon face serious questions from their own shareholders about their inaction and ongoing association with KPMG. </p>
<h2>Key drivers</h2>
<p>A key driver of shareholder activism in South Africa has been the introduction of minorities’ rights in the <a href="https://www.iol.co.za/business-report/economy/new-act-expected-to-heighten-shareholder-activism-816251">new Companies Act</a>.</p>
<p>Minority shareholders with as little as 10% holdings can call an annual general meeting. This means that it’s become easier for shareholders to take legal action against directors and officers, including having directors removed.</p>
<p>The <a href="http://www.iodsa.co.za/?page=KingIV">King codes</a> of corporate governance have also played a significant role. They emphasise ethical leadership, sustainability and good corporate citizenship. </p>
<p>The codes have entrenched the idea that boards of directors must act in the best interests of the company and that their responsibilities extend to shareholders and other stakeholders. Companies are expected to establish sound governance structures, create “an ethical culture” and ensure that they’re “seen to be a responsible corporate citizen”.</p>
<p>A key factor underpinning these governance principles is the creation of more transparency. By putting more information in the hands of shareholders and the public, these measures create greater potential to hold boards to account for behaviour that fails to meet minimum standards.</p>
<h2>KPMG’s Complicity</h2>
<p>Alongside other names such as consultants McKinsey, the IT giant SAP, heavy machinery manufacturer Liebherr, and Shanghai Zhenhua Heavy Industries, KPMG has been implicated in alleged <a href="https://www.dailymaverick.co.za/article/2017-09-11-op-ed-the-kpmg-failure-ethical-test-for-sa-business-and-company-directors/#.Wbjzr7Kg_IU">large-scale corruption</a> involving the Gupta family. The firm stands accused of:</p>
<ul>
<li><p>allegedly overlooking numerous conflicts of interest while auditing 36 Gupta-linked companies until dumping the Guptas in 2016 by<a href="http://www.fin24.com/Companies/Financial-Services/gupta-owned-oakbay-finds-new-auditors-20160421">withdrawing</a> their auditing services. A local auditing firm, SizweNtsalubaGobodo, replaced KPMG but seems to have also felt the pressure and has <a href="https://www.enca.com/south-africa/another-auditing-firm-drops-oakbay-resources">withdrawn</a> its services.</p></li>
<li><p>allegedly providing tax advice to ensure that the public funds extracted from the South African fiscus were placed in Dubai to avoid tax payments. KPMG may have thus also become a possible <a href="https://theconversation.com/africa-needs-to-develop-new-ways-of-stemming-illicit-financial-flows-58892">enabler</a> of illicit capital flows in the process. </p></li>
<li><p>compiling a report for South African Revenue Services about an alleged <a href="http://www.huffingtonpost.co.za/2017/09/15/how-kpmgs-rogue-unit-report-was-ludicrous-from-the-beginning_a_23210784/">rogue spy unit</a> within the tax authority. The report was used as part of a campaign against former Finance Minister Pravin Gordhan, and other senior government officials. By its own <a href="http://ewn.co.za/2017/09/15/kpmg-withdraws-sars-spy-unit-report-s-findings">admission</a>, KPMG appears to have ignored both sector-wide best practice as well as its own standards of due diligence. </p></li>
</ul>
<p>On a wider scale, KPMG seems to have given little consideration to the risks and damage that its activities would do to South Africa’s institutional integrity and governance frameworks.</p>
<p>Pressure has been gathering. Eight senior executives of the South African office, including the CEO, Trevor Hoole, have <a href="https://mg.co.za/article/2017-09-15-heads-roll-at-kpmg-trevor-hoole-and-nine-others-out">resigned</a>. The firm has withdrawn all of its findings‚ recommendations and conclusions contained in the notorious “rogue unit” report. It has also instituted an international <a href="https://www.timeslive.co.za/sunday-times/business/2017-09-10-kpmg-review-of-work-done-for-guptas-to-be-completed-by-end-of-month/">review</a> of all work done for the Gupta family. </p>
<p>It’s unlikely that these actions will be enough to forestall litigation and possible collapse of KPMG South Africa.</p>
<h2>Shareholder Tinderbox</h2>
<p>Shareholder activism in South Africa has <a href="http://scholar.ufs.ac.za:8080/xmlui/bitstream/handle/11660/1251/LekhesaMW.pdf?sequence=1">historically</a> mostly been between institutional investors or individual activists and investee companies. But this may well begin to change. Mounting <a href="https://www.businesslive.co.za/rdm/politics/2017-09-01-the-hawks-where-state-capture-evidence-goes-to-die/">frustration</a> at the slow pace of investigations into allegations of state capture by state institutions such as the Hawks and National Prosecuting Authority is forcing investors to become more active. Shareholders could start directing their attention to fighting corruption through the private sector.</p>
<p>But are South African shareholders prepared to step up to ensure good governance in the face of governance failures elsewhere in the system? There’s a great deal to lose if they don’t. </p>
<p>If shareholders don’t take a proactive role, South Africa is in far more danger than simply losing its top spot on the World Economic Forum’s Global Competitiveness <a href="https://www.weforum.org/reports/the-global-competitiveness-report-2016-2017-1">Report</a> for auditing and reporting standards.</p>
<p>Once trust is lost in both the public and private sectors’ ability to root out or prevent corruption, the country could see <a href="http://www.bizcommunity.com/Article/196/511/151512.html">further capital flight</a>, greater tax avoidance, and a more pervasive sense that the rule of law is negotiable. </p>
<p>As revelations of systemic failures in governance pile up, the economy may very well depend on shareholders taking up the burden of providing the necessary levels of accountability. KPMG may be teaching South Africa an important lesson. Shareholders can also be anti-corruption activists. Anyone who is connected to the South African economy, must dearly hope that shareholders are up to the task.</p><img src="https://counter.theconversation.com/content/84540/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sean Gossel receives funding from the University of Cape Town.</span></em></p><p class="fine-print"><em><span>Timothy London works for the Allan Gray Centre for Values Based Leadership which receives funding from the Allan Gray Orbis Foundation. The Centre is a part of the Graduate School of Business at the University of Cape Town.</span></em></p>KPMG South Africa sets a potential example of how shareholders can attack the soft underbelly of private sector state capture enablers.Sean Gossel, Senior Lecturer, UCT Graduate School of Business, University of Cape TownTimothy London, Senior Lecturer, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/844782017-09-21T15:48:16Z2017-09-21T15:48:16ZLessons from KPMG: be on guard, South Africans are on your case<figure><img src="https://images.theconversation.com/files/187066/original/file-20170921-21005-r60q7w.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African protesters hold placards as they march against corruption.</span> <span class="attribution"><span class="source">Reuters/Siphiwe Sibeko</span></span></figcaption></figure><p>Moses came down from the mount with tablets inscribed with 10 commandments. Most of us know (most of) them, and most of us fail to live by (most of) them. But if Moses had turned them over and looked in the fine print on the back, he’d have found the 11th Commandment: </p>
<blockquote>
<p>Don’t get caught.</p>
</blockquote>
<p>That in essence summarises the rise and fall of the South African arm of the international accounting firm <a href="https://home.kpmg.com/za/en/home.html">KPMG</a> which has been <a href="https://www.timeslive.co.za/news/south-africa/2017-09-20-darkness-descends-on-kpmg/">caught</a> with its hands in the slush fund jar. It stands accused of <a href="https://www.dailymaverick.co.za/article/2017-09-20-analysis-unchartered-territory-kpmg-zuptas-and-the-tainting-of-chartered-accountancy-in-sa/">taking money from companies</a> owned by the politically connected Gupta family.</p>
<p>Even more damaging is the charge that it submitted formal reports “confirming” that a “rogue” unit was operating inside the South African Revenue Service (SARS) – <a href="https://www.timeslive.co.za/politics/2017-09-15-kpmg-cans-sars-rogue-unit-report-apologises-to-gordhan/">accusations</a> that were used as the smoking gun to remove ministers and senior public officials who were seeking to hold the line against state capture.</p>
<p>KPMG has miraculously grown a conscience. Suddenly – having broken the 11th commandment – it was reborn as a hand-wringing, apologetic company living up to high ethical standards. It was now willing to <a href="https://www.timeslive.co.za/sunday-times/business/2017-09-15-nine-kpmg-senior-executives-quit-over-gupta-scandal/">fire</a> its CEO and some senior managers, to reject its own findings and to <a href="https://mg.co.za/article/2017-09-15-kpmg-to-donate-r40m-it-earned-in-fees-from-gupta-related-entities-to-ngos">“donate”</a> Gupta-company earnings to education and anti-corruption NGOs. The latter gesture was a revolting display of supine reprehensibility – we got caught in corrupt deals so we’ll hand the profits over to anti-corruption NGOs. Really? Go to jail would be a better outcome.</p>
<p>KPMG isn’t alone. Throughout South Africa’s <a href="https://www.opensecrets.org.za/corruption-in-south-africa-from-apartheid-to-zuma/">history</a>, and across the globe, the litany of private sector corruption is breathtaking. </p>
<h2>Private sector corruption</h2>
<p>South Africans can recall an unending litany of private sector corruption. In the recent past, there was the case of Tiger Brands making <a href="https://www.moneyweb.co.za/archive/tiger-brands-admits-to-bread-pricefixing-pays-fine/">bread more expensive</a> so the poor would pay more to eat. Tiger Brands paid a fine and carried on trading. And a clutch of major construction firms were found <a href="http://column.global-labour-university.org/2013/10/a-lesson-from-south-africa-are.html">looting monies</a> for the construction of stadiums for the 2010 Fifa World Cup in South Africa. They also paid fines and carried on building. The list continues. </p>
<p>The private sector, contrary to those who believe that ‘market forces’ will regulate the ethics of capital, is not taking a strong line against corruption. Those on the front line include, more recently, the portfolio committees in parliament, and previously, the Public Protector and a dwindling cluth of Ministers, MECs and the like. </p>
<p>NGOs such as <a href="http://www.corruptionwatch.org.za/">Corruption Watch</a>, the <a href="http://www.seri-sa.org/">Socio-Economic Rights Institute of South Africa</a> and the <a href="http://www.casac.org.za/">Council for the Advancement of the South African Constitution</a>, have by a long distance, been the most vocal campaigners in the area, and academics have worked with them to <a href="http://pari.org.za/betrayal-promise-report/">uncover</a> the scale and identify the perpetrators of corruption. The media has also played a <a href="http://amabhungane.co.za/#">massive part</a> in exposing corruption.</p>
<p>So let’s not fool ourselves that the private sector has set a benchmark for anything more than export-class venality.</p>
<p>South Africa’s <a href="https://theconversation.com/africa/search?utf8=%E2%9C%93&q=state+capture">state is corrupt</a> – “captured” makes it sound as if this occurred against its will. But - it has found a multitude of willing partners in the private sector. The match between corrupt state and corrupt private sector is perhaps South Africa’s most functional display of <a href="http://ewn.co.za/2017/06/13/mps-debate-willing-buyer-willing-seller-policy-in-land-reform">“willing buyer, willing seller”</a>.</p>
<p>KPMG executives have not set any benchmark for probity, as claimed by some – they simply acted when they got caught. Their focus was on maximising profits, even if it meant signing off on the use of public funds for a <a href="http://www.biznews.com/guptaleaks/2017/06/30/gupta-wedding-taxpayers-kpmg/">private Gupta wedding</a> (among other sins of commission), and now buying their way out of the mess with a few heads rolling and dirty money being donated to NGOs. If this is the standard for the private sector, South Africans are in more serious trouble than initially thought. </p>
<p>The KPMG <a href="https://www.dailymaverick.co.za/article/2017-09-15-kpmg-weak-apology-suggests-company-saw-no-evil-heard-no-evil-therefore-did-no-evil/">“apology”</a> can’t come close to compensating for the damage done. Its report “confirming” that a rogue unit had operated in the South African Revenue Services fuelled developments towards state capture and triggered events that have had a disastrous impact on the country. These included the axing of ministers, deputy Ministers, and the subsequent haemorrhage of senior public servants from the state. </p>
<p>Everyone in South Africa is paying for the sins of KPMG.</p>
<h2>Holding power to account</h2>
<p>Governance is about the distribution of power in society, and the ability of citizens to hold power to account. This requires an engaged citizenry – whether in NGOs, ratepayer associations, street or block committees or faith-based organisations – who are sufficiently organised to call officials to account. </p>
<p>What is fascinating about South Africa is how engaged its citizen are. They kicked out the ruling party from running cities after just two decades of democracy and they’ve given the middle finger to <a href="http://www.enca.com/south-africa/e-toll-drive-slow-%E2%80%98-resistance-growing%E2%80%99">e-tolls</a>. They don’t behave the way they are told to. And they’ve reached a tipping point. When South Africans of all shapes, colours, sizes, creeds share simply being <em>gatvol</em> (fed-up), there’s trouble.</p>
<p>Ask the British public relations firm <a href="https://www.businesslive.co.za/bd/companies/2017-09-12-bell-pottingers-british-business-collapses-after-south-african-scandal/">Bell Pottinger</a> what it feels like. The company faces foreclosure following a concerted campaign - domestically and abroad - to shame it for stirring racial hatred. </p>
<p>Ask the Guptas <a href="https://www.dailymaverick.co.za/article/2017-09-21-bank-of-baroda-what-next-for-the-soon-to-be-unbanked-guptas?utm_medium=email&utm_campaign=Afternoon%20Thing%2021%20September%202017%20Chamber%20of%20Commerce&utm_content=Afternoon%20Thing%2021%20September%202017%20Chamber%20of%20Commerce+CID_e5f871ce65510d308e294e0c3db99f65&utm_source=TouchBasePro&utm_term=Bank%20of%20Baroda%20bails%20on%20Guptas">how it feels</a> now that all of South Africa’s banks have said they aren’t willing to touch their money. </p>
<p>South African residents and citizens have become acutely aware that they’ve been screwed. By many in the state, to be sure. But by as many or more in the private sector, for decades. And they’re sick of it. </p>
<p>The world is watching – South Africans brought down Bell Pottinger. They’re now going after the likes of McKinsey, KPMG and SAP, all of these companies tangled up by <a href="http://www.biznews.com/thought-leaders/2017/09/18/john-mulcahy-sa-kpmg-mckinsey-sap/">allegations</a> of corruption. </p>
<p>The only way South Africans will ever get governance and accountability is by being organised, vocal, obstreperous, and demanding. So keep it this way – private and public sector are both on terms. And South Africans will hold them accountable, or if necessary, break them.</p><img src="https://counter.theconversation.com/content/84478/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Everatt 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 South African arm of the international accounting firm KPMG has learnt the hard lesson: Don’t break the 11th commandment - don’t get caught. That’s because South Africa’s citizens are fed up with corruption.David Everatt, Head of Wits School of Governance, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/842792017-09-19T17:57:29Z2017-09-19T17:57:29ZWhat KPMG’s Gupta imbroglio says about corruption in South Africa<figure><img src="https://images.theconversation.com/files/186581/original/file-20170919-25319-1uqvawo.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>As far as corporate accountability goes, the recent announcement that the CEO and seven senior executives at auditing and consultancy firm KMPG in South Africa <a href="http://www.fin24.com/Companies/Financial-Services/kpmg-sa-ceo-7-others-quit-on-guptaleaks-fallout-20170915">have resigned</a> is a welcome development.</p>
<p>By resigning, the KPMG executives reinforced the principle of executive responsibility. This is a matter not taken seriously in South African culture, particularly when it comes to the public sector. The usual pattern when misdemeanours are uncovered is for government ministers and other senior executives to blame their staff – or someone else – when things go wrong. </p>
<p>At this level the action of the KPMG executives is to be respected. The hope must be that this behaviour becomes an example for others.</p>
<p>KPMG executives have set a new South African benchmark: executives assuming responsibility for wrongdoing in their organisations. South Africans should thank the firm for setting a new standard with this decisive action. Its executives have taken oversight responsibility for the action of others.</p>
<p>The role that companies such as KPMG plays is particularly crucial because auditor firms and consultancies are meant to hold companies and state entities to account by ensuring transparency and honesty. The fact that a firm of KPMG’s standing should be embroiled in a matter as murky as compiling false reports to serve the political ends of particular politicians highlights the degree of corruption that has taken hold in South Africa.</p>
<p>In light of this, are KPMG’s actions enough? I believe not. To pull South Africa back from the brink, the auditing firm should opt for full disclosure of all its involvement with the Gupta family as well as the companies they own. This should, inter alia, include all working papers, correspondence and audit findings. This would allow public scrutiny of the work it claims to have done under the banner of professionalism and provide the opportunity for a deeper understanding of the Gupta network. Nothing short of this will clear KPMG’s name. </p>
<h2>From state capture to country capture</h2>
<p>There is no doubt that KPMG’s report on a rogue unit completed for the South African Revenue Service has <a href="https://www.iol.co.za/news/politics/kpmg-report-on-rogue-unit-has-tarnished-sars-future-sa-11241403">damaged South Africa’s image</a>. But it has done more than that and raises the question whether South Africa suffers only state capture, or whether the rot is growing into economic capture of the whole country, what I term “country capture”.</p>
<p>The basis for asking this question is that the South African economy – and as a result its citizens – are paying a heavy cost for the mismanagement of the country’s resources. This has been through a combination of bad and neglectful management and out-and-out corruption. All this for the account of South African taxpayers.</p>
<p>South Africa’s fiscal position is precarious, with a revenue shortfall of more than <a href="https://www.businesslive.co.za/bd/economy/2017-08-21-downgrade-alarm-as-revenue-shortfall-could-hit-r50bn/">R50 billion</a> expected in the fiscal year to 31 March 2018. This growing shortfall is driven by subdued economic performance and will continue until the domestic economic growth recovers.</p>
<p>The shortfall is directly linked to low economic growth and recessionary conditions. These in turn have been caused by state capture. The private sector is reluctant to invest in the midst of corruption. This means that there is no new economic activity being started, a particularly bad situation given that industries such as mining are shrinking. This week Implats <a href="http://www.fin24.com/Companies/Mining/">announced</a> it was in negotiations with unions to lay off 2 500 workers. <a href="https://theconversation.com/the-lesser-known-and-scarier-facts-about-unemployment-in-south-africa-83055">Unemployment</a> is already at 27.7%.</p>
<p>Individual South African taxpayers are therefore being forced to bail out the government as it faces fiscal difficulties, placing the country on the slippery slope of country capture. This is reflected in the fact that government’s final consumption <a href="https://data.worldbank.org/indicator/NE.CON.GOVT.ZS?locations=ZA">expenditure</a> as percentage of GDP currently exceeds 20%. </p>
<h2>What next?</h2>
<p>Having ended up in this precarious position, it’s necessary to consider the way forward for KPMG and for South Africa. </p>
<p>KPMG clearly wants to save itself as a company and South Africa wants to rid itself of state/country capture. In redeeming itself, the firm can render a great service to South Africa in the quest to break the stranglehold. KPMG should disclose all dealings, findings, work papers, interactions and the like with the Gupta family businesses. This would achieve two objectives.</p>
<p>Firstly, it would show who is implicated and who is not. KPMG stated that there was no wrongdoing on its side in <a href="https://www.timeslive.co.za/news/south-africa/2017-09-14-kpmg-denies-any-dodgy-dealings-in-controversial-gupta-coal-deal/">audits it did on companies owned by the Guptas</a>. But this can only be settled through full disclosure.</p>
<p>Secondly, such a disclosure would help to reveal the full scope of state/country capture in South Africa. </p>
<p>Naturally KPMG’s dealings with the Gupta companies and Gupta family are subject to client confidentiality agreements. KPMG should therefore inform the Gupta family of its intention to publish within seven days. If the Guptas object in writing KPMG should approach the courts with a request to issue a clarification order to authorise disclosure.</p>
<p>This is the only way in which KPMG can salvage what’s left of its reputation in South Africa. KPMG should stand for: “Keep Pushing Mighty Guptas”.</p>
<p>At the same time South Africans would be able to use the disclosures as the basis for beginning to understand the full extent of state/country capture and the remedial steps necessary to turn this around.</p>
<p>Here is a small opportunity to make progress towards some light at the end of a very long and dark tunnel. The opportunity rests in the hands of KPMG. South Africa waits.</p><img src="https://counter.theconversation.com/content/84279/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jannie Rossouw is a C3 NRF-rated researcher and receives grant funding from the NRF. </span></em></p>KPMG South Africa executives have set a new benchmark for the country assuming responsibility for wrongdoing in their organisation.Jannie Rossouw, Head of School of Economic & Business Sciences, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/819052017-08-02T15:45:52Z2017-08-02T15:45:52ZSouth African business must own up to its part in the corruption scandals<figure><img src="https://images.theconversation.com/files/180705/original/file-20170802-6912-ryzxrt.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><em>South Africa is reeling from a string of scandals involving state owned enterprises and the Guptas, a family with close ties to President Jacob Zuma. A trove of recently <a href="http://www.huffingtonpost.co.za/2017/06/01/the-new-gupta-emails-are-a-lot-heres-what-they-say-in-5-quick_a_22120706/">leaked Gupta emails</a> exposed the involvement of prominent businesses in the extensive corruption networks. Sibonelo Radebe asked Mills Soko to explain the implications of the scandals.</em></p>
<p><strong>What do you make of the situation?</strong></p>
<p>If nothing else, the Gupta leaks have shown us how perilously close South Africa is to losing everything so many people fought so hard for. Not only does corruption divert capital allocated for public services away from the poor, it hollows out important state institutions and, ultimately, frays the social and economic fabric of the country. It threatens the hard won democracy and political stability.</p>
<p>The ongoing revelations around state capture and patronage are giving South Africans an unprecedented and frightening glimpse into the machinery of corruption. The most unnerving element of the emails is how many of the transactions appear blatant and almost casual. The absolute cynicism and lack of ethics revealed in this correspondence is breath taking.</p>
<p>What we do with this knowledge as a country is going to count for everything. As a business community we can look away and call these tales of corruption isolated incidents – or we can step up to ensure that our organisations hold themselves to a higher standard. Most critically the law must take its course.</p>
<p><strong>What does it tell us about the role of business?</strong></p>
<p>The emails remind us that in any corrupt interaction it takes two to tango. And while governments and public money are so often at the centre, the enablers of corruption are not in government but in the private sector. </p>
<p>With the Gupta’s at the centre of the rot, <a href="http://m.news24.com/news24/SouthAfrica/News/guptaleaks-kickbacks-for-transnet-crane-contracts-20170717">prominent international companies</a> like accounting firm KPMG, consulting giant McKinsey, ICT player SAP, engineering company Liebherr and capital equipment manufacturer Shanghai Zhenhua Heavy Industries have been implicated in the mounting scandal. It’s worrying to see that companies of such calibre can be involved in such nefarious activity.</p>
<p>Corruption is, of course, not a new phenomenon – and nor is it unique to South Africa, as the <a href="https://www.transparency.org/news/feature/corruption_perceptions_index_2016">Global Corruption Index</a> shows. But certainly, the scale of what is going on in South Africa right now is unprecedented. </p>
<p><strong>How do you rate the responses by the implicated businesses?</strong> </p>
<p>Companies have scrambled to distance themselves from the reputational firestorm that the Gupta leaks have unleashed. McKinsey acted promptly to <a href="https://www.businesslive.co.za/bd/companies/2017-07-09-now-mckinsey-sa-director-vikas-sagar-has-been-suspended-over-the-gupta-scandal/">suspend</a> Vikas Sagar, a director in its South African office, to allow an internal investigation to proceed. For its part SAP, which originally denied the allegations, has similarly suspended South African staff while launching a full anti-corruption <a href="http://www.reuters.com/article/safrica-eskom-idUSL5N1KA2KE">investigation</a> , which is to be carried out by a multinational law firm and overseen by its executive board member Adaire Fox-Martin.</p>
<p>It’s convenient to blame these incidents on bad apples. But this doesn’t get below the surface of what is really going on. The scale of the corruption and the apparent ease with which it has been unfolding speaks to the fact that something is very wrong with the system. And it highlights an utter lack of business ethics and governance failures. This isn’t something the country can afford. </p>
<p><strong>What should be done to root out the corruption?</strong></p>
<p>While all of this may seem overwhelming, what is unfolding also presents the business community with an opportunity for some introspection. Calls have been made for greater purpose and responsibility on the part of South African leaders.</p>
<p>But how can we make sure these fine words and intentions are internalised? How do we make sure as a country that our business as well as our state institutions are committed to not allowing this to happen ever again?</p>
<p>Educational institutions, business schools in particular, are positioned as a first-line duty in making sure that graduates are equipped to recognise and reject corruption in any form. The country needs business leaders who are committed to building sustainable and profitable businesses but who are also mindful of their social and ethical obligations.</p>
<p>Citizens as workers and consumers also have a significant role to play. As individuals working in companies and purchasing goods and services from companies, they can condemn unethical behaviour from companies. This was partly reflected in how the general public put pressure on <a href="https://www.timeslive.co.za/news/world/2017-07-20-watch-the-bell-pottinger-gupta-saga-captures-attention-of-world-media/">Bell Pottinger</a> the UK based public relations firm which did work for the Gupta’s. </p>
<p>By <a href="https://www.theguardian.com/uk-news/2017/jul/10/bell-pottinger-pr-firm-apologizes-south-africa-campaign">rounding on Bell Pottinger</a>, effectively causing the company to lock its Twitter account and issue a formal and unprecedented apology to the country (even though they also blamed the fiasco on bad apples rather than the system), South Africans have shown the power they can wield when united against wrongdoing.</p>
<p>But the country needs to go further. While government and business have not enjoyed the best relationship in recent times, they need to bury the hatchet and come together to fix the inequalities in this country. Deep divisions have laid South Africa open to the kind of racist exploitation that Bell Pottinger unleashed. </p>
<p>Until the country rights this situation, it will continue to remain vulnerable to these kinds of nefarious influences. South Africa needs to be united in the spirit of building a country that works for everyone – not just a select few. Things are broken, yes – but it’s not impossible to repair the damage.</p><img src="https://counter.theconversation.com/content/81905/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mills Soko 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 Gupta email leaks have exposed the involvement of some big private corporations. in the unfolding corruption scandal thus challenging the private sector to do some introspection.Mills Soko, Associate Professor, Graduate School of Business, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/562072016-03-15T03:51:00Z2016-03-15T03:51:00ZShane Warne Foundation not alone in charity spending ambiguity<p>It’s the A$100 billion question most Australians don’t know the answer to: just how are our donations to charity being spent?</p>
<p>KPMG’s <a href="http://www.smh.com.au/cqstatic/gnh27m/KPMG_audit_report.pdf">independent audit of the Shane Warne Foundation</a> has once again raised the issue of inadequate regulation and transparency of the charity sector.</p>
<p>While Shane Warne has said the Foundation has got “nothing to hide” and <a href="http://www.smh.com.au/national/shane-warne-foundation-unable-to-explain-what-happened-to-cash-donations-20160311-gnh0z9.html">critics of his charitable work can all “get stuffed”</a>, he, along with other high profile philanthropists, need to understand all Australians have a financial stake in the running of registered charities and should be asking questions.</p>
<p>Charities receive tax concessions and those donating to charity also, in most cases, receive a tax break for the money they donate. In a sector that was worth more than A$100 billion in 2014 this is a significant contribution from the community as well as a substantial reallocation of public money.</p>
<p>The Shane Warne Foundation is being closed down and will pay its final cheque this Friday, March 18. But after running for more than a decade, it is still not answering the biggest question - where has ALL cash donated gone?</p>
<p>The Foundation says it has distributed A$3.67 million to date, and that all its accounts have been fully audited by KPMG, but neither has been able to explain what happened to large sums of donated cash.</p>
<h2>A low bar</h2>
<p>The KPMG audit commissioned by the Foundation and Consumer Affairs Victoria only sought to establish whether the Foundation complied with certain sections of the Fundraising Act 1998. The audit only assessed whether those reporting requirements were met and whether the Foundation had appropriate internal controls in place. The report concluded that the Foundation failed on both those counts.</p>
<p>The lack of internal controls or appropriate business practices has made it impossible to draw any conclusions about any fraud or error from the Foundation’s books. This lack of attention to appropriate business practices along with the failure by regulatory authorities to monitor appropriately for an extended period of time allows those responsible for the Foundation’s financial affairs to escape being called to account.</p>
<h2>Three glaring problems</h2>
<p>However, the Shane Warne Foundation saga highlights three key issues. First is the inadequacy of governance arrangements in charities. There is no requirement for charities to have someone financially competent involved in their running. However well meaning, charities, like all other businesses, need to adopt appropriate business processes and practices when dealing with donations. </p>
<p>The second is the inaction of regulatory agencies to step in quickly. Despite failing to meet state government requirements to lodge and submit financial information in a timely manner, the Foundation remains registered.</p>
<p>The Shane Warne Foundation is not the only charity to remain registered and operating despite non-compliance with reporting requirements. High profile vitamin manufacturer Swisse’s charity, the Celebrate Life Foundation, has <a href="http://www.acnc.gov.au/RN52B75Q?ID=1E79F98F-1F6D-46D3-AC69-73492E40A169&noleft=1">never filed required information</a> but still remains registered with the Australian Charities and Not-for-profits Commission. There is no evidence to support <a href="http://www.celebratelifefoundation.org.au/">its claims of raising more than A$1 million since 2012</a>, nor any information publicly available about how any money it has raised may have been spent.</p>
<p>Finally, the regulation of charities focuses on the “income” side of their operations. Like in the case of the Shane Warne Foundation, there is no strict regulation on the way donations to charities are spent. So, as an example, under current arrangements it is entirely appropriate for the Foundation to only distribute 11% (A$50,000) of income in 2014 on its stated charitable purpose. However in that same year it spent more than A$281,000 raising A$279,000.</p>
<p>The <a href="https://www.acnc.gov.au/ACNC/Pblctns/Rpts/CharityReport2014/ACNC/Publications/Reports/CharityReport2014.aspx">2014 Australian Charities Report</a> released in December 2015 showed that of the more than A$95 billion spent by charities in 2014, more than A$51 billion was spent on employee expenses, a bit over A$4 billion on grants and donations and the remainder on “oher”. What comprises “other” is a question the sector needs to be accountable for. </p>
<p>Greater transparency is required in this multi billion dollar sector to understand how our donations are being spent.</p><img src="https://counter.theconversation.com/content/56207/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sandra van der Laan 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>Despite failing to meet state government requirements, charities including the Shane Warne Foundation remain registered with the regulator.Sandra van der Laan, Professor of Accounting, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/548792016-02-24T19:02:38Z2016-02-24T19:02:38ZBig four accounting firms avoid scrutiny in multinational tax avoidance<p>The Senate Inquiry into corporate tax avoidance is due to hand down its final report by April. One of the lesser-mentioned groups appearing before 2015’s Senate hearings are Australia’s big four accounting firms.</p>
<p>Multinational companies like Apple, Chevron, Google, Microsoft, and News Corp have dominated headlines, but little has been said of the role of PwC, KPMG, Deloitte and EY. After all, it is the big four firms that audit the accounts of leading multinational companies and render assistance with their taxation affairs. </p>
<p>The big four firms claim they are supporters of transparency because it is fundamental to building public trust and confidence in the accounting profession.</p>
<p>But when asked about the accounting practices of their multinational corporate clients during the November 2015 <a href="http://parlinfo.aph.gov.au/parlInfo/download/committees/commsen/b56c040c-ca7a-4787-9db9-c07c9d5f5f6e/toc_pdf/Economics%20References%20Committee_2015_11_18_4008_Official.pdf;fileType=application%2Fpdf#search=%22committees/commsen/b56c040c-ca7a-4787-9db9-c07c9d5f5f6e/0000%22">Senate inquiry hearings in Sydney</a>, the big four firms were far from transparent.</p>
<p>Senators questioned the firms about why at least 20 leading multinational companies had <a href="http://www.smh.com.au/business/banking-and-finance/big-companies-hiding-their-numbers-20151106-gksbpv.html">switched from general purpose accounts to special purpose accounts</a>, resulting in fewer financial disclosures and lower transparency.</p>
<p>The switching multinationals (with auditors in brackets) include Bupa Australia (KPMG), News Australia (EY), JBS Holdco Australia (KPMG), Serco Australia (Deloitte) and Johnson & Johnson (PWC). </p>
<p>Whereas general purpose accounts comply with disclosure requirements across 40 plus accounting standards, special purpose accounts can follow as few as five standards. Special purpose accounts also allow multinationals to avoid audited disclosures of transactions and balances with related parties in foreign jurisdictions including tax havens.</p>
<h2>Why it matters</h2>
<p>Users that might rely on the information in general purpose accounts for making and evaluating resource allocation decisions are not limited to shareholders. It is reasonable to expect that other stakeholders of super-sized multinationals depend on general purpose accounts for decision-making.</p>
<p>The operations of multinationals like Bupa, News, JBS, and Serco touch the lives of a significant number of Australians. Company stakeholders such as contractors, employees, customers and government agencies should have access to general purpose accounts.</p>
<p>These multinational companies have dominant or powerful market positions with revenues and assets in the billions of dollars, government funding or contracts and creditors including thousands of employees. In switching to special purpose accounts, the companies and their big four auditors have undervalued two key indicators that general purpose accounts are required.</p>
<blockquote>
<p>The greater the economic or political importance of an entity, the more likely it is that there will exist users dependent on general purpose financial reports as a basis for making and evaluating resource allocation decisions.
(Statement of Accounting Concepts SAC 1 paragraph 21)</p>
<p>Financial characteristics that should be considered include the size (for example, value of sales or assets, or number of employees or customers) or indebtedness of an entity. The larger the size or the greater the indebtedness or resources allocated, the more likely it is that there will exist users dependent on general purpose financial reports as a basis for making and evaluating resource allocation decisions.
(Statement of Accounting Concepts SAC 1 paragraph 22)</p>
</blockquote>
<p>No reason was given for switching to special purpose accounts. No disclosure was made of why fewer disclosures had become appropriate. The omission of this disclosure appears to be at odds with the following black letter requirement in accounting standards:</p>
<blockquote>
<p>When a voluntary change in accounting policy has an effect on the current period or any prior period … . an entity shall disclose:
(a) the nature of the change in accounting policy;
(b) the reasons why applying the new accounting policy provides reliable and more relevant information;
(Accounting Standard AASB 108, paragraph 29)</p>
</blockquote>
<p>The unstated premise of the big four firms is that users who had previously relied on general purpose accounts were no more. In truth, there is no logical way to defend this vanishing because the super-sized multinational companies were still teeming with stakeholders. </p>
<p>Consider the employees (shown in brackets) at Bupa (11,295), News (8,564), JBS (7,721), and Serco (6,000) when the switches to special purpose accounts occurred. </p>
<p>Asked about the switches at the Sydney hearing, representatives of the big four firms stuck to the confines of their individual roles as tax partners. They claimed to be unable to shed light on the issue because it was dealt with in a different section of their firm - that is, audit and assurance. </p>
<p>Not a single person in these leading multinational companies or the big four firms has subsequently presented a single cogent reason to explain the switching to special purpose accounts. </p>
<p>At least the Australian Accounting Standards Board (AASB) made something of an effort to come up with an explanation at the Sydney hearing, albeit not a particularly salient one. AASB chief executive, Kris Peach said:</p>
<blockquote>
<p>“What we are saying is that there is an accounting concept which is a reporting entity concept. It is quite subjective in how it is applied… I do think that economic significance is important, but it is very hard to actually determine what economic significance is, and that is why there needs to be some good consultation around that . .. .Where we need to get to is that the end criteria are very objective.” </p>
</blockquote>
<p>Apparently, the concept is to blame for leading multinationals being less transparent. The concept is too subjective. The concept relies on substance over form and professional judgement. But aren’t accounting concepts supposed to be like that? What is an asset? Isn’t that subjective too? </p>
<p>The truth is that there is nothing wrong with the existing user-based concept for general purpose accounts. The concept has applied since 1990. The switching to special purpose accounts by leading multinationals and their big four auditors is a relatively recent phenomenon.</p>
<p>The accounting evidence at the Senate inquiry into corporate tax avoidance is cause for public concern. It gives an impression that the big four firms are prepared to overlook generally accepted accounting practice for multinational clients with deep pockets. </p>
<p>The partners with gravitas at the big four firms need to take stock of the accounting practices that have emerged from their leading multinational clients. Priority number one should always be keeping faith with the concepts and standards of the accounting profession. Public confidence is not a trifling matter. Audits and auditors will soon be obsolete if standards are not maintained and enforced. Professional judgement of subjective accounting concepts is the key thing that auditors have done for time immemorial. </p>
<p>In December 2015, the Parliament introduced new tax laws so that significant global multinational corporations must henceforth furnish general purpose accounts to the Australian Taxation Office. In effect, the Parliament had to bypass the AASB and the big four firms to get a better outcome.</p>
<p>Most chartered accountants place great value in their designation and are careful to protect the legacy and reputation of the professionals that have gone before them. The big four firms are not immune from this vigilance. If the big four firms wish to remain prosperous over the long run, then they need to support transparency in what they do not just in what they say.</p>
<hr>
<p><em>Jeffrey will be on hand for an Author Q&A between 3 and 4pm AEDT on Thursday, February 25, 2015. Post your questions in the comments section below.</em></p>
<p><em>*This piece has been changed since publication to correct wrong information. The report originally said the Senate Economics References Committee into corporate tax avoidance would report on 26 February. Following a further extension granted on 22 February, the committee is now due to report by 22 April 2016.</em></p><img src="https://counter.theconversation.com/content/54879/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeffrey Knapp 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>Behind the corporations legally avoiding paying tax are the big four accounting firms, helping them avoid transparency.Jeffrey Knapp, Lecturer/Accounting, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/185862013-09-24T17:30:59Z2013-09-24T17:30:59ZBarclays and KPMG involved in $660m tax ‘sham structure’<figure><img src="https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Gloomy times for BB&T bank, as it misses out on $660m in tax credits.</span> <span class="attribution"><span class="source">zen Sutherland</span></span></figcaption></figure><figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=429&fit=crop&dpr=1 600w, https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=429&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=429&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=540&fit=crop&dpr=1 754w, https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=540&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/31882/original/2fny5zsr-1380042405.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=540&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Gloomy times for BB&T bank, as it misses out on $660m in tax credits.</span>
<span class="attribution"><span class="source">zen Sutherland</span></span>
</figcaption>
</figure>
<p>What are the chances that in the face of public criticisms, big business would curb its tax avoidance practices? Well, not much, as evidenced by a case decided by the US Court of Federal Claims.</p>
<p><a href="http://www.uscfc.uscourts.gov/sites/default/files/SALEM.pdf">Salem Financial Inc v United States</a> relates to a complex financial transactions known as STARS (Structured Trust Advantaged Repackaged Securities). The case involved Salem Inc, a subsidiary of North Carolina based bank, BB&T. </p>
<p>The scheme was designed by <a href="http://group.barclays.com/about-barclays/citizenship">Barclays Bank</a>, a major UK financial institution; <a href="http://www.kpmg.com/uk/en/about/whatmakesusdifferent/ourvalues/pages/default.aspx">KPMG</a>, one of the world’s biggest accountancy firms; and Sidley Austin, a US law firm. At the centre of the dispute is a tax liability of some US$660m.</p>
<p>Through collaboration with Barclays, KPMG specialised in developing transactions that took advantage of differences between international tax systems. Barclays marketed some versions of STARS to a number of corporations, including AIG, Microsoft, Intel, and Prudential. KPMG introduced the STARS transaction to BB&T at a January 17, 2002 meeting and used a slide show to outline the steps necessary for the scheme to work. KPMG had little prior business relationship with BB&T.</p>
<h2>Contrived transactions</h2>
<p>The key idea of the tax avoidance scheme was to generate large-scale foreign tax credits which could in turn be used to enhance revenue and reduce taxes payable by BB&T in the US. A series of transactions with circular cash flows were designed to create the tax savings. </p>
<p>The court noted that in essence the scheme called for BB&T to establish a trust containing approximately US$6 billion in revenue-producing bank assets. The monthly revenue from the trust was then cycled through a UK trustee, an act that served as a basis for UK taxation. Although the revenue was immediately returned to BB&T’s trust, the assessment of UK taxes generated tax credits that were shared 50/50 between Barclays and BB&T. </p>
<p>A US$1.5 billion loan from Barclays to BB&T was also part of the structured transaction, although the loan was not necessary to the objective of generating foreign tax credits. The Barclays monthly payment to BB&T represented BB&T’s share of the tax credits, and had the effect of reducing the interest cost of BB&T’s loan. </p>
<p>The main question for the 21-day court hearing was whether the STARS transaction had any purpose other than to generate tax savings, and if not, whether penalties should be assessed against BB&T. The 67-page court judgment found in favour of the government and the company has been ordered to pay US$680 million plus penalties of US$112 million.</p>
<p>After examining some 1,250 exhibits the judge <a href="http://www.uscfc.uscourts.gov/sites/default/files/SALEM.pdf">referred to the scheme</a> as “an abusive tax avoidance scheme” and said that the “conduct of those persons from BB&T, Barclays, KPMG, and the Sidley Austin law firm who were involved in this and other transactions was nothing short of reprehensible”. </p>
<p>The judge went on: “The professionals involved should have known better than to follow the STARS path, rife with its conflicts of interest, questionable pro forma legal and accounting opinions, and a taxpayer with a seemingly insatiable appetite for tax avoidance”. The whole STARS set-up was described as “a sham structure”.</p>
<h2>Controversial pasts</h2>
<p>Barclays and KPMG are no strangers to tax avoidance controversies. After lengthy investigations by the <a href="http://www.gpo.gov/fdsys/pkg/CPRT-108SPRT90655/html/CPRT-108SPRT90655.htm">US Senate Permanent Subcommittee on Investigations</a> and action by the US Department of Justice, KPMG were <a href="http://www.justice.gov/opa/pr/2005/August/05_ag_433.html">fined US$456 million</a> for “criminal wrongdoing” in tax matters and a number of its former personnel were also given prison sentences. The firm has also been the subject of investigation of the <a href="http://www.publications.parliament.uk/pa/cm201213/cmselect/cmpubacc/870/870.pdf">UK House of Commons Public Accounts Committee</a>, but this has not dulled <a href="http://visar.csustan.edu/aaba/PINSTRIPEMAFIA.pdf">its appetite for profits</a> through the sale of tax avoidance schemes.</p>
<p>Barclays relies upon taxpayer guarantees for its core business, but operates a very lucrative <a href="http://www.theguardian.com/business/2013/apr/03/barclays-tax-avoidance-salz-review-scm">tax avoidance business</a> which is estimated to have generated around a billion pounds in fees each year between 2007 and 2010. Last year the UK government had to introduce emergency legislation to negate two avoidance schemes used by Barclays for its own business which could have deprived the UK Treasury of around <a href="http://www.bbc.co.uk/news/business-17181213">£500 million</a>. Despite fines and prison sentences major businesses remain addicted to tax avoidance. Public opprobrium has become just another cost of doing business.</p>
<p>It is time to shut down businesses who routinely pick citizens’ pockets through tax avoidance. Their schemes are undermining revenues that are much needed to revive the economy and provide education, healthcare, pensions, security and other public goods that distinguish civilised societies from the rest. </p>
<p>Yet the UK government continues to shower gifts on tax avoiders, KPMG continues to receive public contracts and Barclays is propped up by taxpayer-funded guarantees and loans. Only this week Ed Miliband hired KPMG’s deputy chairman for advice on <a href="http://www.theguardian.com/politics/2013/sep/22/ed-miliband-labour-proposals-at-a-glance">low pay</a>. Rather than giving them another consultancy job, politicians should be asking KPMG to explain the firm’s role in the erosion of social fabric.</p><img src="https://counter.theconversation.com/content/18586/count.gif" alt="The Conversation" width="1" height="1" />
What are the chances that in the face of public criticisms, big business would curb its tax avoidance practices? Well, not much, as evidenced by a case decided by the US Court of Federal Claims. Salem…Prem Sikka, Professor of Accounting, Essex Business School, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/174142013-09-18T20:41:38Z2013-09-18T20:41:38ZDespite revenue hiccups, the future remains bright for the Big Four accounting firms<figure><img src="https://images.theconversation.com/files/30271/original/t5jxrgjp-1377827189.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Opportunities in Asia and an increased focus on management consulting could see the Big Four bounce back from revenue slump</span> <span class="attribution"><span class="source">yago1 via Flickr</span></span></figcaption></figure><p>The revenue of Australia’s Big Four accounting firms has come under pressure as demand for traditional services such as auditing weakens. But a move into strategic consulting and the potential for more wide-ranging ties with Asian clients should mean the <a href="http://www.reuters.com/article/2012/09/19/us-deloitte-earnings-idUSBRE88I0M720120919">slippage is short-lived</a>.</p>
<p>The Big Four – Deloitte, PricewaterhouseCoopers, KPMG and Ernst & Young – are multidisciplinary professional service firms that offer a range of services including accounting, auditing, tax, business advisory and management consulting. This vertical integration allows them to be a “one-stop shop” for business clients.</p>
<p>The Big Four handle the vast majority of audits for publicly traded companies, as well as many private companies, making auditing their largest source of revenue. Their second biggest revenue segment is advisory services, including advice on mergers and acquisitions. </p>
<p>However, according to IBISWorld, the Big Four’s traditional revenue streams – accounting, audit and tax – are under pressure as demand for these services in Australia slows. </p>
<p>That translated into a slight deterioration in their recent earnings reports. KPMG’s announcement of a 0.6% fall in revenue means all of the Big Four have now reported revenue declines of between 0.5 to 1% in their Australian practices, with resulting job cuts.</p>
<p>There are two main drivers for the slowdown in Australia. The first is internal. Demand from the Big Four’s main source of clients, the financial services sector, has remained weak. According to IBISWorld, over the past five years revenue from financial service firms has represented a declining proportion of accounting industry revenue. </p>
<p>As financial businesses have become increasingly risk-averse, and merger and acquisition activity has remained weak, demand for the Big Four’s traditional accounting services has fallen.</p>
<p>At the same time, some of the larger mid-tier accounting firms have begun vying for the attention of the Big Four’s small to mid-cap listed audit clients, with this competition putting downward pressure on prices.</p>
<p>The second driver is external. The standardisation of accounting rules and ever-improving technology has also intensified downward price pressure. One response by the Big Four has been to outsource routine, labour-intensive processes to low-cost nations such as India.</p>
<p>Still, IBISWorld predicts a quick recovery for the Big Four in Australia, mainly because of strong growth in advisory services. In addition, the Big Four are well positioned to profit from their expansion into management consulting services. Together, these will make them less dependent on the more volatile market for accounting and auditing services. </p>
<p>Management consulting has been a source of revenue and profit growth for the accounting firms since the 1960s, when they started to invest in this area. Consulting hit a road bump in 2002, after Enron’s bankruptcy and the dissolution of Arthur Andersen prompted the US to target potential conflicts of interest by restricting the provision of non-audit services to audit clients.</p>
<p>KPMG and PricewaterhouseCoopers sold their consulting arms as a result and Deloitte put its up for sale (Ernst & Young had sold its consulting business two years earlier). </p>
<p>However, the move away from consulting was short-lived. According to IBISWorld, today Deloitte’s share of the Australian consulting market is 6%, with PwC at 5.8% and KPMG at 4.6%. This makes them, after Accenture, the largest providers of consulting services here, followed by the pure strategy houses and a very long tail of smaller firms. </p>
<p>This year Deloitte acquired Monitor, one of the top “strategy consulting” firms, allowing it to move into a very lucrative, high-margin market that until now has been almost entirely the domain of McKinsey, BCG and Bain. Strategy consulting focuses on specific strategic issues that businesses face, and has always commanded higher margins than other types of consulting, such as operations, human resources or IT consulting.</p>
<p>Meanwhile, the other firms in the Big Four continue to expand their management consulting divisions. <a href="http://www.economist.com/node/21563726">Consulting has been growing much faster than audit</a> for all four firms in recent years. </p>
<p>Asia also presents opportunities for growth. Traditionally, accounting firms have internationalised by following their clients overseas and opening local offices. In China, for example, the Big Four’s clients are mainly large companies with overseas exposure that want to use an internationally recognised auditor as an assurance to global investors. (Just this week, Deloitte Touche Tohmatsu Ltd has announced its global revenues have risen by 8.6% to US$31.3 billion, helped by 16.3% revenue growth in Asia Pacific.)</p>
<p>The recent adoption of International Financial Reporting Standards (IFRS) in China provides further opportunities for the Big Four to grow their operations there.</p>
<p>However, competition from local accounting practices is increasing. The big names have been losing market share because their focus has been, so far, on international clients rather than fast-growing Chinese companies on their home soil. </p>
<p><a href="http://www.ft.com/intl/cms/s/0/cd74664e-9797-11e2-97e0-00144feabdc0.html#axzz2dDcwjy5Q">According to the Financial Times</a>, the Big Four’s share of business among the top 100 Chinese firms peaked at 55% in 2007 and had slipped to 36% by 2011. </p>
<p>What’s more, some of these local accounting practices are now following their Chinese clients overseas, which could mean increased competition for the Big Four in their established markets. Leading Chinese accounting firm ShineWing, for example, has established an office in Australia in alliance with local accounting network Hall Chadwick. </p>
<p>Still, a new requirement that the Big Four increase the number of mainland Chinese partners at the top of their businesses might mean they become more attractive to Chinese companies in the medium term. As a result, they could continue to profit from the growth of the Chinese market. </p><img src="https://counter.theconversation.com/content/17414/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Natalia Nikolova 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 revenue of Australia’s Big Four accounting firms has come under pressure as demand for traditional services such as auditing weakens. But a move into strategic consulting and the potential for more…Natalia Nikolova, Senior Lecturer in Management, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.