South Africa's development undermined by a lack of good governance, ethics

4th October 2019 By: Marleny Arnoldi - Creamer Media Online Writer

South Africa’s development and social trajectory have been undermined by a lack of good governance, morality and ethics, says consultancy Deloitte Africa Alchemy School of Management dean Dr Martyn Davies.

He spoke at Deloitte’s yearly risk conference, which was themed “The State of Governance and Ethical Leadership”, this week.

Davies noted that an emerging market story was almost always a governance story. “If we extrapolate ten years down the line, we could say South Africa used the national level of poor governance and widespread corruption as an opportunity to clean up house, or we might be looked upon atrociously as another failed State".

State-owned power utility Eskom chairperson and acting CEO Jabu Mabuza, meanwhile, stated that the problems faced in South Africa were so huge that government, business and civil society almost had to pretend that there was no problem to not let it consume them.

“However, the reason that emerging markets give high returns and are attractive to investors is because they learn very fast and achieve success on the back of mistakes and wrongdoing,” he said.

In discussing a change in ethical culture at Eskom, Mabuza said it would not happen overnight, because corrupt external businesspeople also had to be dealt with, because they often stayed in their positions and simply influenced the next executives appointed to an organisation.

“There need to be harsher consequences for ‘bad companies’ in the form of State-owned enterprises not working with a corrupt company.”

On instilling values and measuring change in corporates, industrial group Barloworld ethics and compliance executive Dr Yondela Ndema noted that when implementing an ethical culture and managing risk, businesses need to do surveys among employees about their concerns and then introduce tailor-made solutions to mitigate those concerns.

Barloworld offers awareness training to instill values company-wide, but she noted that top leaders in other companies are often exempt from such training, when they should be in the first row.

She highlighted that the tone of a company starts at the top, with employees often following the example set by the leaders’ behaviour. Ndema also mentioned the importance of consistency of sanctions.

“Leaders sometimes act more strictly in reprimanding lower-ranking employees, but poor leaders are kept in the system.”

South African Institute of Chartered Accountants CEO Freeman Nomvalo said the values in a company often clashed with one another, such as the question of whether value spoke more to public interest than a client’s interest, which  had become increasingly important.

For example, he explained that accounting and auditor firms often committed to ethical codes such as acting honestly at all times, avoiding being biased and influenced by external factors, ensuring confidentiality of information and always obeying the law.

However, accountants were often forced to break the confidentiality value in the interest of acting honestly and adhering to the law, when a client was behaving in such a manner that was damaging to shareholders or the public.

“Sometimes the interest of the client cannot exceed the interest of the public. Companies' response has always been to change the rules or ethical code to adapt to certain contexts, but the core issue is the conduct of people and little has been done to address the conduct of people,” said Nomvalo.

Deloitte Africa governance leader Dr Johan Erasmus averred that ethics was a collaborative effort – a culture within an organisation.

“It should not be about consequence only, [rather] ethical behaviour [should be] the expectation and the norm in an organisation – a shared responsibility. However, the board should take responsibility for setting the culture, over and above the business strategy.”

Deloitte analytics manager Rinae Nnduvheni explained that artificial intelligence (AI) involved the development of computer systems that are able to outperform tasks normally requiring human intelligence, such as visual perception, speech recognition or decision-making.

“AI mimics cognitive elements that normally only humans would process. However, with this comes the risk that the machine will have the bias that humans inherently have that create the machines,” he said.

Research and advisory company Gartner predicted that by 2023, 75% of large organisations globally would have hired AI forensic specialists to audit, certify and monitor AI, to mitigate and manage risk.

Deloitte analytics manager Vanessa Saker noted that the risks of using AI include that it is incapable of morality, questioning who was then responsible for the ethical issues that arise from the use of AI.

She said algorithms could be developed and trained on data sets that deliberately or inadvertently create bias.

Saker also mentioned that AI implementation runs the risk of not being aligned to a company’s core values, and could impact on companies’ talent and culture, while some highly regulated processes may be off limits for automated decision-making.

Moreover, she pointed out examples of incidents such as a UK-based insurance company admitting to charging more based on customers’ email domain and UK-based banks admitting to having a racial discrimination problem within their AI systems.

On a customer level, AI brings the ethical risk of using customers’ personal information to manipulate their behaviour, and storing their data and locations for future personalisations in social media-based marketing.

Saker said ownership of data was increasingly being discussed within the AI community.

Deloitte analytics head Wessel Oosthuizen stated that as AI systems make more decisions, data ethics becomes increasingly relevant to policy.

“Who has ownership of data collected with or without customers’ knowledge? What data should not be collected? What will organisations do with the data? Who governs the AI system and data and who creates ethical standards and norms around data,” he questioned, all of which are yet to be legally established in most parts of the world.

Saker concluded that South African corporates needed to not only embed values in their organisations, but also specifically in their AI systems, from the data gathering phase to advanced operations.