Corruption Watch’s executive director David Lewis delivered the keynote speech at the launch of the JSE’s Socially Responsible Investment Index for 2013.
Launched in 2004, the index is a tool that, according to the JSE, “measures companies’ policies, performance and reporting in relation to the three pillars of the triple bottom line (environmental, economic and social sustainability), as well as corporate governance practice”.
The index also offers an aspirational sustainability benchmark, recognising those listed companies incorporating sustainability principles into their everyday business practices – this helps investors to assess companies on a broader base.
Reviews take place annually during the second half of each year, with results usually announced at the end of November each year.
Read Lewis’s speech below:
I think that the JSE executive who invited me to address this launch may have been slightly bemused (and amused) by the enthusiasm with which I accepted the invitation to address this event – there was nothing ‘hard to get’ in my reaction, no ‘let me look at my diary. I accepted by return email and then looked in my diary and cancelled whatever was there. I recount this to tell you how much significance Corruption Watch attaches to working with business and to having the JSE, with its integral role and unimpeachable reputation, make our introduction to the world of business.
I feel very strongly that as long as an institution of the standing and authority of the JSE is willing to publicly take the lead on encouraging companies to regard as matters of core business concern issues like governance, environmental sustainability and social upliftment, we can (notwithstanding cartel scandals and daily allegations of business complicity in tender corruption) feel relatively confident that our business sector will not get caught up in a vortex of systemic corruption.
I feel pretty much the same way about institutions like the Treasury, SARS and the auditor-general’s office in relation to the prognosis for the sound governance of our public finance; and I feel similarly about institutions like the high courts and the public protector in relation to the system of justice. Though South Africa faces clear and serious problems with corruption, there are undoubtedly key institutions in business, government and in the justice system whose performance and integrity justify the conclusion that the centre is holding and that the future is not as bleak as many foretell.
This is not an argument for complacency.
Firstly, because the present situation places an enormous burden on a few institutional and personal shoulders. If one of those institutions mentioned – or one of a few others, the IEC for example – stumbles we will find ourselves in deep, deep trouble, in a downward spiral from which we will not extricate ourselves.
Secondly, because there are key institutions in society that are already in serious trouble, in serious disrepute. Among them: political parties; the police and the prosecutorial services; the office of the Presidency and major ministries and departments of state, including, because of its appalling stand-off with the public protector, the entire security cluster which has now become complicit in the Nkandla cover-up; the public broadcaster; and major private sector interests and institutions whether arising from cartel conduct in the construction industry or evidence of a willingness to enter into dodgy relations with the state in order to secure some or other private gain.
Thirdly, because if we are managing to stabilise corruption and if we are to have a chance of turning it around, then it is imperative that members of the public and key public institutions, including major corporations and business associations, publicly identify themselves with opposition to corruption.
This is what Corruption Watch does. It encourages the public to participate in the fight against corruption largely by providing people with the means and with the reason for reporting knowledge of corruption. This method has – in the short 22 months of our existence – been extremely successful. We have received thousands of reports of corruption. While we are obviously able to investigate only a limited number of these, we have undertaken sufficient successful investigations which, suitably amplified by our very effective communications infrastructure, have raised the risk of corruption and have encouraged further reporting.
Reports from the public and whistleblowers enabled us to identify hot spots and patterns of corruption which has in turn encouraged further reporting and has enabled us to engage concerned public sector entities with credibility and to initiate a dialogue between them and the public whom they have agreed to serve and to whom they are required to account. Our work has given us the knowledge and insight and credibility to move from complaining and exposing to constructive engagement with public sector entities aimed at changing systems to reduce vulnerabilities to corruption.
We desperately want business to become active participants in this public dialogue that we are facilitating.
Why should you care? Firstly, because you are in the uncomfortable position of being both victim and perpetrator of corruption – you may view yourselves as victims, the public view you as perpetrators. A recent survey revealed that nearly 80% of South Africans believe there is corruption in the senior levels of government; 70% believe it is just as bad in the private sector. And this survey was conducted before Nkandla.
Either way, every business, large and small, faces exposure to corruption risk.
Secondly, the economic cost of corruption is enormous, not only the direct cost but also in the investment foregone and in the uncertainty generated. Corruption is the world’s third-largest industry, valued at more than 5% of global gross domestic product, some $3-trillion. It is estimated to increase the cost of doing business globally by 10% and adds up to 25% to the cost of procurement contracts in developing countries. The growth rate of a country can be as much as 1% lower than that of a similar country with little corruption.
But the social cost of corruption – the erosion of trust – is perhaps more devastating than its impact on economic growth. If the public does not trust its president, its key providers of public service, the police and those who build its houses, bake its bread and look after its savings, then we are on the edge of that tipping point beyond which there is no return.
And third, if you are not convinced by these arguments then be sure that recent developments in legislation and enforcement dictate that if you want to mitigate legal risk then you will actively associate with opposition to corruption. If you have a connection with London and New York capital markets and an associated company of yours – and this may include even a supplier or customer – has engaged in corrupt practices that affect your relationship, ignorance is no longer an adequate defence against the long reach of the UK Bribery Act or America’s Foreign Corrupt Practices Act.
Nor can you absolve your responsibility by pointing to your anti-corruption compliance programme. Your presence here today implies that your businesses resist unethical behaviour, which contravenes any definition of governance, a critical aspect of sustainability. Increasingly you will have to show that you have actively and publicly associated your brand with the combating of corruption. We offer you the opportunity to do just this.
These are the bases of our appeal to business. We will shortly be announcing a meeting in association with GIBS and the JSE that will bring together a hundred leading CEOs directors, auditors, investors and risk executives in a facilitated conversation around an active role for business in fighting corruption, in associating itself with the fight against corruption. This will not be a normal conference with lots of speeches; it will be the beginning of a conversation with us and between business leaders who share our concerns.
In doing this we are responding to business initiatives like the one that is the subject of this launch. This year the JSE has relied only on information in the public domain for the compilation of its index. In other words if you want to make it on to the SRI you have to transparently and publicly report the steps that you are taking in the area of good governance, responsible environmental management and social and community upliftment. If you want to be considered a top performer then you have to shout it from the rooftops.
Next year the JSE may expand its criteria for inclusion on the index to include corruption and human rights issues. This is exactly the way that we want the public to go and business is a vital public constituency. We want to warmly congratulate the JSE on what it is doing. Active leadership in solving this incredibly complex problem gives hope; and hope – the opposite of cynicism, despair and apathy – gives the wherewithal to join in the battle.