White-collar crime thrives when ethics aren’t enforced

STEVEN GRUZD

The lack of an ethical corporate culture is a major factor explaining why people commit white-collar crimes such as insider trading, fraud and embezzlement – and how to combat these offences.

This message emerged from a panel discussion at the Gordon Institute of Business Science (GIBS) campus in Illovo last Thursday. The discussion was moderated by Professor Michael Katz, chairperson of ENSafrica, which specialises in corporate and commercial law. It was presented under the auspices of Rabbi Gideon Pogrund, director of the Ethics and Governance Think Tank at GIBS.

Professor Eugene Soltes of Harvard Business School is the author of Why They Do It: Inside the mind of the white-collar criminal. He joined the panel discussion via videolink.

Soltes said he had conducted interviews with white-collar criminals, including Bernie Madoff, Enron executives and some fugitives. He had expected that a cost-benefit calculation would dominate their decisions; instead, he found that a failure of intuition mattered – most saw no harm to others from their actions.

“Their victims were psychologically and physically far away,” Soltes explained, adding that the perpetrators rationalised workplace behaviours that they knew were wrong. And, crucially: “They simply don’t believe they are the sort of people who can be imprisoned.”

Bonang Mohale, CEO of Business Leadership South Africa (BLSA), attributed white-collar crime to greed plus opportunity. He said a dearth of “leadership, vision, courage and integrity” had legitimised bad corporate actions. The years of Jacob Zuma’s presidency had normalised corruption and a lack of accountability.

Mohale said state capture in South Africa was a systematic plan to fleece the country by the Guptas, Zuma and their cronies. This created a culture of declining tax morality in South Africa. He urged society to remain vigilant.

Mark Lamberti, CEO of Imperial Holdings, chalked up white-collar crime to “poor process, short-termism and poor custodianship”. As part of his personal management credo, written in 1978, he’d said: Impressive results can never be used to justify a management process that is conspiratorial, manipulative or otherwise disrespectful of the rights of stakeholders.”

Leaders exerting too much performance pressure can drive corporate crime, said Lamberti. He advocates for more disclosure and transparency, especially when performance is sub-optimal – increasing the temptation to cover up failures.

Kgomotso Moroka, senior counsel at law firm Thulamela Chambers, felt the media focused on government corruption and not on corporate crime. She asked why people are so ready to flout the rules, despite detection and deterrence mechanisms.

Financial Mail editor Rob Rose said: “Twenty years of covering corporate crooks shows that many of them have cognitive dissonance” where they separate themselves from their crimes.

Rose mentioned four types of crook: the grifter, who deliberately sets out to commit crime; the borrower, who believes he will in future replace money “borrowed”; opportunists who seek to make a quick buck and bend rules; and crowd followers who say: “Everyone’s doing it, so why not me?”

Katz said: “A toxic mixture is created with a strong CEO; non-executive directors who don’t know the business and are captured by management; and the absence of a culture of healthy dissent. It’s an accident waiting to happen.”

He also supported Mohale’s view that BLSA’s integrity pledge should be cascaded throughout firms.

Katz told the SA Jewish Report: “I don’t think that the Jewish community’s response to an alleged violation by a Jew should be different to that by another perpetrator. Should punishment be exacted by the Beth Din or the Board of Deputies? I think not. The media should report on them because it’s interesting to a Jewish audience, but their standards should be the same as for non-Jews.”

Pogrund told the SA Jewish Report: “There is a view which over-simplifies human nature – that good people will invariably carry out good actions. However, in the face of pressures and temptations, good people can also carry out bad actions, including fraud and corruption.

“This is why our sages teach: ‘Don’t trust yourself until the day of your death.’ The implication is that the potential for ethical failure always exists.

“But understanding why it happens doesn’t make it acceptable, especially for the Jewish community, given that the concept of Kiddush Hashem (sanctifying G-d’s name through living Jewish values) is such a foundational concept in Judaism. And so, we are obliged to be at the forefront of the opposition to state capture and corruption.”