The role of institutional investors in the realm of whistleblowing
South Africa has seen an increased prevalence of corporate governance failures, non-compliance, corruption and fraud in recent times - in both the private and public sectors - which has left citizens disillusioned. We cannot ignore the impact that poor governance practices (including fraud and corruption) have on the long-term, sustainable performance of companies, which ultimately affects our clients’ pension fund returns. A key element in exposing and ultimately convicting those guilty of corruption is the role of the whistleblower. It follows that any measures intended to deal with corruption must include appropriate protections for whistleblowers.
The role of institutional investors on this issue was heightened with the South African state capture syndrome. This resulted in Futuregrowth taking a strong stance during 2016, as part of a governance review of six South African State-Owned Enterprises (SOEs), during which we suspended all new funding to these SOEs, pending governance concerns. This was instrumental in our journey to facilitate improved transparency and disclosure in the capital markets. It follows that it is our fiduciary duty as responsible investors and allocators of capital to ensure that we engage companies on their whistleblowing policies and to adopt transparent and sustainable policies and practices.
Challenges facing South Africa and the industry
One of the main challenges facing South Africa is a lack of cohesion and collaboration amongst the public and private sector, which results in very little protections for whistleblowers. Government recognises this disconnect, although the vision of South Africa’s National Development Plan states that “In 2030, South Africa will be a society in which citizens do not offer bribes and have the confidence and knowledge to hold public and private officials to account, and in which leaders have integrity and high ethical standards.”  The reality is that policy and legislation need to align, with support and protections for whistleblowers that will result in effective and swift prosecution of the corrupt - in order to send a clear message of zero tolerance for corruption.
Business should take a stand
In an excerpt from her article Business Against Corruption: A focus on whistleblowers and steps to combat corruption, Michelle Green of Futuregrowth notes that “The role of business in preventing corruption goes beyond policy creation and monitoring compliance. Corruption poses severe financial, operational and reputational risks. It is therefore critical that organisations implement sincere and effective anti-corruption measures and policies within their strategies and across their operations.”
The above article outlines seven key recommendations for combating corruption:
- Ensure that the behaviour of those in leadership positions sets the required standards and drives the appropriate culture within the organisation;
- Embed an anti-corruption stance in both the culture and the operations of the organisation, where leaders demonstrate to employees and stakeholders that they have a zero-tolerance policy on bribery and corruption;
- Instil good corporate governance across the organisation by ensuring that:
- the board of directors is independent: this will enable directors to hold management accountable for their actions and to challenge the status quo;
- the distribution of power is fair across the organisation, such that no one person has the power to override any decision; and
- information distributed to stakeholders is transparent and relevant.
- Ensure that accountability and transparency are enforced;
- Implement anti-corruption programmes and policies throughout the organisation;
- Increase training, workshops and communication around the topic of corruption; and
- Create a safe environment for whistleblowers by providing the necessary and appropriate platforms.
Champions of change
We require greater industry collaboration across all stakeholders in both public and private sectors to effect meaningful change that will address the issue of corruption and provide better protections for whistleblowers. Regulation and legislation provides an enabling environment, but this is only part of the solution. We require implementation and execution to make this effective, and this requires greater industry collaboration.
It is our collective duty to be responsible corporate citizens and responsible investors by adopting an activist mind-set towards a better future that holds the public and private sector accountable, to ensure that there are repercussions for perpetrators and protections for whistleblowers. We are familiar with the saying “with great power comes great responsibility”. We also have the responsibility as allocators of capital to ensure that we raise the bar and champion change, to be good stewards across all asset classes, to make our voices heard by being vocal and engaging on non-financial issues, and to challenge companies on material issues like fraud, corruption, and their anti-competitive behaviour and whistleblowing practices.
 National Development Plan 2030 (NDP), https://www.gov.za/sites/default/files/gcis_document/201409/ndp-2030-our-future-make-it-workr.pdf, page 447.