Values Matter

Imagine you are starting a strategy project with a new client and the first tranche of background information has just landed in your inbox: links to Annual Reports, current and former 5-year strategies, operating manuals, HR policy documents – and, somewhere in there, a statement of corporate values.

You pull it up and quickly skim the list of bullet points.

What is the purpose of this document - does it mean anything? Nothing? Everything?

The client would say that it represents a genuine statement of principles by which the organisation conducts its business. Corporate values should create common purpose among staff and send a signal to new recruits about the nature of the beast they have just joined and the standards of conduct that will be expected of them in their new job.

Cynics, on the other hand, would say that a list like this is barely worth the paper it’s printed on (if you print it out at all). To them, a value statement is yet another symptom of a woke era in which virtue signalling is all the rage. Organisations, always on the brink of being cancelled, must sign up to every fashionable cause and event whether or not they have any intrinsic belief in, or commitment to the qualities they claim to espouse.

Which interpretation is right? Well, both, actually – at different times and under different circumstances. There are plenty of inveterate fraudsters out there, but many more companies that are fundamentally decent, but which nevertheless end up betraying their own principles. These lapses linger – like a rotten stink, you can’t cover it up and the aftereffects remain long after the event itself is over.

Ethics / Fraud

We all want to work with people or organisations whose values fit with our own and who are doing work to which we would like to contribute. In my own practice, there are clients I actively seek out, and others I wouldn’t go near[1].

The late, great marketing guru and doyen of South African strategists, Laurance Kuper, in his definitive book, Ethics – The Leadership Edge[2], points out that ethics are a prerequisite for doing business of any kind. Any interaction between different groups of people must be founded on trust and good faith, and a belief in the cooperation and reliability of the other party.

According to Kuper, companies which behave ethically - not as a means to an end, or because they are forced to follow certain rules of compliance, but for its own sake, because it’s the right thing to do - are more likely to enjoy sustainable competitive advantage. A genuine set of values provides a lodestar to follow in unpredictable situations, criteria which can be applied when choosing between different strategic directions.

We know what it looks like when companies operate outside any ethical framework. In the past 20 years alone, we have seen the massive consequences of different frauds, starting with the collapse of Enron in 2001, closely followed by the implosion of WorldCom in 2002, the Madoff Ponzi scheme which unravelled in 2008, and more recently, frauds at Theranos (2018) and Wirecard (2020). To keep up to date, just last month, the Bitcoin Trader, FTX filed for bankruptcy after its value dropped from $32bn to $0 in a matter of days (and this just months after founder Sam Bankman-Fried hosted Tony Blair and Bill Clinton at a crypto convention in the Bahamas, boasted that he would become the world’s fist trillionaire and pledged to give all his money away).

Frauds may seem less serious than other felonies - grifters moving paper around from one place to another - but these are not abstract crimes: real people lose their savings, real people lose their jobs, and real people go to jail.

• Enron - $60bn wealth destroyed; 4,500 jobs lost; CEO Jeffrey Skilling sentenced to 20 years in prison
• WorldCom - $50bn, 20,000 jobs, CEO Bernard Ebbers 25 years
• Madoff Investment Securities - $170bn restitution claimed; founder Bernard Madoff sentenced to 150 years in prison
• Theranos - $600m; CEO Elizabeth Holmes sentenced to 11 years in prison[3]
• Wirecard - $6bn; 5,000 jobs; CEO Markus Braun on trial for fraud
• FTX - $8bn; CEO Sam Bankman-Fried under arrest in the Bahamas

A Litany of Shame

Even more shameful, somehow (maybe just to me), are the actions of firms which not only declare their own cleaner-than-clean image, but are in the business of providing ethical advice to clients, and yet end up subverting their own values. I’m talking about accountants and auditors, law firms, public relations agencies and, above, all, management consultancies.

Guilt by Association

The fall of Enron brought down their auditors, Arthur Andersen, who were unable to survive the reputational damage (sister firm, Andersen Consulting, crawled out of the wreckage by changing their name to Accenture). Meanwhile, Enron’s attorneys, Vinson and Elkins, only avoided a law suit by paying the Enron bankruptcy estate $30m in damages.

Rogue Crooks

Sometimes fraud is not institutional, but rather the cupidity of a few rogue players, such as the notorious McKinsey Managing Partner, Rajat Gupta, found guilty of insider trading in 2012. If this was tragedy, then the case of another McKinsey partner, Puneet Dikshit[4] who pleaded guilty to insider trading in 2021, must be farce.

Stupidity and Bad Judgement

Monitor Company fell from grace as a result of bad judgement and an absurd misreading of the limits of the firm’s influence and agency. Between 2006 and 2008, Monitor was paid $3m to whitewash the image[5] of the murderous former dictator of Libya, Muammar Gaddafi, using its own good name, and that of a clutch of pay-day academics and advisors to do so. This led to a high-profile investigation of Monitor by the US Department of Justice, and even though the company broke no laws (except, perhaps, those of common sense) and was guilty of no crime (except, perhaps, that of stupidity), Monitor’s standing was badly damaged.

Greed and Complacency

Sometimes malfeasance emerges from a combination of greed and a complacent corporate culture which believes itself too well established and too powerful to do wrong. In January 2022, the Zondo Commission into State Capture[6] in South Africa, found that a number of internationally recognised advisory companies, including the PR firm Bell Pottinger, the auditors KPMG, and the management consultants Bain and McKinsey (again!) were all complicit in corrupt practices during the Zuma years. These firms had been commissioned by the architects of state capture to lend a spurious legitimacy to their activities. Over a period spanning almost a decade the work of these firms had both undermined state agencies set up to fight corruption and had contributed to the looting and destruction of various state enterprises - Transnet, the South African Revenue Services (SARS), Eskom, and South African Airways.?

Naturally, these findings (the gist of which had been known for a long time) led to an orgy of breast-beating on the part of these companies. We were treated to a series of a) contrite mea culpas; b) broken-hearted statements of remorse; c) firings of senior partners; but, of course, d) vehement denials of any wrong-doing.

Paying the Price

It must be said, that for companies who claim they had done no wrong, they certainly ended up paying a high price:

• Monitor Company - The fall-out from the Gadaffi scandal led to the 2011 resignation (after a 30-year tenure at the helm), of the Monitor CEO and founder Mark Fuller, himself at the forefront of the Libyan debacle. In 2012 the firm filed for Chapter 11 bankruptcy and was subsequently purchased by Deloitte in 2013.
• Bell Pottinger – the Gupta PR company and brains trust behind the racially-divisive ‘white monopoly capital’ campaign[7], lost all of its clients and investors and went into administration in 2017 with the loss of 270 jobs.
• KPMG – the auditors lost many of their South African clients, rescinded their report into a so-called ‘rogue unit’ at SARS[8], repaid their R27m fee and salved their conscience with a R40m donation to education and anti-corruption NGOs.
• Bain – the company repaid all its fees for work done at SARS, and has subsequently been banned from tendering for South African state contracts for 10 years, and UK government contracts for 3 years.[9] A campaign is currently underway to have them banned from US government work as well.
• McKinsey – the consulting firm has been indicted on charges associated with state capture (charges it naturally denies). McKinsey has agreed to repay eyewatering fees of somewhere between R600m and R1.5bn (accounts differ, but either way these fees take greed into new and uncharted territory) for work conducted at Eskom, Transnet and SAA.[10]

Laughing, or Crying?

This litany of shame would be funny – there’s something inherently amusing about hypocrisy exposed – if it weren’t so sad: decades of good work eclipsed, decent professionals tainted by association, and worst of all, South Africa betrayed and defrauded by people who should have been honoured to serve the country, and instead did the opposite.

Laurance Kuper draws a distinction between espoused values – ethical principles that companies and organisations parade because they have to – and embedded values – principles which lie deep in the organisational DNA. You can tell the difference between lip service and genuine belief by the way companies behave in both tough times (do they cut corners, massage the data, or stay true to their values?) and in response to windfalls (do they plunder the orchard or keep their heads?).

For us, as strategy consultants, these stories of companies that got it so disastrously wrong, coupled with Kuper’s simple but powerful dichotomy, offer a useful lesson in how to behave: if your client is a crook, or wants to use you for a cover-up or whitewash, don’t take the money! You’ve set out your shingle to be a trusted advisor, so be exactly that!

And next time you receive a bundle of founding documents from your client, pause for a moment over that little annex of ethical principles and ask yourself, “Are they embedded, or only espoused?” – because values matter.

[1] One of the reasons I left corporate consulting to go out on my own was to avoid being assigned to projects for tobacco companies, having done three of them in short order. What’s next? I wondered. People trafficking? Arms trading? Rhino poaching?

[2] Zebra Press, Cape Town, 2006

[3] Theranos COO, Sunny Balwani, was jailed for 13 years.

[4] Dikshit, in addition to being blind to the lessons of history, was clearly not paying attention at his induction. “No insider trading!” is the first thing they teach you on day 1 of consultant training.

[5] Or, as a former Monitor colleague memorably described it, “Pimp the profile”.

[6] State capture refers both to the activities of corrupt businessmen and officials to steal state resources for their own gain, and to the active destruction of those institutions of the state established to detect and stop corruption. The Zondo Commission was established to investigate the state capture activities of former State President Jacob Zuma, his confederates, the Gupta brothers, and a host of other senior figures inside or connected to the ruling ANC.

[7] The campaign was designed to deflect attention from the true looters of State assets by pinning the blame for economic hardship on white-owned businesses instead.

[8] In fact, a unit set up specifically to fight corruption.

[9] Bain is appealing these decisions.

[10] Bizarrely, McKinsey has been congratulated in some quarters as a ‘responsible corporate citizen’ for offering to repay the money. The press, and the public at large, tend to use a different epithet to describe the firm and its activities in South Africa.?