Reputation is everything – what Pinnacle should do to salvage goodwill
When a crisis happens, one of the more difficult things for a company to bounce back from is the reputational damage it sustains. Take the case of Pinnacle. The executive Takalani Tshivhase, who allegedly tried to bribe a policeman to secure a contract, has been arrested. He'll be charged, and the wheels will grind along in the courts. But the damage to Pinnacle will be much more subtle, costly, and potentially enduring. Contracts could be lost, and many Pinnacle clients will start reviewing their interactions with the business, making sure that everything was above board, because, well, pitch soils. And for Pinnacle, the task of rehabilitating its reputation may prove to be both difficult and costly. It's early days, but I don't envy the people at the helm at Pinnacle at all. – FD
ALEC HOGG: Pinnacle Director Takalani Tshivhase faces a corruption charge after allegedly trying to bribe a senior police official in order to secure a lucrative technology contract. That's been announced…that's in SENS, but why, and what does it tell us about business in South Africa? Joining us for more is Cynthia Schoeman from Ethics Monitor. Remember Cynthia, that this is a public company. It was worth R5bn just the other day and quite popular amongst small investors and private client investors. When they heard this, they ran for the hills, share price halved, many people lost a lot of money, and it all has to do with a perception I guess, that the company's problems go a lot deeper. Again, a good warning or perhaps a good recognition, that reputation is everything.
CYNTHIA SCHOEMAN: I think it is. A reputation is certainly a very big issue here, but I also think that once the word 'bribery' is out there, the problem is it's also tapping into a huge flood of other issues in a similar vein. It's not as though it's one exception where we say 'oh gosh, imagine that'. This is almost building on an already poor situation and hence, I think it can does exaggerate the reaction to it and as you say, a massive share price fall'.
ALEC HOGG: What does it say about the culture in the company, though?
CYNTHIA SCHOEMAN: Granted, let's admit that it's an allegation at this stage, but in fact, if it is true and if such action is being taken by someone as senior as one of the executive directors, then you have to say the classic thing 'rotten at the top. One's not judging at this stage, but the likelihood then is that it could filter down through the organisation is of course, – I don't want to use double negatives – but it's not that remote.
ALEC HOGG: if you're running a business – and you know the chief executive's role is often very lonely – they have good news filters, they get information that others around them want them to know. How do you find out what's happening at the bottom? I'm talking to people in the construction industry, as well, very honest, good, and ethical people who are running those businesses. They claim they didn't know that all this corruption was going on further down.
CYNTHIA SCHOEMAN: We have heard that they 'didn't know' quite regularly and it hasn't always quite panned out. At a simple level – I don't want to pretend it's the perfect panacea – but both the Companies Act and King 3 have very clearly stated that companies whether you choose the word assess or monitor their ethics. Now you can say to me 'for goodness' sake, if you did that it doesn't mean all these issues would go away'. It's the same as any due diligence type of process, that focusing the attention on that, ensuring that's being brought to the surface, and increasing the degree of transparency within the organisation can be a significant help towards ensuring that that doesn't happen.
ALEC HOGG: How do you stop the rogues? Let's just say that Takalani Tshivhase actually did offer R5m to the senior police officer and nobody else in the company knew about it – that's the best case scenario from the company's perspective – how would they ever discover this or know that he was doing this?
CYNTHIA SCHOEMAN: I think that where there is one single rogue element and no one else has any knowledge of it, it is very difficult. Then, you will be judged more by your reaction to the event, than necessarily by how much you've done prior to that although, of course, they should be in combination. However, how you respond to it, the delayed announcement here makes no rational sense when one looks at it. When one looks at the date of the arrest, they have a results presentation and then only some time thereafter, this fact is announced. It doesn't speak to the transparency that one would generally expect to find, which would go with a genuine misunderstanding as it's now being called.
ALEC HOGG: I guess there are also people within the organisation who have to process these bribes, or alleged bribes. They have to go through the books somehow, so do you just turn a blind eye to it?
CYNTHIA SCHOEMAN: Again, I think one has to concede that they can be so well disguised, that it is not a fault of internal audit for example, that they didn't pick it up. It can be well disguised. It can be labelled as something that would not raise any suspicion and of course, that would be the intention. As you say, the best-case scenario is that this is a one-person situation, but the chances are that there's always someone else who knows about it. In terms of trying to avoid this, the dual approach of managing ethics as best as one can – not at a tick box level – where it truly is part of what is genuinely happening in the organisation.
ALEC HOGG: This guy has a big stake in the company worth about R100m, so it would be rather strange I suppose, to think that he is a rogue element, that nobody else knew about it. Perhaps, because it is so spectacular in the movement in the share price, we're focusing on this. They've been a bit too many similar examples: the MTN Financial Director who was suspended- MTN of course, in Iran where he allegedly paid a bride – and off the top of your head, you could probably name half a dozen examples of apparent malfeasance. Is this a reflection on society or is it just something that happens anyway?
CYNTHIA SCHOEMAN: I certainly am hearing a huge amount of justification for it. It falls into all the headings of 'let's get a grip. Business is tough', or 'everyone else is doing it'. Often, even in conversation with bright people who are up to speed, they are still succumbing to the justification of 'well, other people are doing it'. I do think that when these issues surface, when there actually is a repercussion – which can be very slow in happening – I think that that continues to build the message of saying can we stop ducking behind 'well, you know what's happening in government'? Can we just look to ourselves and not make those excuses? Again, in this particular case the lack of transparency just doesn't make sense to me. It's something that one should use as for example, your new best friend at the moment, to deal with this. However, I do think it is far more widespread than we'd like to admit.
ALEC HOGG: I'm sure there are people who are watching this, thinking 'you know, I really am sailing close to the wind in this respect, but everybody else is doing it and they won't find out anyway'.
CYNTHIA SCHOEMAN: Do you know…? We can claim that the level of prosecution is not nearly as good as it should be. However, if one were doing a pure business cost benefit analysis, I'd say to you 'I absolutely have the short-term benefit if you can get that deal'. What is the long-term cost, though? If this is shown to be true… Yes, they've lost 40 percent of the share price now, but what's the long-term cost? You started off with the issue of reputation. What is the real long-term cost to both the company and the individual's reputation? I think that's really noteworthy. I think it warrants attention.