Steinhoff: A wake-up call for business to get serious about the Triple Bottom Line

LONDON — One of the world’s pre-eminent experts on holism, Dr Claudius van Wyk, believes the Steinhoff scandal reflects a lot more than a single company’s financial misdeeds. He says it is a wake-up call for a business sector that has been slow to embrace the Triple Bottom Line model championed by South Africa’s King Commission. In this insightful interview Van Wyk provides context on an economic system that many believe to be broken, but few seem prepared to release. Masterful. – Alec Hogg

It’s a warm welcome to Dr Claudius van Wyk. Claudius, it’s been a month or so since we had our last chat. As the preeminent expert on Holism I did send you a picture that I saw at SA House, at the High Commission of the inventor of Holism, Jan Smuts. A beautiful portrait, isn’t it?

It’s a beautiful portrait and what struck me about it was those eyes. Those were the eyes that could see deeply into future possibilities. Not only of where the world was going but what could become of humanity and that really impressed me to re-engage with that issue.

I’ve also just about finished my book on Churchill and Smuts written by Richard Steyn, who did the original Smuts biography just a few years ago. It was extraordinary to see in what esteem Jan Smuts was held around the world.

Absolutely, he played such a fundamental role in the first half of the 20th Century during the time of enormous crisis in human conflict and during the time of a great revolution that was taking place around the planet, and that related to economic change. It related to fundamental political change, as the order was shifting from monarchies to democracies, as the whole colonial question was coming in and being challenged. But particularly, he was able to hold a frame of reference of what the purpose of humanity was and the role of freedom in humanity, and it was that focus that enabled him to give such powerful guidance in particular to the conflict with Hitler. It was interesting that his relationship with Churchill, they stood absolutely together in their conviction that the conflict with tyranny was part of a human evolutionary process and interestingly, was deeply supported in that by King George of England, who spoke in wonderful words about the wisdom that he brought to the world and the great loss when that wisdom was no longer there.

It feels a bit like we’re in that phase now. We’ve had this massive disaster on the JSE (Johannesburg Stock Exchange). R250bn in wealth wiped out within a few days, with Steinhoff. What would Jan Smuts, given his moral leanings and his view of the world, what would he be making of this?

Well, I think what he would do immediately is he would evaluate the ethics of what took place there, from the perspective of the impact of the decisions made on the whole ecology of the whole system. So, if you for example, take a look at the King Commission where he identified the triple bottom line. He said that business should be conducted looking from three different sources. The one was obviously, profit to shareholders. The other one would be profit to the people that work in the business, and the other one would be profit to the broader society and to nature herself. So, absolutely, Smuts would have taken a look at that and said, the ethics of business relates to its role in broader society. That brings us to a fundamental challenge with some of the presuppositions of conventional neoclassical economics so, Smuts would have said, it’s not sufficient just to say that we are maximising profit for the shareholder. In what way are we doing that? What is the long-term sustainable impact of the decisions that we make on society? So, it really calls into question the appropriateness of our economic thinking and the business decision that takes place within that in today’s deeply interconnected world where one decision on this side of the planet, can have repercussions right throughout the entire global economic system, and can leave many hurting. So it really brings into focus two issues. The one issue is the issue of systemic corruption and how we define that. The other issue is the issue of looking at the broad perspective, the long-term perspective and how that challenges our conventional economic principles by which we think about these things.

That systemic corruption – up until this point, most of the focus has been on the Guptas or the Zuptas, if you like. We had Peter Hain, in fact, I was at the House of Lords this week while the whole Steinhoff thing was falling apart. I was listening to Peter Hain give a very powerful speech, which hasn’t quite had the impact that his first speech had on the 1st November, but it is still shaking up the UK community as well. All of that is to do with politics but now we have a lulu of a corrupt, or potentially anyway, we haven’t heard the final numbers but it certainly looks that way, of corruption in a corporate sense that almost dwarfs what the Guptas were up to.

I think that what you’re touching on now becomes the issue of systemic corruption so obviously, the place that the media really gets interested in, is political corruption. In SA it has been so obvious with the role of the Guptas and the whole State Capture issue that you have examined. What we’re looking at in the level of systemic corruption is not just a wilful wrongdoing but what we’re looking at as systemic corruption is wrongdoing even when we aren’t aware that we’re doing wrong. Let me give you an example of this. Typically, in neoclassical economics, if we take the notion of the originator of the classical economic formula, Adam Smith. He spoke about an invisible hand and he said that you would get four interacting factors in your economic model that would ensure that some kind of invisible hand would keep it free of corruption. He identified those as equilibrium theory so that was the hot issue of the day from the second law of thermodynamics of Isaac Newton. When he said that energy would gradually spread out until it had reached an equilibrium so, they thought the same thing would apply to economics. If you had a fair game plan eventually, the greater the economy it should spread out to all concerned. Normally seen as the trickle-down effect.

Read also: How world sees SA: Steinhoff execs, Christo Wiese dangerously close to jail bars

The other issue that he described there was the issue of rational choice. So he said that people would then think clearly about their decisions they make. They think rationally about their decisions they make. Then he spoke about self-interest. People were going to actually be making their choices economically, in their purchases, in the services and goods that they bought, according to what they thought would work best in their own interest. Then finally he said, what made that all very sound, would be competition. As long as they had choices offered by various competing institutions the whole system would work. Now that idea has been the fundamental premise of the self-correcting ethos of neoclassical economics. The trouble with that is that they’re not true, so if we take for example, the notion of equilibrium theory it only works at the inorganic level. It actually doesn’t work in the living system level.

Dr Claudius van Wyk

If you take a look at the idea of rational choice it suggests that people think with their heads when they buy things but what we do know is that people actually think with their hearts. If we take the idea of self-interest we know that that’s not generally true. Many people actually do things from deep altruistic purposes, and then if we take the issue of competition well, now you’ve seen that you’ve got this growing hijacking of the means of production, to use a Marxist term. The Guptas being an example of that, that you get monopolies and so forth. So essentially the age that we have entered is an age where your conventional economic theory no longer applies and it cannot guarantee ethics. It cannot guarantee fair play, which means that we actually have to build ethics into our actual economic practice.

And building it, I presume, starts from a basis of something new because the trust that is being destroyed in this instance, in the Steinhoff instance, in a corporation. It was the fifth most valuable corporate on the JSE. It was a company, who’s market capitalisation was worth about 1/10th of SA’s GDP. This is a giant that is being created, it appears, on not very solid ground so, whatever else happens there’s a breakdown in trust in the auditors, in some of the biggest names in business, in brands within business. How does one even start to rebuild that?

Exactly so, you’ve now raised an issue that is at the core of this and that is the issue of trust. So, if we go back to the old business world you will remember there was this whole notion of goodwill. If we look at the biopsychosocial model of emergent adult values, which you and I have discussed in a previous interview, we saw that at the level four of thinking, it is about deep institutionalisation of systems of structures, of self-discipline of accountability, of transparency, and those deep systems enable the trust in which people can then engage freely in contract because the goodwill is there that contract will be fulfilled.

So, what we have seen is an exploitation of opportunity rather than an optimisation of an opportunity. I want to lay the blame of this onto a major shift from the old conventional approach to economics to something that has emerged in the last Century, and that has been the role of a shareholder. In the role of the shareholder, originally, you purchased a share and an interest in the company, you actually owned a part of the company and you had an interest in the performance of the company in the long term. This has been completely removed into the shareholder becoming a speculative investor so, any kind of trend that shows a quick buck now becomes one in which speculators engage and it leads to this issue of a herd effect, of past dependency, and that in turn leads to the manipulation of the share price or the driving of the share price. It leads to all of these issues of creative accounting, of money manipulation, you just name it.

Read also: Two huge lessons already apparent for all from Steinhoff disaster

So, we’ve reached a stage where the role of the shareholder is no longer what it was intended to be. It’s become a speculator so, Bitcoin for example, and this whole Bitcoin bubble, apparently, is an issue of that greed aspect of humanity. What that has done, and now it comes back to trust within the SA context and it comes back to the Steinhoff issue. It has led to a great distrust in the capitalist model in SA, and it is that distrust of the capitalist model in SA that has led to the whole notion that has been so in the news of white monopoly capital, of the exploitation of the indigenous folks, and of the relationship of the business model of the economic model to imperialism, neo-imperialism, colonialism, you name it. So, it is a great tragedy in the sensitive SA environment that a major corporate venture actually, is shown up to be part of institutional corruption, and it actually feeds the taste of the folks that are looking for some kind of a radical state controlled alternative, and we all know that that isn’t going to solve the problem, but it feeds the case.

So, rebuilding the trust in the corporate world is going to be requiring of business in SA, that they really begin to demonstrate a genuine commitment to not just chasing profits for the shareholder’s sake, but a genuine commitment to enriching society. A genuine commitment to adding real tangible value to society in how many ever ways they’re going to do that but it’s going to require a credible voice. Could I tell you a quick story?

Please.

It relates to me meeting with Nelson Mandela back in 1992, shortly after he was released from prison. I was in his presence with a colleague from the engineering world and at that time, I think it was Gavin Relly of Anglo American, who hit the headlines in the Sunday Times where he said, ‘he didn’t mind if the ANC came into power as long as they didn’t mess with the economy,’ those were the Sunday Times headlines. My colleague had challenged Mandela on that one and he said, ‘Mr Mandela, what do you say about that?’ Mandela poked us both in the chest with his very strong hands at that time. He poked us firmly on the chest and he said, ‘you businessmen must tell us how to run the economy – we don’t know how to do that.’ He said, ‘but you must tell us how to do it in a way that it works for all South Africans.’

Now, that struck me and it bothered me for a long time because at that time I still thought that the economy did what it did. There was nothing that you could do about the economy. It was business as usual but in fact, it was the time that I then launched transformation strategies to say, there’s another way to conduct business. We need to go back to that question and that needs to become the burning issue of all entrepreneurs in SA, is how do we regenerate economy that it’s going to work for all South Africans and obviously, profitability is going to be something that makes it sustainable. But massaging the numbers simply to drive the share price, simply so that we can have an opportunity to manipulate the share price, to take our shares offshore, to do all the kind of things that I’m sure are going to be revealed as the Steinhoff case unfolds. Is counted to what is actually needed to develop a country.

So, there’s lots of work to be done on this, Claudius? Lots of rebuilding and maybe radical economic transformation, although it’s a term that’s been used politically, is a term that needs to be applied in some way, into what we have at the moment?

Absolutely, Alec. I take a look at one of the economies in the world that has been able to sustain itself well, right through the economic recession. Through all of the challenges that have been presented in Europe, with the great debt crisis in Greece, and then in Italy, in Portugal, and in Spain, etc., and that’s the German economy. Now, the German economy runs firstly according to what is called the Protestant Work Ethic. So, there is a strong commitment to demonstrate the value that you offer in the workplace. Then what is also very significant about the German economy is that it works within the framework of a kind of market economy, but it is a social market economy. It actually has a deep, social conscience and so the economy builds into it a catch net for those people that are vulnerable.

Read also: Magda Wierzycka: Money managers should have foreseen Steinhoff’s disaster. They must pay up.

Thirdly, what has been a key feature of the German economy is an ongoing dialogue between government, industry, and labour. They’ve had an agreement between them saying, whatever decisions that we make in the interest of our own core deliverable, be that government’s deliverable to the state generally. Be that industry’s deliverable to its shareholders, agree that the labour movement’s deliverable to the working population. They said, whatever our decisions are can we approach those decisions from the perspective of saying, does this work for the German economy and does it work for the German people?

My guess is that they tried this in SA but I think both sides have never really come to the party, both from the government’s side and, also from the side of industry. I think they’ve spoken the right kind of words but the heart hasn’t been there and the rebuilding of SA is going to require such a new tripartite alliance. Typically, in SA, the tripartite alliance was the ANC, the communist party, and labour. It needs to be the kind of alliance of government, industry, and the working population and probably also now, that the growing role as FW de Klerk pointed out recently in London, of civil society.

Sygnia Group CEO Magda Wierzycka

Just getting back to the Steinhoff story. I had a chat with Magda Wierzycka a few moments before coming on air with you and she was saying that the reason she was able to see what others didn’t, was she came with a fresh eye and that so many of the people, who were part of the system, and she was talking about banks, the financial analysts etc., had been embedded, if it were, in the way that people were thinking and did not take note of the minority report. In other words, the people who thought differently. It sounds like she’s got a point there because there weren’t too many people who called this one.

Absolutely, and so I think the fact that Magda could actually identify that point shows that she’s already part of the new thinking paradigm. So, you get your majority view, you get your kind of general consensus view, but in complexity thinking, and I think we’ve discussed this in one of our previous interviews, the shift to a new, more integrated systemic way of thinking. In the shift towards complexity thinking you particularly pay attention to the minority view. You particularly pay attention to those dissident voices, who are experiencing something other. Who have a concern about something other, and so that’s a capacity not only to read between the lines but to be casting your net of information gathering more broadly. What has happened is we’ve become so mesmerised by our typical forms of accounting that the numbers seem to be right and then we are kind of left in a quality of complacency that is actually delusional.

One of the key features of this current age, they call it the ‘VUCA Age’ (Volatility, Uncertainty, Complexity, Ambiguity). In this VUCA Age is that because of the interrelatedness of so many factors in the economic world or the business world, at a global level because of the speed of information spreading, the speed of decision making that people can take. Trends can become very rapid. Trends can become a stampede so easily and so, the capacity to pay attention to the dissident voice. To be able to identify early trends is fundamental, not only to ensuring that we do the right ethical things but it in fact, becomes an art that is required for business management going into the future so, I completely commend her statement that they didn’t listen to the dissident voices. We need to be paying attention to those and we need not only to be paying attention to them, but we need to make sure that they are there. We need to make sure that we are hearing the people that are prepared to buck the trend and to help us to hear what needs to be heard. Particularly in this volatile age that we are entering.

Of course, it’s going to get more volatile as we go into the future. We’ve got the Fourth Industrial Revolution that’s coming through, the robotics, nanotechnology, artificial intelligence, things are changing and changing at a warped speed pace. Just from my own perspective, for instance, in my own industry. With a case like Steinhoff, what one tends to do usually, is that you like to get confirmation on what is coming out and what the minority view is, if you like, has some substance. I thought this was going to take some time. It literally happened in a few days that I could see very much more clearly that something, which seemed inconceivable at the time in fact, is the reality. So, information is travelling so much faster. Overlay that with the Fourth Industrial Revolution, and wow, have we got challenges into the future?

Absolutely, so that is why the whole technology of big data processing has become the stuff of the Fourth Industrial Revolution, but the challenge of big data processing is to be able to find the information in that mass of data that is actually meaningful. It requires a new quality of consciousness. It requires a new set of criteria and it requires that the focus of strategic business management is deeply informed by thinking that is informed by complexity theory and that is informed by systemic thinking. Now, that isn’t your typical business leader that actually drives the goals of the business but business leadership needs that capacity. It needs to build into it’s executive management structures that capacity to think at a far more process oriented strategic level. Absolutely so, so big data processing becomes core to this and the capacity to interpret that big data becomes core to this.

Ultimately, there’s another factor over here and that is one where I like to look at the example of Paul Polman, who is the CEO of Unilever. Paul Polman has resisted the whole requirement of quarterly accounting and he’s resisted this in the face of your investment analysts that say, ‘but how can we actually comment on your share price if you aren’t giving us quarterly accounts?’ His response to the investment community is to say, ‘don’t invest in my share price – get to know me and get to know Unilever as a business.’ When you know the business and when you realise that the long-term value that it offers to society, then invest in that. So, I think these are two directions that future industry is going to have a look at. One is, how do we actually manage and interpret big data far more intelligently, particularly as Mazda pointed out, so that we can already detect those divergences early on, the trends that could become a tidal wave, detect those early on so you can make the necessary adjustments. The other one is for organisations, once again, to build a deep relationship with their stakeholders and not just a relationship with the stock exchange, with a new quality of leadership.

Not just chasing or manipulating the share prices.

That’s it. I heard a story the other day from somebody that was very senior in a big financial institution and her words were, ‘as soon as the share price drops, the CEO knows that he or she is under pressure.’ So, the CEO is so focussed and mesmerised by the share price that they will do just about anything to pump up the share price, including playing all the games of creative accounting and the stuff that no doubt, is going to come out around the Steinhoff case so, we need to shift that focus. The executive management needs to shift that focus away from a hypnotised focus on the share price, to actually the relationship management with the key stakeholders and that’s a broad body of stakeholders to be able to demonstrate the real, long-term value that is being provided to society.

Just to close off on this one, Claudius, on that share price and the other issues. The people involved at Steinhoff are wealthy beyond the dreams of normal human beings. Why would they keep doing this? That’s what I’m really battling to understand. If they have made so much money, if they could never have spent the money that they were worth, I don’t know what they’re going to be worth in the future, but the money that they were worth – what is it in the human condition that causes people to continue?

Yes, let’s look at this and we’re going to need to become a little bit philosophical about this one but let’s do that. You know Abraham Maslow spoke about a different range of human psychological needs, and the first one was simple survival. We do what we can in order to survive. The next one was security. We do what we can in order to feel safe. The next one after that was kinship. We do what we can in order to develop the relationships that we find satisfying. The one after that was the need for self-esteem, and self-esteem is we do what we can so that we can feel significant. It is a need for significance, and then beyond that he said there were two, further needs. The next need was cognitive and aesthetic. We do what we can to have a better understanding of the world and we get this desire to add beauty, to understand beauty. Then finally, we got to the stage of self-actualisation. We do what we can to grow into the fullest potential person that we can become.

A Steinhoff International Holdings NV logo sits on display outside the company’s offices in Stellenbosch on August 17, 2016. Photographer: Waldo Swiegers/Bloomberg

Now, what has happened in the conventional economic and business model is that the need for self-esteem has been hijacked by the need to show material wealth. The greater my material wealth, the better I feel about myself but there’s always somebody else that has more and so, it becomes an insatiable hunger to develop more because the self-esteem has become trapped into a materialistic frame of reference, into a materialistic ethos. Somehow or another the system, the whole game keeps us on that kind of treadmill and it has become a huge issue, not only at the business level but it’s become a huge issue at the planetary level because it’s led to consumerism, it’s led to the waste of society, and it’s led to all the plastic in the oceans. That deep unsatisfied need to be able to feel better than the next person because I’ve got more than the next person.

We’re trapped and many of our business leaders are caught up in that game and they get rewarded by the very institutions that they are in, as to how well they play that game so, their sense of self-esteem is being reinforced by being able to play that game and generate the money. It is a human trap and I think that the next phase of our evolution is going to be to change our values from the materialistic to something other and that, of course, is a whole different debate, isn’t it Alec?

And a discussion that we will have in the future. Thanks for the insights, as always, Dr Claudius van Wyk.