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Why Corporate Executives are Laughing all the Way to the Bank

Why Corporate Executives are Laughing all the Way to the Bank

Why Corporate Executives are Laughing all the Way to the Bank

A shade over a quarter of a billion Rand.

That’s the average annual salary of the CEOs of the Top 10 companies on the JSE in 2023 (according to a recent report by PwC). On top of that, you can add the R30-odd million many are paid as a company performance bonus.

But here’s the real kicker:

These salaries form part of what’s generally referred to as a “Total Guarantee Package,” which means they get paid these amounts regardless of how well – or how badly – they do their jobs.

The industries where these kinds of packages are common vary, but in South Africa, it seems to be mining where CEO salaries are particularly high.

BHP Billiton’s Chief Executive, Mike Henry, for example, took home an impressive R269.22 million in 2022. That translates to (I hope you’re sitting down) R737 589 per day.

It’s over four times more than Capitec CEO, Gerrie Fourie earned (R62 million) and almost five times more than the salary of Nedbank CEO Mike Brown (R43.6 million).

And yet, for some, even that kind of rarefied remuneration is not enough.

Recent history is littered with the corpses of collapsed companies, brought to their knees by the greed-driven and corrupt activities of their chief executives.

Since the start of the new Millennium, the corruption/crash scenario has played out across industries and across the globe:

  1. In 2000, German company FlowTex operated a Ponzi scheme in which non-existing construction equipment was sold to investors, only to immediately be leased back by FlowTex. The fraud was the largest corporate scandal in German history, resulting in financial damages of about DM 4.9bn (approximately $2.5bn).
  2. In 2001, Enron – one of the largest companies in the United States at the time – disintegrated almost overnight. Its leadership used fake holdings and off-the-books accounting to fool regulators for years. Former CEO Jeff Skilling used market-to-market accounting, which appraises holdings based on expected values, to hide the financial losses of the trading business and other operations of the company.

The lack of concrete pricing data for energy meant it could act on overly optimistic forecasts, resulting in the company grossly overvaluing its holdings.

By the end of 2000, Enron had losses of $591 million and was $690 million in debt. By the end of 2001, it filed for bankruptcy. It is, however, one of the few instances where the CEO was held accountable; in 2006, Jeff Skilling was convicted of conspiracy, securities fraud and making false statements to auditors. He was sentenced to 24 years and four months in prison.

  1. In 2002, Arthur Andersen, Enron’s auditors at the time of the fraud, was convicted on charges of obstructing justice by shredding documents relating to the scandal.
  2. More recently, in 2023, Johannes Steynberg, founder and CEO of Mirror Trading International Proprietary Limited (MTI), was found guilty of fraud and failure to comply with CPO regulations. In a landmark ruling, the Commodity Futures Trading Commission ordered Steynberg to pay $1,733,838,372 in restitution to defrauded victims and a $1,733,838,372 civil monetary penalty. At the moment, however, he is in jail in Brazil, awaiting extradition back to SA to face the charges. He has yet to pay the penalties – and likely lacks the means to do so, anyway.
  3. In the UK in 2022, the NatWest Group was found guilty of breaching money laundering regulations and was fined an eye-watering £265 million by the Financial Conduct Authority.

But if you’re expecting any kind of personal accountability on the part of its upper management, don’t hold your breath. The company recently concluded its investigation into whether bonuses should be clawed back from its senior executives to pay the fine. Unsurprisingly, no individuals were found responsible, and the breach was chalked up to a “collective failure.”

Dr Susan Hawley, Executive Director of Spotlight on Corruption, said: “After every corporate scandal, from the financial crash to the Post Office, there are rightly calls for senior executives to face accountability – but this rarely happens. Whether it’s Airbus’ global bribery scheme, or NatWest’s money laundering, senior executives keep evading any responsibility. This lack of accountability is bad for British business, bad for the UK economy and bad for the British people.”

Not only do they keep evading responsibility, but they also keep raking in the big bucks.

A report in the Financial Times references a recent poll by Survation on behalf of the UK Anti-Corruption Coalition. It revealed that 44% of the people it surveyed associate corporate executives with economic crime. That puts the C-suite firmly on a par with oligarchs and kleptocrats.

And this is what really worries me.

Because from what I can see, the root problem is not actually the involvement of top executives in corporate scandals.

It’s not even the fact that they keep earning their enormous salaries regardless of the financial misery they’ve created for others.

It’s the gaping accountability gap – and the almost smug way in which they carry on regardless, secure in the knowledge that they stand a way better than average shot at getting away with it.

I’m not the only one who feels this way.

The same FT article I referred to earlier states, “Former prime minister Gordon Brown made it clear recently that he believes top bankers should have been jailed after the financial crisis to avoid green-lighting ‘risk-laden behaviour.’

The former chair of the Environment Agency has called for jail sentences for CEOs of water companies so they cannot ‘delete illegal environmental damage from their CVs.’

Even the IMF has urged the UK to use criminal prosecutions against ‘senior managing officials’ to tackle money laundering.”

It all seems to be falling on deaf ears.

Even the might of the Financial Conduct Authority has done little to stem the tide.  After over 70 investigations, it’s imposed just two financial penalties and taken just one regulatory action against an individual. 

The Financial Times describes it as “enforcement fatigue” and cites 2022 research from consultancy firm Comply Advantage that found almost 80% of senior managers were prepared to risk a money-laundering fine. 

Clearly, if you’re a CEO or similar, the juice is worth the squeeze.

Sadly, South Africa seems to be in much the same situation.

Every time a chief executive gets caught up in a corruption scandal, it’s usually only a matter of time before any whiff of individual culpability evaporates.

As I write, the CEO of state rail and port operator, Transnet National Ports Authority, Pepi Silinga, faces new enquiries of fraud and maladministration. He stands accused of appointing his former employer, the Coega Development Corporation, to put up fences around the ports of Durban, Richards Bay and Saldanha Bay.

He has said he will step down while investigations into the allegations are ongoing. I would love to think that, if guilty, he will face harsh consequences – as tragic an end to his career as that would be.

Because the buck has to stop somewhere.

We simply cannot continue to let corporate fines be the cost of doing business. Companies don’t commit fraud, people do.

It’s time those people were made to pay.