We are living in unprecedented times. Around the world and across industries, governments are taking stakes in banks, insurance companies and other industries to prevent their total collapse. And the more companies and industries they invest in, the more come clamouring for bailout.
A recent cartoon highlighted the situation perfectly: a businessman on a park bench throws some crumbs for a bird; within seconds he is inundated by thousands of other birds wanting in on the feeding.
Apart from the desirability or not of governments having stakes in big business - and it surely is not desirable - the global bailout raises all kinds of ethical questions:
* Why should taxpayer money be used to bail out companies that have been mismanaged - in some cases criminally?
* How do these businesses ever extricate themselves from the mess? Can they ever repay the bailouts? Logic says it is impossible as the sheer sums involved - trillions in the end - would mitigate against their being repaid.
* What happens if the various governments around the world do not bail out these industries? Can the world afford for the financial sector, insurance sector and automotive sector, to mention three, to go under?
* If it bails out these industries, which ones are next? IT, food manufacturing and processing?
* And finally, is laissez faire capitalism dead? Is the US government, to mention one, now in the business of state capitalism, as South Korea and China are?
Without claiming to have these answers, I can say with absolute certainty that the greatest regulatory backlash in history is coming.
The previous failure of corporate governance, around Enron, WorldCom and Global Crossing, saw the introduction of Sarbanes-Oxley. Then central banks, such as our Reserve Bank, were required to ensure capital adequacy through Basel I and II. Seeing as both have failed to ensure corporate behaviour is above board and transparent, the interests of shareholders and customers are protected, and the entire financial ecosystem is not compromised, we can expect the toughest action to date.
How can it be otherwise? Consider the following: just five days before the collapse of Lehman Brothers, CEO Richard Fuld advised staff and regulators the bank was in good shape.
Four days before the bank filed for bankruptcy protection, Lehman's compensation committee was asked for $20 million in "special payments" for three executives.
Fuld himself earned $310 million in salary and other benefits between 2000 and 2008.
He told Congress in a special hearing that he did not recall an e-mail memo issued on 8 June, warning that the bank was running out of cash and close to collapse. He didn't receive an e-mail?
Banks have invested millions, if not billions, in various reporting systems. They have business intelligence systems, dashboards, scorecards, triggers, alerts, finance committees, and auditors.
And Fuld depended on one e-mail.
Auditors
South Africa has been left relatively unscathed by the turmoil that has affected other countries, but we will be part of the global regulatory backlash.
Adrian van der Merwe is MD of 8th Man Consulting.
To turn to auditors, their involvement in the process is at the heart of Sarbanes-Oxley. Quite clearly, auditors were not providing their oversight role when it came to the quality of the lending that sparked the sub-prime crisis, or the state of balance sheets, capital adequacy or the parlous condition of these champions of commerce.
South Africa has been left relatively unscathed by the turmoil that has affected other countries, but we will be part of the global regulatory backlash.
Expect the highest level of government and institutional oversight ever. Expect balance sheets to be subjected to tight scrutiny; compensation processes to be reviewed rigorously; capital adequacy levels to be enforced ruthlessly, no matter how that affects organisations' ability to make their spare cash work; and huge penalties to be introduced for non-compliance.
The world has come to the brink; it might still go over the edge, but for now, we would seem to have been granted a government-led reprieve.
There is a way to prevent a repeat of this mess, and to enforce compliance through process: it's the discipline of enterprise performance management, or EPM. Had these institutions had EPM systems in place and, crucially, observed their outputs, the world would have been a different place today.
* In the next Industry Insight in this series, I'll explain how EPM could protect us against a repeat of the current global meltdown.
* Adrian van der Merwe is MD of 8th Man Consulting.
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