PIC debacle shines a spotlight on patronage in South Africa
Public Investment Corporation (PIC) chief executive Patrick Dlamini is facing questions about his private business interests after an anonymous whistleblower complaint called on the corporation’s board to establish whether he declared a 40% founding shareholding in a Mozambican mining company, and concerns surrounding the appointment of Deputy Minister Seiso Mohai as board chair, have renewed scrutiny of ongoing patronage, governance, conflicts of interest and accountability at state-owned entities.
Yet, allegations of nepotism and cronyism have become commonplace in the public and private sectors, both in South Africa and globally.
“Favouritism of this kind can severely damage good governance and hamper forensic investigations, in spite of laws designed to restrict such practices,” says David Loxton, CEO at Loxton Forensics.
What is patronage?
Patronage is a form of favouritism and an umbrella term that includes nepotism (favouritism towards family members) and cronyism (favouritism towards friends, close associates, and personal or political allies).
It most often occurs when a person in authority appoints someone they personally favour to a role in their organisation, or awards them a benefit, like a supplier contract.
This can be a legitimate practice. For instance, a purely family-run business naturally appoints family members to its board, whether they are competent or not, without drawing public ire.
Another example is the recent appointment of Howard Buffett as the chairperson of US multinational conglomerate Berkshire Hathaway, after his father, Warren Buffett, stepped down.
A director at the company since 1992, the younger Buffett’s succession was both assured and welcomed as a way of preserving the values and ideology that made the company successful.
However, favouritism that bypasses governance or hiring policies and controls is not only frowned upon by the public, it can also be downright illegal.
“It becomes a problem when people are appointed to a role because of their personal or political connections and not their competence to hold that position,” says Loxton.
How patronage can impact governance
That lack of competence immediately puts governance at risk, because the qualifications, talents, strategic mindset, or aptitude required to promote good governance may be missing.
Similarly, many positions resulting from nepotism or cronyism are awarded on a quid pro quo basis, obligating the recipient to return favours regardless of procedural constraints.
This might include supporting poor decisions that are not in the best interest of the company, allowing external parties to dictate strategy, ignoring or participating in compliance violations or corruption, adopting illegal business practices, like price fixing or profit shifting, and more.
“Even in the best-case scenario, the focus on governance can become blurred, eventually leading to the type of crisis we are witnessing at the PIC and other organisations,” says Loxton.
Putting up a wall of silence
“The worst manifestation of patronage is when it attempts to protect those guilty of corruption from forensic investigation and conviction,” says Loxton.
Beneficiaries of patronage are often appointed with the expectation they will play ball and keep their mouths shut.
So it’s not unlikely that forensic work will be obstructed to protect the guilty.
This can happen throughout the lifecycle of an investigation, which may even be terminated prematurely if it threatens to expose certain parties.
Parties may employ various tactics, such as engaging a captured forensic investigator, putting up a wall of silence, laying a trail to a nominated scapegoat, prohibiting access to servers or data under the pretext of confidentiality or compliance risk, destroying evidence, intimidating whistleblowers, terminating honest staff, suppressing final reports, refusing to refer cases to law enforcement, or delaying reforms.
“In my experience, private companies are often more cooperative in bringing perpetrators to justice, but public sector entities tend to employ outrageous protection tactics,” says Loxton. “It will take strong political will to eliminate patronage in South Africa.”
