Issue: March/May 2008
Editorials

FIRST WORD

Stop the music

It’s time that service providers come to the party, not as dancers but as poopers. On its own, PF 130 isn’t sufficient to calm the freebies jol.

It takes two to dance a corruption tango. For every corruptee, there must be a corruptor. That much-lauded circular PF 130, the comprehensive document of the Financial Services Board (FSB) on the good governance of retirement funds, confines itself to trustee boards’ policies on gifts. That’s only half the equation. Trustees are the recipients of gifts, not the givers of them. Gift providers are the service providers who seek their business.

The dancing partners would be the last to correlate gifts with corruption. Such is the ugliness of the term that there’s tip-toeing around it. PF 130 doesn’t use the word, and neither does the code of the chartered financial analysts’ institute, which is often vaunted as an international reference for best practice. PF 130 propounds procedural guidelines for acceptances and approvals. It places the onus on trustees exclusively. The CFA Institute has rules on the offers of gifts as well.

Corruption must be seen for what it is. Disguised because the practices go by different names, sounding benevolent as they’re often supposed, gift-giving is rife in South Africa’s retirement-fund industry. It prevails because it suits the partners: fund trustees, because the pickings can be easy; service providers, because there are occasions when approached that they daren’t refuse or, when not approached, opportunities beckon.

In PF 130, the FSB has tied one hand behind its back. If it didn’t recognise that there’s a problem, the circular wouldn’t seek to resolve it. To be blunt, much of the fault seems to lie with member-elected trustees who’ve come to confuse expectations with rights and whose expectations have risen extraordinarily high. They’re more the drivers than they’d care to admit. Service providers, willingly or under sufferance, allow them the space to drive.

Gift giving is wrong when the intended objective is wrong. This is to the extent that it impairs the judgment of trustees in deciding to whom business should be allocated, the services they’ll buy and the charges they’ll accept. When the music stops, the fund members pay.

There need be nothing more complex about it than the one-pager in PF 130. All it requires is a similar policy. Disclosures by institutions on open registers of what’s given can then be reconciled with disclosures by trustees of what’s got. Secretive backhanders are converted to visible fronthanders. And a policy, formulated and applied by the institutions in unison, will provide a level platform for them respectively to say no.


Rationalisations for corruption abound. When everybody’s doing it, not only in the industry but in the highest political circles, then why not me? Isn’t it merely a cost of doing business, to be lost should the cost not be incurred? Who asked for or expected anything in return? Aren’t expenses for entertainment and travel legitimised by the Receiver anyway?

Never mind the fine lines between acceptable and unacceptable practice, for they serve to obscure the principle. If the FSB thinks it can halt the rot by imposing fine-sounding policies on trustees, for them to get written board approvals and so on, it has another think coming. Members of trustee boards can scratch one another’s backs. Even the worst sanction is close to meaningless, for expulsion from the fund’s board merely relieves the poor fellow of a job for which he receives no remuneration in any case.

True, the policy in PF 130 is a means to codify honour. But a lack of honour needn’t necessarily be reflected by disregard of the policy. Trustees and boards have so much on their plates that claims of innocent forgetfulness, to apply in writing, say, for permission to sit as a guest at a sports stadium and for the board to approve it by resolution, undermine the purpose.

This is not to suggest that boards shouldn’t have the policy that PF 130 defines. Far from it. It is to suggest that there are complementary means, practical ones, to strengthen possibilities for enforcement.

For this, look to the service providers. Financial institutions themselves should, in their own interests, formulate their own code as an industry on offers of gifts, entertainment, travel and sponsorships for retirement fund trustees. Containment at the giving end facilitates containment at the receiving end.

There need be nothing more complex about it than the one-pager in PF 130. All it requires is a similar policy. Disclosures by institutions on open registers of what’s given can then be reconciled with disclosures by trustees of what’s got. Secretive backhanders are converted to visible fronthanders. And a policy, formulated and applied by the institutions in unison, will provide a level platform for them respectively to say no.

There’s always a voluntary course. There’s also, with a legislated function to supervise the behaviour of financial institutions, the FSB with its circulars.

Allan Greenblo
Editorial Director