Wiseman Nkuhlu | We’ve learnt our lesson, repented and are reforming

No day passes without further revelations about the scourges of state capture and corruption that have blighted our country.

By some estimates, the cost to the country may have been as much as R1.5-trillion.

This backdrop provides relevant context to understanding the past mistakes of KPMG SA in two particular aspects.

The first concerns the phenomenon of state capture itself.

Knowing what we have learnt over the past few years, through the bravery of some individuals, investigative journalism, the Gupta e-mail leaks and now through the Zondo commission of inquiry, it all looks very clear.

But it was not always clear what was happening at the time.

Indeed, the process of state capture evolved slowly, and it took time for our society and institutions to understand the scale of corruption occurring at the heart of government.

Most businesses simply lacked the requisite antenna to understand the political environment, and they lacked the culture and capabilities to discern and avoid harm.

The recent Bosasa experience is an example of what has gone wrong in our society.

It implicates senior politicians and many people did not realise what was happening until it was too late.

Firms and individuals with previously good reputations suffered dearly for these shortcomings.

In the case of KPMG SA, reputational taint has seen the business shrink by about a third in 18 months.

I am not seeking to excuse. Plainly, KPMG SA should have been quicker to stop working for the Guptas and ought never to have accepted the SA Revenue Service (Sars) assignment.

But while there are many instances in our society of outright corruption by individuals or corporations, there are other cases where organisations ran into trouble because they lacked sufficient scepticism and weren’t appreciative of the broader political environment.

I would include KPMG SA in that.

There was also the issue of over-confidence, where firms rode a wave of success, winning more significant clients and more complex mandates.

When this is not properly managed, for example by setting the right tone at the top, it can lead to complacency and a belief that the organisation can do no wrong.

In the case of KPMG SA, the key mistakes the firm made were attributable not only to these shortcomings but also to developments within the auditing profession itself.

The second point relates specifically to the profession.

Young accounting students and auditors are taught that the purpose of issuing an audit opinion is to give confidence to investors, the capital markets and others who rely on the information companies provide.

They learn about the importance of acting in a manner that is independent of the management running these companies. But no sooner have they progressed from training and started working at one of the auditing firms than they learn the importance of meeting client needs.

The conflict here is obvious. Of course, no professional services firm can succeed without satisfying clients’ needs.

But in some instances, at least in relation to SA auditing firms, the ability to balance professional duties and client needs has gone out of kilter.

Firms have not always prioritised their professional duties and responsibilities to the broader public interest.

Indeed, auditing firms and professional services firms with roots in auditing are not ordinary commercial enterprises.

They have a unique role to play in society because they are expected to uphold the highest standards of integrity and quality of their work.

They also have professional duties they must comply with above all else.

We have to take seriously the challenge of finding a better balance between the needs of those who pay our bills, the duties we have as professionals and our role in broader society.

As we have sought to rebuild the foundations at KPMG SA over the past 18 months, these two matters – the challenges of state capture and the issue of client-centricity – have informed our understanding of how to respond to what went wrong.

The leadership is the personification of the firm.

And so if there has been a significant failure within the firm, as there was at KPMG SA, then the leadership must be changed.

KPMG SA did this through significant changes announced in September 2017, when nine key officers left the firm and Nhlamu Dlomu, who played a crucial role in our rehabilitation, was appointed CEO.

Then there were the subsequent appointments of Ansie Ramalho and myself as independent directors in March 2018, and the decision to appoint an experienced outsider, Ignatius Sehoole, to the firm as CEO.

He will start with us in May. Where, then, does this leave KPMG SA?

We need to draw a clear distinction between legacy matters and what the firm is today.

The key legacy issues – work we did for the Gupta family, Sars and VBS – are being addressed appropriately.

Where the firm or its professionals have fallen short, we must face the consequences.

As for KPMG SA today, we have travelled a long journey and taken many steps to rebuild a platform that can again serve SA by inspiring confidence in our capital markets and empowering change in our society.

We have learnt our lessons, repented and are reforming.

We are a fundamentally different business from two years ago, serving the public interest as well as our clients, and it is on this we believe we should be judged.

I believe a flourishing KPMG SA serves the national interest.

Strong international services firms such as KPMG bring skills and capabilities to developing countries that are important for their development and are beyond the capabilities of smaller, local firms.

To play this role requires the support of our clients and the permission of society.

While it is still a journey I believe we have done enough to earn this.

Prof Wiseman Nkuhlu is the executive chairperson of KPMG SA.