IRMSA report

Violent strikes can be prevented by risk management says CCMA’s head The risk of unlawful and increasingly violent strikes that have spread across South Africa in recent times and hit global headlines as strikes erupted into lethal violence at the Marikana platinum mine last August are manageable, according to Nerine Kahn, National Director of the Commission for Conciliation, Mediation and Arbitration (CCMA). The CCMA is a dispute resolution body that is independent of trade unions, government or business and was created as a result of the Labour Relations Act, 66 of 1995 (LRA) by which it replaced the Industrial Court. It was hoped that the creation of the CCMA would signal a shift from a highly adversarial model of relations to one based on the promotion of ‘greater cooperation, industrial peace and social justice’, according to its website.hideBut while recently published case settlement rates suggest that the CCMA is doing a good job, the violence that erupted at Rustenburg and the subsequent wave of unlawful and unprotected strikes across South Africa such as the farmers’ strikes suggest that the country still has a mountain to climb when dealing with workers’ grievances. During a recent visit to the CCMA’s Newcastle office, Ms Kahn conceded that the problem is not an easy one to deal with. “Many employees believe that they are exonerated from compliance with the Labour Relations Act procedures and this has placed additional pressure on commissioner resources in dealing with unprotected strikes in northern KwaZulu-Natal,’’ she said. Ms Kahn cited one recent example of unprotected strikes at Forbes Coal when workers came up with ‘exorbitant’ demands of an over 70% wage increase. Another example she gave was at Moneyline Mine in Vryheid where employees went on strike to demand that no disciplinary action was taken against an employee who was found manufacturing dangerous weapons underground. But despite the scary headlines that currently dominate risk agendas in many South African companies, Ms Kahn told risk managers at the IRMSA conference that the disaster at Marikana actually underlined how this risk can be manageable so long as all parties involved play by the rules and take a risk-managed approach. “The events of this year underlined the importance of managing risks and showed how industrial relations and the extent to which the ripple effect can have on an organisation and the country,” said Ms Kahn. The arbitration chief stressed that it is a constitutional right to strike and for workers this is a ‘very, very important’ right. But she also stressed that it is critical that specific processes are followed. “This year we moved out of that and we need to work out how to deal with that,” she said. Ms Kahn again stressed that strikes are a normal part of the industrial relations process and not necessarily negative. “But breaking the process and relationship is a risk that can have adverse consequences and did so this year and last year as more and more unprotected strikes not protected by the Labour Relations Act occurred,” she said. The consequences of such actions are simple and not healthy, said Ms Kahn. “They break down relationships between employers and employees. Anger causes problems, disputes, business continuity and production problems, lost business time, profits and jobs. The question is how do you prevent this?” she asked. Ms Kahn pointed out to delegates at the conference that the ‘conventional wisdom’ amongst the wider South African and business community was that the responsibility for the industrial action laid squarely with the trade unions because they had raised expectations in an irresponsible way. “This was really, really not the case,” she said. Ms Kahn said that the seeds of the Marikana dispute had been sown long before the immediate crisis unfurled and led to violence and deaths. She said that there is clearly a growing frustration amongst workers about the huge wage gap evident in South Africa, as stressed by fellow speaker Mark Bussin of the SA Reward Association (see story on next page). And business leaders need to accept that there is shared responsibility for such events if lessons are to be learned. Ms Kahn divided up the responsibility for the Marikana incident into that which laid at the feet of the employers, that which must be borne by the workers themselves and their representatives and that which lies out of all parties’ control. She said the employers were firstly to blame because they displayed an unhealthy organisational culture. “If you ignore employee concerns or just paper over the cracks, eventually it will manifest itself in industrial action,” she said. Ms Kahn explained that strikes are actually hardly ever simply about wages. “Wage demands are usually a manifestation. Generally they (strikes) are caused by autocratic management style. There is a lack of consultation with workers about what can be done to improve conditions,” she explained. A second responsibility that lies with employers is inequitable employment practices, said Ms Kahn. “Often management don’t realise this is a problem but it is very obvious to workers. For example labour broking. I am not suggesting that we should not have it but we should recognise that this system leads to exactly the same person doing exactly the same job but earning less, for less holidays and less benefits, therefore how do you manage that?” she asked. Management of industrial relations by proxy is another typical management failing, said Ms Kahn. She said that the single biggest problem in South Africa in an industrial relations context is the tendency to outsource human resources and thus not deal directly with challenges on the ‘coal face’. Ms Kahn said that employees obviously lose respect for management that delegates such an important function and this approach does not tend to solve problems on the shop floor anyway. “It allows for negotiations but does not deal with issues. HR is there to advise you on procedure, not tell you how to manage employees. This is a big problem. You are absolving your right to communicate,” said Ms Kahn. Equally dangerous for the same reason is a tendency to overly rely on trade unions as the main means of communication with workers, said Ms Kahn. ‘Lawyering up’ as a first resort is another management problem. “We run to lawyers just as we absolve responsibility to the HR department. Lawyers go to court and get a piece of paper and are ignored. Lawyers make a lot of money but do not deal with industrial relations problems…yes you need to lawyer up but it does not solve issues, just escalates them and often endangers the relationship going forward,” said Ms Kahn. The cause of strikes such as Marikana that lie in the hands of the trade unions are just as plentiful, difficult and in need of corrective action fast, said Ms Kahn. “I would argue that trade unions have become a business. People are collecting money and fail to service the workers. Management is happy because they deal with representatives but do not know whether they are actually dealing with the workers. Too often the representatives don’t live in the community affected and there is a lack of accountability of shop stewards,” explained Ms Kahn. An example of how the trade unions need to be dealt with carefully occurred in 2010 when one mining company agreed to increase wages to keep everyone happy. But the trade union that the management of the company dealt with only represented four layers of workers and the ones that were represented received higher increases. “They were not actually serving all constituents,” she said. Ms Kahn also explained that under the rules of the National Union of Mineworkers, shop stewards and organisers are supposed to be re-elected every four years but in the Rustenburg area the local union bosses decided to ignore that requirement and stay in position. “You can understand why. They were flown to conferences, were given a car and the like. Why would they want to return to manual labour? But the NUM ignored this because of history,” she said. Ms Kahn also said that a culture of ignoring the LRA has developed, which is leading to a dangerous new environment. “This is a serious offence but the trade unions do not want to talk about this. Therefore the workers believe that if they aren’t violent then they won’t achieve their aims. This is a huge risk,” said Ms Kahn. The causes of illegal industrial action that are under the direct control of both management and the unions include failure of leadership, ignoring the workers’ voice and failure to agree the rules of engagement at the outset. “It is better to argue up front and not in the middle of a process because workers get confused because the process is quite complex. Only after three days of intervening in Rustenburg did the worker delegates realise for the first time that an unprotected strike was breaking the law. They just saw protest as a way of getting what they wanted,” explained Ms Kahn. Wider social, political and economic dissatisfaction also has led to a rise in industrial activity in recent times in South Africa and this is essentially out of the hands of both management and the unions, said Ms Kahn. “Marikana was not a labour dispute in reality but socio-economic frustration. Workers were expressing frustration with issues that the government could not respond to,” she said. Overall the key for both management and unions to avoid such problems in future is to get together and discuss problems and solutions all year round, and not only act after the problems have boiled over. “It is about effective communication and not just leaflets. You need to talk to people and understand the needs of people and then get a commitment internally to a peaceful line of action from workers and management. One key thing was that the workers at Marikana said that Lonmin management never talked to them. We have had a hard time in South Africa recently but this risk can be mitigated by managing it strategically and operationally,” concluded Ms Kahn. Performance-linked pay part of solution to inequality problem: Bussin Mark Bussin, immediate past president of the SA Reward Association (Sara), told risk managers at the IRMSA annual conference that, against a backdrop of increasingly violent strikes by disaffected workers, the time has come to take pay and benefits seriously in corporate South Africa. Mr Bussin said that he chairs more remuneration committees than any other African and one question he always asks his committee members is whether they think African CEOs are overpaid. The result was 60% yes and 40% no and, given the current social and political environment in South Africa, he is not surprised by that, he said. “A guy is paid R48m per annum as CEO and we are in union negotiations with his workforce for a 1% increase for workers. The company is dragging its heels over 1%? We can’t ignore the context anymore and need to adopt more robust methods on remuneration,” Mr Bussin told delegates as South Africa was still trying to digest the meaning and causes of the violence and resultant deaths at the Lonmin Marikana platinum mine in Rustenburg last summer. “If risk management is our game then one risk is negative image and the potential for a downward spiral. A salary of R48m versus the downtrodden masses is just too much. It is the greatest job mismatch of all time,” said Mr Bussin. “Kids come out of school to no work and this is not a race issue. Are we teaching them the right things? Where is the IT education? Is the university curriculum still relevant? We need to ask what business needs. Why are there 6–8 million unemployed? This is a big risk because opposite this you have a CEO earning R48m,” continued the pay expert. Mr Bussin said that structural unemployment is a big problem that will not simply go away if not tackled, and not just in South Africa. He quoted a report by Mckinsey published in September 2012 entitled Who ate my job? that predicted that 90 million people worldwide would lose their jobs by 2020. “Technology is eating the jobs so our downtrodden masses need to be more technically savvy. Everyone needs access,” he said. “The Human Resources Institute says that it cannot find good accountants, risk managers and the like and employers from countries all over the word are fishing for talent here. We are just not teaching people what they need to know. We have 1.2% of the worldwide workforce in South Africa but 5% of the unemployed. This is not good enough,” continued Mr Bussin. Mr Bussin focused on the Marikana miners’ strike as a case in point and a harsh lesson for wider business to learn from. “What did the workers want? Production was down 21% and gross profits down 40% but the bosses enjoyed a 23% rise and the workers read about this in the newspapers. We will see more and more strikes of this nature unless we address this,” he warned. As ever, however, Mr Bussin explained that the case is not anywhere near as simple as it was presented in the newspapers and viewed by the disgruntled workers. He pointed out that the average tenure for a CEO globally is three years. Some 40–70% of CEOs will retire in the next five years. He also said that 20,000 South Africans recently attended the Opportunities in Australia Expo in Johannesburg and half of them were black. Some 150,000 people work in the highly respected South African financial services industry and 10 million job vacancies currently can’t be filled in the US alone. “Retention is a key risk to any company in South Africa currently. One mining company recently offered its entire executive committee $1-2m plus 100% shares basically because if they go the business will struggle. So the question is: ‘How do you retain these people while looking after the downtrodden masses?’ You need to do proper remuneration and performance management,” explained Mr Bussin. The pay expert said that he does not believe that the pay expectations of the trade unions are excessive given the price of food currently. But he said that the answer is not necessarily an outright attack on the executive and higher earning classes. When the mean pay of South African executives is compared to 20 countries with similar GDPs the message is clear: South African business has to show ‘restraint’, said Mr Bussin. The potential ripple effects of a pay assault are clear. “We could see pay caps, an increase in tax if you earn more than R5m of 60%. These are all possibilities and therefore we need to show restraint. The counter argument is that this is a market economy. We have to fight inequality but not just by wage pay freezes. That is short-term. We actually need to create jobs,” he explained. Mr Bussin said that the answer for executive pay is to make a strong link to performance. “You have got to disentangle skill from luck. You can’t have incentive schemes that go up when the tide is high and down when it is low,” he explained. Mr Bussin also pointed out that money is not everything. He said that actually South Africa needs great companies, great leaders and a great work culture that creates great careers. “Great rewards is only 25%. The rest is inspirational leadership. Companies need to put more employees on variable pay, profit-related pay,” continued Mr Bussin. Mr Bussin said that he sits on the commission that sets the President’s pay and did so in 1994. R500,000 was suggested and I suggested a R50m bonus after five years. All the others said no way. But my suggestion was based on targets—to halve unemployment and double GDP. Who now would object to that? It’s about the option,” he concluded. Call to arms on ethics as index marks down SA’s corruption score South African companies and individuals need to act to tackle the rising problem of bribery, corruption and ethical decline in government and business or the country’s economic development will be threatened as investors shy away, a leading ethics expert warned IRMSA delegates during the risk management association’s annual conference. The issue was raised at the conference shortly before it was revealed that South Africa’s position in its global corruption perception index published by Transparency International has worsened again. South Africa is now ranked 69 out of 176 countries surveyed in 2012, a fall from last year’s 64th position out of 183 countries.Moaning about the problem will not make it go away, rather, positive action is needed, stressed Dr Deon Rossouw, CEO of the Ethics Institute of South Africa. “The logic is quite simple. We all complain but it takes two to tango. The role of business in keeping corruption going is recognised and so there has to be a demand for business to get its house in order and play its part in stopping corruption,” said Dr Rossouw, a member of the King Committee that created South Africa’s cutting edge corporate governance code. Dr Rossouw’s institute has recently signed a memo of understanding with IRMSA and he said that this should come as no surprise to anyone because the link between ethics and risk management is ‘abundantly clear’. He pointed out that ethics had risen in prominence in South Africa in recent years not least through the King code. King I was introduced in 1994 and the chapter on ethics was added at the end as an ‘afterthought’, he explained. It gained more prominence in King II introduced in 2002 and by the time King III came along in 2009 it was included within the first chapter. Also the new Companies Act, introduced last year, requires a second statutory committee of the board that deals with social and ethical issues. “We have seen risk management increasingly on the agenda of social and ethics committees because they (risk managers) need to monitor the social and ethical performance of companies. If risks are detected they must be responded to by the board of directors…risk managers typically should advise boards on how ethical risks should be mitigated,” said Dr Rossouw. Dr Rossouw said that importantly the demand for this recent emphasis on ethics has come primarily from outside the closeted world of boards, internal audit and risk management committees. He said that first there is big social demand because there is worldwide declining trust that business will act in the best interests of society and can cope with conflicts of interest. This is reflected in growing pressure coming from above, said Dr Rossouw. The United Nations for example introduced its voluntary code, the Global Compact, and former UN President Kofi Annan called upon companies to become more responsible members of society, focusing more on human rights, labour rights and the like. Then there is pressure from regulators the world over. This accelerated after the recent global financial crisis occurred and led to masses of regulation, much of which was aimed to force companies to become more responsible. Social protest has also risen in recent times, particularly after the financial crisis. Financial centres such as Wall Street and the City in London were occupied by groups demanding a new, more ethical approach to business and society at large. The demand for sustainability is also a driving force according to Dr Rossouw, who said that more and more people are waking up to the fact that there is a ‘very good chance that we are destroying the planet and we have to stop stealing from our children’. And finally there is investor demand for a more ethical approach to business, said Dr Rossouw. He pointed out that big pension funds have begun properly screening their investment targets and not just for financial performance but rather judging them on economic, environmental, social and governance criteria. “We have seen the whole rise of responsible investment that excludes companies and whole industries such as gaming, tobacco, arms and the like,” he said. Corruption is an element of this focus on ethics and Dr Rossouw said that agreements such as the UN Convention against Corruption, UN Global Compact, the OECD Convention on Bribery and Corruption and US Foreign Corrupt Practices Act (FCPA) are all placing pressure on companies and individuals within them to raise their ethical standards. The UK Bribery Act in particular specifically refers to ethics and risk and has caused something of a stir as it sets the ‘Gold Standard’ for behaviour. As with the FCPA, it significantly allows for the prosecution of individuals involved in corrupt practices even if they are based outside of the UK or US. This is a point not lost on risk managers with African companies with financial links to the UK or US companies or that even just supply them. Dr Rossouw said that one encouraging trend to come as a result of all this is that companies are actually also beginning to realise that it is not just about compliance but also actually better for the company to be clean and to be seen to be clean. Dr Rossouw said that there are clear advantages associated with having a ‘significant ethical culture’ such as enhancement of the corporate reputation, which remains the main driver. “It raises levels of trust and means you have a better chance of attracting investors. There are examples of products that are no longer sourced in South Africa because of working standards. It also helps to attract and retain talented staff. People want to be treated well and if they are treated unethically they will move on,” said Dr Rossouw. This latter point is perhaps one of the most powerful drivers of all. As was discussed during the IRMSA conference and other risk events attended by CRA in recent times, there is a real battle for talent underway in the global economy currently and shortage of talent is regarded as a big risk by risk professionals around the world currently. As with risk management ethics, of course it starts at the top. “If you want to manage ethical risk it starts at the top. Ethical management needs to built into the board of directors and they should take responsibility via governance structures formally,” said Dr Rossouw. And of course stakeholders need to be fully engaged. “Ethics is ever more important and prominent. People often think it’s so complex to manage ethical risk. But the short answer to that is try not managing ethics—it’s much more time consuming and costly!” concluded Dr Rossouw. On the specific problem of corruption within the public sector in South Africa, Dr Rossouw said that a ‘culture of entitlement’ unfortunately appears to have developed within the South African public service, ‘not I am here to serve the public’. “There is a rising percentage of frauds involved with doing business with government departments. A line needs to be drawn there, this cannot continue because it is undermining service delivery for the public, building a corrupt culture and this is a big problem,” he said. But Dr Rossouw did point out that the impact of corruption, while worsening, is still small compared to other African countries such as those in the north, Angola, Nigeria and the Democratic Republic of Congo to name but three. Though he did stress again that the UK Bribery Act is already having an impact in this sense because companies are suspending operations and will pull out.

IRMSA report

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