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About competence, credence and permanence … “Has she elegance? Has she fragrance? Would she have – without the strain of this trial – radiance?” These words, uttered by Justice Bernard Caulfield in the Jeffrey Archer defamation trial in 1987, resonated this week as KPMG SA decided to deploy its CEO – Nhlamu Dlomu – into a new role in global operations.
Thirty years after the Archer trial, KPMG found itself at risk of losing its primary currency – its reputation – in the wake of the firm’s entanglements with the Gupta family and the scourge of state capture.
As the political headwinds shifted throughout last year and the Gupta house of cards disintegrated, the various firms that found themselves accused of cultivating the empire – Bell Pottinger, Trillian, McKinsey, KPMG – were drawn into the ensuing fallout.
What made KPMG’s fallout unique, however, is that, as an auditing firm, its business model is premised on the pillars of ethics, integrity and transparency.
After internal investigations found the firm had fallen short of its own standards in relation to the Gupta work, KPMG dismissed the leadership team that had been at the helm in the latter years of the Gupta relationship.
Into the void stepped Dlomu as the firm’s first black woman CEO.
Naturally, her elevation in a time of crisis drew speculation from across the profession and beyond. Essentially, the question was: “Has she competence; has she credence; and would she have – with the strain of the scandal – permanence?”
As competence goes, few professionals within KPMG had a more distinguished record. Her expertise, however, was in the human resources field rather than in auditing.
Initial concerns centred on whether appointing a non-auditor as CEO was even in line with the Auditing Profession Act. The ensuing silence of the Independent Regulatory Board for Auditors (Irba) on this suggested there was no problem with her appointment.
But since KPMG’s key problem was the gap between its self-perception and the public’s perception, it was necessary to clarify the issue of how the firm had dealt with that question.
Failure to do this seemed at odds with the professed commitment to transparency. The nature of the auditing profession is that clients place great value on the relationship with the audit partner.
Consequently, the question of who is in charge of the audit business is important. KPMG’s lack of clarity did nothing to bridge the trust and transparency gaps.
Having identified flaws in its organisational culture, Dlomu was, due to her background, the best-placed person to undertake a process of re-engineering the culture.
However, organisational cultural shifts are notoriously slow, laborious and mostly invisible to outsiders.
Chairperson Wiseman Nkuhlu’s statement that the biggest impact of Dlomu’s tenure was visible internally highlighted this reality.
However, KPMG’s ability to stay viable was always dependent on external stakeholders’ ability to see such cultural shifts.
At this stage, there is little evidence of this among outsiders. Her move from the role leaves more anxiety than assurance.
Despite disengaging from the Guptas, losing the core of its previous leadership team and retracting its SA Revenue Service report, KPMG’s path towards sound credence was – in the words of George Nathan – always going to go through the thick forest of scepticism.
For client-auditor relationships, credence is the glue that sustains such relations. Regrettably for KPMG, major clients decided that the Gupta association had irretrievably broken this bond.
The exodus of clients depleted its standing and ability to secure new clients. In line with its shrinking stature, the firm had to shrink its reach and workforce. Significantly, key stakeholders – Irba, the SA Institute of Chartered Accountants (Saica) and the Auditor-General – supported the firm.
However, the collapse of VBS Mutual Bank extinguished the goodwill that KPMG had retained with all stakeholders.
Dlomu’s path towards credence for KPMG and herself faltered in the face of the VBS fiasco.
This led to the Auditor-General withdrawing his support and, with it, a significant revenue stream for the firm. The cruelty of capitalism is such that CEOs get evaluated on such indicators. To this end, Dlomu’s efforts were undermined through no fault of her own.
KPMG has now decided that it needs to find a “new chief executive from outside the firm, with strong industry experience who will optimise the prospects of rebuilding trust”.
The reinstatement into the Business Leadership SA fold this week suggested Dlomu was finally getting things right and business stakeholders were open to engaging again.
Significantly, KPMG communicated the CEO shuffle before finalising the process of appointing a new one.
My view is that communicating the identity of the new CEO in the same breath would have meant that the elevation of Dlomu to a new position would have been lost in the hysteria of the new CEO’s appointment.
The optics of such a process would be less than palatable, particularly if the replacement was neither a woman nor black.
As this new leader will be replacing a black woman, it is inconceivable that KPMG has not factored that transformation imperative into its recruitment process.
Given the demographics of the profession, this immediately narrows the pool of potential chiefs to a handful of names. Whoever emerges will take up the challenge of running a firm in need of decisive leadership during a time of crisis for the profession at large.
The impending implementation of mandatory audit firm rotation and other reforms require an ability to build bridges and mend walls with clients and regulators.
Frankly, the job itself is not particularly attractive given the enormity of the task.
It will take someone with the ability to view the job as a social and professional duty to assist the profession and the firm on its path to recovery.
Names like Sindi Mabaso-Koyana, Shirley Machaba, Sandile Hlophe and perhaps Sugan Palanee come to mind.
KPMG’s path to absolution has hit a hiatus.
As it stands, we are still waiting for the outcomes of the predictably delayed Saica-commissioned Ntsebeza inquiry and the various Irba investigations.
These may provide insight into the nature of issues that bedevilled KPMG in its recent past.
Inevitably, Dlomu’s shuffle has raised the question of whether she was used as a racially and politically correct proxy to placate the mood of society through the crisis.
I think this assessment denies her the agency she possesses as a professional.
After all, taking on challenges of this nature requires some fortitude.
Whether black professionals should resist putting their hands up in times of crisis is a question that transcends Nhlamu Dlomu.
In assessing her brief legacy, the court of public opinion will simply ask: “Had she competence; had she credence; and – with the strain of the scandal – had she permanence?”
As it turned out, it was yes, no and no.
Sithole is a chartered accountant, academic and analyst
