LEGAL

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LEGAL ETHICAL ASPECTS OF GOVERNANCE

• Edward Chr Kieswetter
• SARS Deputy Commissioner

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PRESENTATION CONTENT

• Law vs. Ethics
• 2. The Cost of Questionable Ethics
• Experiences from SARS
• Our Approach
• Our Experience
• Some Results
• 4. Conclusion

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YOU MAY RECALL THAT IT WASPERFECTLY LEGAL

• Slavery in the USA up to1865
• Womens suffrage denied deep onto the 20th
  century in many developed countries
• No German citizenship for German Jews up to about
  60 years ago
• Black South Africans denied the vote in their own
  country only 16 years ago

BUT IS IT RIGHT SIMPLY BECAUSE ITS LEGAL?
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EQUALLY

• From a legal standpoint
• You have no obligation to stop a drunk from
  driving his car
• A witness at the scene of a crime bear no
  responsibility to intervene
• Johnson Johnson did not have to withdraw 31
  million bottles of Tylenol when 7 people died
  in1982
• You will not be prosecuted for allowing someone
  to drown, even if you could help

YET IN EACH INSTANCE IT WOULD BE CONSIDERED
TO BE RIGHT/REQUIRED/EXPECTED TO DO SOMETHING!
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LIMITATIONS OF THE LAW

• In prescribing a set of generally accepted,
  widely published, and generally enforced rules,
  laws are meant to provide us with
• A broad framework for acceptable behaviour
• Prescriptions on how to conduct specific
  relationships within society
• A reference for holding individuals and groups
  accountable for social order

YET LAWS, WHILST INDISPENSABLE, ARE NOT
SUFFICIENT AS A COMLPETE REFERENCE TO GOVERN
BEHAVIOUR!
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IN THE HIGHLY CONTESTED SPACE OFGOVERNMENTS,
CIVIL SOCIETY AND BUSINESS

• Where not everything which is allowed is
  necessarily right or good
• Where narrow self interests are often pursued at
  the expense of greater social good
• Where not every eventuality can be always fully
  anticipated
• Where the eventual impact of leadership decisions
  may have far-reaching consequences beyond its
  immediacy

LEGAL PRINCIPLES HAVE TO CO-EXIST WITH ETHICAL
VALUES
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• SO WHAT EXACTLY IS ETHICS?

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ETHICS.

• Greek derivative ethos or character
• Having, and acting on a sense of what is right
• An awareness of consequences intended,
  unintended, immediate, extended
• Doing the right thing, all the time, even when
  no-one is watching
• Ones view on morality (mores latin) informs
  what is ethical for you!

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LEADERSHIP ETHICS

• According to King III, Responsible Leadership
  that has an
• ethical foundation, is defined as leadership
  focused
• amongst other things on
• Building sustainable business
• Considering the short and long term economic,
  societal and environmental impact of strategic
  choices
• Considering impact of business on internal and
  external stakeholders

NOT SIMPLY SHORT TERM BOTTOM-LINE RESULTS!
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• A QUICK LOOK AT CONTEXT AND THE COST OF
  QUESTIONABLE ETHICS

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A QUEST FOR THE CORRECT MODEL

• We must reject the idea well intentioned, but
  dead wrong that the primary path to greatness
  in social sectors is to become more like a
  business.
• Most businesses fall somewhere between mediocre
  and good. Few are great!

Jim Collins, 2006
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EXAMPLES OF ORGANISATIONS WHERE QUESTIONS ABOUT
LEADERSHIP ETHICS CAN BE ASKED

• Enrons, Worldcoms, Parmalat, etc,
• And on our doorstep
• Leisurenet
• Saambou
• Fidentia
• and many more examples of fraud, insider trading,
  colluding, price fixing, etc

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CAPITALISM vs CAPITALIST

• Are we dealing with a crisis of capitalism or a
  crisis caused by capitalists?
• Sir Martin Sorrel (CEO WPP) believes that a few
  misguided capitalists are to blame for the
  current financial crisis that precipitated the
  subsequent economic crisis in the world today
  he singled out amongst chief contributory
  factors, the perverse incentives, for example of
  pariah merchant bankers
• Its about the greed of people!

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TAKING RISKS WITH OTHER PEOPLES MONEY

• Derivates are financial weapons of mass
  destruction
• says Warren Buffet, referring to the ceaseless
  financial sector innovation that has now led to
  the deepest, broadest and most dangerous
  financial crisis since the 1930s

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PRUDENCE CAPITAL/ASSET RATIOS

• European Banks
• 100 years ago 41
• 1970s 101

• US leverage ratios 2002 2006
• Morgan Stanley 21 - 33
• Goldman Sachs 24 - 26
• Merrill Lynch 27 32
• Bear Sterns 32 - 34

In September 2008, the Bank of Americas
leverage ratio was 73.71 HBR, July Aug
2009
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EXAMPLE THE COST OF AGGRESSIVE TAX PLANNING

• According to the Tax Justice Network
• All the Development Funding to Africa can more
• than adequately be paid for by the monies that
• end up in elsewhere due to tax revenues that
• leave the continent as a result of aggressive tax
• planning and questionable tax havens
• In 2007 more than US 11.5 held in about 70 tax
• havens

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POSSIBLE RESPONSES?

• Regulation How much?
• Government Intervention Appropriate level?
• Protectionism Can it be justified?
• Quick Fix vs. Sustainable Solutions?
• Current Fix vs. Future Cost

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LETTER vs SPIRIT

• Ive lived my life in a society where there was
  no rule of law, and thats a terrible existence.
  But a society where the rule of law is the only
  standard of ethical behaviour is equally bad
• Kevin Rollins
• (President of Dell Computer Corporation
  paraphrasing Aleksander Solzhenitsyn)

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• EXPERIENCES FROM THE
• SOUTH AFRICAN REVENUE SERVICE

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SARS APPROACH TO ETHICAL LEADERSHIP

• WE EXPECT OF OURSELVES.
• TO DO THE RIGHT THING
• ALL THE TIME
• EVEN IF NO ONE IS
• WATCHING

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ETHICAL LEADERSHIP IS ABOUT

• Building an effective corporate culture at SARS
  that is more than conforming to what is legal or
  as set out in the King recommendations
• Ethical and moral standards go beyond the law and
  the language of thou shall not
• SARS duty arises out of respect for the worth and
  dignity of individuals who devote their energies
  to the organisation and depend on SARS for their
  economic wellbeing

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ETHICAL LEADERHIP IN PRACTICE

• Requires
• Absolute clarity about what values we want to
  promote at SARS
• Relentlessly reinforcing behaviours that support
  our desired values
• Visibly sanction behaviours that detract from our
  desired values
• Fair Consistent Enforcement

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CULTURE AND ETHICS

• Whilst organizational structure, policies
  procedures may help, it will not ensure a
  sustainable ethical environment.
• There is a strong link between the organizational
  culture and ethics
• You have to get it into the DNA!

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THE SARS EXPERIENCE

• Elaborating on the SARS experience
• Our commitment to the public
• Our commitment to our staff
• Institutional arrangements
• Some Results at a glance
  

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• OUR COMMITMENT TO THE PUBLIC

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SARS PURPOSE STATEMENT

• We will contribute to South Africas development
  as a globally competitive economy by facilitating
  legitimate trade, tax payment and economic growth
  and by eliminating illegal trade and tax evasion.
• We administer an efficient tax system and reduce
  the compliance burden by advocating the value of
  compliance and creating a culture of good
  citizenship across all sectors of society and the
  economy
• A successful South Africa will improve the
  prosperity of its people and that of Africa

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SARS THEORY OF COMPLIANCE

• Rationale Clarity Simplicity
• The easier we make it for honest taxpayers to
  comply, and the earlier we detect non-compliance,
  the higher the levels of compliance is likely to
  be
• We therefore aspire to
• Reach out and educate
• Provide world-class service
• Enforcement responsibly

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Service Charter You are entitled to expect
SARS To help you through self-explanatory
leaflets and booklets as well as our website
courteous and professional service at all times
providing clear, accurate and helpful responses
making clear what action you need to take and by
when being accessible via our call centre and
walk-in centres listening to your
suggestions To be fair by expecting you to pay
only what is due under law treating everyone
equally ensuring everyone pays their fair
share To respect your constitutional rights and
privacy by keeping your private affairs
strictly confidential furnishing you with
reasons for decisions taken applying the law
consistently and impartially If you are not
satisfied, you may request that your tax
affairs be re-examined exercise your right to
object and appeal request that we advise you of
the procedures to be followed in our alternative
Dispute Resolution (ADR) process lodge a formal
complaint at any of our offices lodge a
complaint with the SARS Service Monitoring Office
(SSMO) In return, your obligations are to be
honest submit full and accurate information on
time pay your tax and/or duties on time and in
full encourage others to pay their tax and/or
duties report others who are not paying their
fair share not encourage or be party to bribery
or fraud in any form
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OUTREACH TO TAXPAYERS
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BALANCE SERVICE ENFORCEMENT
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• OUR COMMITMENT TO OUR STAFF

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SARS Leadership Model
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ADDRESSING DYSFUNCTIONAL ISSUES OR RESTRAINING
FORCES THAT ACT AGAINST DRIVING FORCES FROM SARS
MANAGEMENT

• You can not demand ethical behaviour until you
  deal with the basics
• Examples for us
• Dissatisfaction relating to Grades and Salaries
• Career Development Program
• Recruitment and Selection Practices
• Level Quality of Communication
• Double Standards, mixed messages and inconsistent
  behaviour

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• INSTITUTIONAL ARRANGEMENTS

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STRUCTURE FOLLOWS STRATEGY

• SARS established an Ethics Office at the end of
  2004 comprising the following units
• Integrity Unit pre-employment screening and
  security vetting
• Ethics Awareness Unit ethics training and advice
  to SARS personnel
• Anti-Corruption Unit eradicating fraud and
  corruption within the organization
• Other Stakeholders FIC, SARB, SAPS, NPA, etc

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• LESSONS FOR ETHICAL LEADERSHIP

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SOME TELL-TALE SIGNS OF UNETHICAL LEADERSHIP
BEHAVIOUR

• Power-driven people
• Pursuit of narrow self-interest
• Nepotistic behaviour
• Discourage open and challenging conversations
• Focus on short term gain at the expense of long
  term integrity

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IN SUMMARY

• Clear ethical expectations
• Leadership visibility behaviour
• Substantive ethical training
• Vigilance Relentless monitoring
• Visible rewards and sanctions
• Create a Safe environment for frank
  conversation, for bad news, for learning

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ETHICS CANNOT BE ROLE PLAYED!

• Ethics in fact is
• More than leadership saying
• More than leadership doing
• It is about leadership being

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• SOME RESULTS AT A GLANCE

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STRIVING FOR SERVICE EXCELLENCE
Introduction of Electronic Filing
Metric 2004 2006 (1st 3 years) 2007 2009 (2nd 3 years)
Registered users 500k 5m
Number of returns 1.5m p.a. 7m p.a.
of eFiled returns to total returns 8 Approaching 50
Value of Assessment processed via eFiling R100bn R382bn
Payments processed via eFilling R55bn R343bn
Payments to Total Revenue 13 55
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STRIVING FOR SERVICE EXCELLENCE

• Pre-populated PIT form achieved Customer
  satisfaction rating of 86.9
• Paper return volumes declined by 74
• Average turnaround of PIT assessments from 1
  within 48 hours to 63 within 24 hours

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TOWARDS A CULTURE OF VOLUNTARY COMPLIANCE

• 31 improvement on PAYE submissions
• 518 guilty verdicts attained
• 73k audits - average yield of R70k
• per case
• R13.4b debt collected last year

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TAX REGISTER GROWTH
7.0
Registered tax payers as of population

CAGR 7.6
28,0
18,0
16,8
1995/96
2000/01
2005/06
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Revenue

• Revenue growth from R184b to R625b over past 10
  years (CAGR 13)
• Revenue increased from R572.8b to R625 b

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COST AS PERCENTAGE OF REVENUE
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LASTLY

• BY OUR OWN ASSESSMENT SARS, DESPITE ITS RELATIVE
  SUCCESSES STILL HAVE MANY CHALLENGES AHEAD,
  REMAIN COMMITTED TO THIS JOURNEY

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CONCLUSION

• The ultimate measure of a man is not where he
  stands in moments of comfort and convenience, but
  where he stands at times of challenge and
  controversy
• Martin Luther King, Jr.