African Bank has been the focus of recent business news in South Africa for the past few weeks. Everyone has suddenly become an ‘expert analyst’ on the woes of African Bank, and what they should have done differently. Should they have bought Ellerines? Should they have closed down their savings account offering and allowed for a diverse portfolio of profits? It’s easy to judge when looking back, but a lot more difficult to give guiding principles when looking forward.
The recent happenings at African Bank, as well as the subsequent Moody’s downgrade of the other unsecured lending providers almost seem like a shadow or a latent ripple effect of the financial crisis that hit the world in 2008. At that time, ‘capitalist greed’ and ‘deregulation’ were seen as the culprits of the time, and corporates were then seen as ‘evil’ with subsequent Occupy [Insert Financial Landmark] protests happening worldwide.
I remember my earlier teachings in my Business Economics class in grade 9 at Umtata High School. We had to memorize the mantra “The purpose of business is to maximize shareholder value”. From there, we learnt what shares were, and that value is maximized by increasing the ‘value’ of the business, whether owned privately and publicly. And it seems that this is the teaching that has permeated throughout markets around the world.
It seems that within business classes of schools and universities, there is never a focus on what businesses actually do to maximize their shareholder value. Of course there is advice that what one does should remain within the bounds of the law, but the relativistic ethics of good and bad are bound only by the spirit of the age that guides the law makers. Was African Bank’s business model ethical? Was their business model of providing unsecured loans good, and not just good for the business of maximising shareholder value? This is debatable, but I don’t think so. I will outline just a few of the reasons why:
Some argue that all they do is provide a service to a customer who has a demand for the service, and it’s not their issue what happens after that. The fault should be with the customer alone, and not the financial institution. Such thinking is myopic, and is running away from responsibility. It is almost like saying that the creators of cocaine have no role to play in cocaine addictions (if cocaine was legal). Or the providers of bank accounts have no responsibility to monitor if fraud is being conducted on that account.
In a society of high indebtedness, where many struggle paying off their debts, and where many are blacklisted and ruin their futures and the futures of those that are dependent on them, adding fuel to the fire only makes one an accomplice. All people are made in the image of God and should therefore be treated as such. I would assume that, if those who are proponents of such unsecured lending would see someone close to them in that bad debt trap, they would discourage them from continuing in the practice. Why then do they value one as a human being and another as a potential profit stream?
The founders of African Bank started it as a vehicle to finance black-owned businesses during Apartheid when restrictions made it very difficult for them to start their businesses. It was also a savings institution that provided a vehicle for families to save and build up wealth. Somewhere along the line, these noble objectives and goals were lost. The value and importance they saw in their customers was lost, not seeing them with their inherent value and wanting the best for them, but seeing them as lines on their income statement and wanting the best from them.
Good business is about doing what is right, and maximising shareholders wealth from that. What is right can’t be measured by relativistic feelings in one gut, but has to be measured by an objective standard.