"Why are private sector executives handing over large sums of share holder funds to the government agencies when there is no legal reason to do so?" This was the question posed by Robert W Vivian, Professor of Finance and Insurance, Wits School of Economics and Business Science, at a Free Market Foundation (FMF) media briefing on July 17, the first day of the competition Commission Tribunal’s hearings into the alleged collusion in the 2010 soccer stadium construction tenders.
In the face of universal condemnation and outrage against private sector companies surrounding the allegations of anti-competitive behaviour, Professor Vivian said we should look behind the headlines to discover the truth. He quoted Sir Francis Bacon‘s Novum Organum which, paraphrasing, says that man can only understand and know what he has observed as facts. He said that, despite the media hype, when the facts are examined things do not add up.
Vivian said that, "A strange phenomena is taking place whereby company executives around the world are pleading guilty to or admitting things of which they are clearly not and cannot be guilty and in doing so they are handing over billions of share holder funds to the government or their agencies".
He continued, "They have not been condemned or convicted by a court of law operating in terms of due process, but by quangos or similar government institutions. They simply pay up on demand. These companies have not been convicted of violating laws and, where they do exist, it is unlikely these meet the principle of legality .The due process of law has not been followed nor has the separation of powers been observed, both essential in a constitutional democracy.
"So why are they doing it?"
He illustrated this phenomenon by looking at the British Libor (inter-bank interest rate) "scandal", which saw banks fined billions for so-called Libor rigging. No bank was ever prosecuted because, as various UK prosecuting authorities pointed out, no existing laws had been broken. (Subsequently laws were passed which have seen the Libor system move to New York, signalling the steady demise of London’s financial market.)
Professor Vivian cited South African examples including the Metro Cash & Carry v SARS 2000 CC case and the Alexander Forbes’ "bulking matter" and "surplus stripping" cases whereby companies handed over hundreds of millions without being ordered to do so by a court of law. The Metro Cash case established the principle of "pay now argue later" and Vivian said that he could find no record that Metro ever got its cash back.
The case of Pioneer Foods now known as the bread price "scandal" attracted much media coverage and public outrage. Recently a class action was given the go ahead by the Constitutional Court which Vivian believes is unlikely to succeed on its merits saying, "After three years of investigation and a forced confession, the Competition Tribunal’s pronouncement does not indicate that the price collusion resulted in an increase in the price of bread let alone give an indication as to what this increase was. In a civil case it will be essential to prove both the increase and the extent of that increase. An attempt will be made, once again, to extort a further large sum of money from the bread companies to settle the case."
According to Vivian, the Pioneer Foods case demonstrates the violation of a centuries old common law requirement of the Lex Talionis or principle of proportionality: the punishment must fit the crime.
Article continues on page two: The real losers are shareholders, mainly pension funds, and pensioners wonder why after a lifetime of contributing their pensions are so small...