What does the law say about the KPMG severance packages paid to its top executives? Are they golden handshakes? Labour law expert Patrick Deale joins Ray White on The Midday Report on Radio 702, sharing the labour and employment law perspective on the matter.
Interview Source: https://omny.fm/shows/the-midday-report/patrick-deale
Ray White (Radio 702):
Well, staying with this story, a labour law expert at Deale Attorneys, Patrick Deale, joins us now. Patrick, good afternoon. Welcome to The Midday Report. Are these not just golden handshakes?
Patrick Deale (Deale Attorneys):
Good afternoon Ray and to your listeners. Essentially, they are golden handshakes. How golden they are, obviously we don’t know because we don’t know the contents of the particular packages. So, we don’t know at this stage the extent of how much they’ve been paid or how generous or otherwise they are.
Is this not maybe perhaps rewarding guilty executives? I know that there still has to be a process – but they were told to go.
That’s true. And obviously there’s a heavy suspicion that would carry over them and as individuals, as a group of individuals, and also the firm itself. Certainly. And that needs to be cleared up.
So, really, what management would do in a situation like this: It looks at the whole situation of itself, of KPMG, it looks at its relationship with the client, and with the public, and with the individuals concerned. And it makes essentially a risk assessment of it. And it says, ‘What are the risks here for all the various stakeholders concerned and what action are we going to take?’
Because simply when you’re dealing with an auditing firm, there are very special regulations that apply to them and it’s not just labour law. The regulations that apply to them are professional standards that are regulated by the Audit Professions Act and the regulatory body, which is an independent regulatory body. They’re also subjected to the Companies Act and fiduciary duties in terms of the Companies Act, and they’re also possibly exposed to civil liability and also criminal liability.
So, all of these factors get put into the mix when an organization, such as KPMG, will look at the situation and try to assess what the best thing is to do. And it may be just their strategy to have a clean break. Nip the proximate cause of the things that cause the problems, the people that caused the problem, who did the actual audits in this particular case – and get them out of the system. Pay something to get them out of the system and then to focus on containment and mitigation. And they’ve adopted a sort of ‘confess and avoid’ approach to this. Well, look [Unclear – 2:44], we are of the court here. But look, let’s contain it, and so on.
But what I can say, Ray, is that this is not the end of the road for those individuals because they have been dealt with, in what may or may not be golden handshakes, but in the labour context they also have responsibilities and duties and accountabilities in terms of the profession, the Civil Law, and the Criminal Law, and those will be exposed at far greater detail when this investigation takes place. And they could face liability at that point. But even at that point, the company might have included in their clauses, ‘If you have been found to be guilty of those, you may have to pay back whatever handshake we have included in our golden package.’
So, the money would come back anyway, but wouldn’t it be a better idea just to have a disciplinary hearing and put it all out into the open?
The ordinary cause, certainly, Ray. The immediate thing for KPMG is to restore their reputation and the confidence in the public. And they’ve looked at the lesser of two evils – ‘Do we go through the whole disciplinary process?’ That would take a long time. It would be excruciatingly difficult to prove a lot of these elements of what the irregularities were, the misconducts were, and so on. It would take a long time. And they would also be a subsequent possibility if they were dismissed without any payments, and you went to the CCMA and then to the Labour Court – there’s a long drawn out thing that could carry on for years.
And while all of that’s happening, it starts off, they’re trying to fix the company. And to try to fix the reputation of a company is to contain the risk, while the risk is still running, over which they’ve got no control. It’s a very very difficult trick for them to pull off.
You’re quite right actually. Patrick Deale, a labour law expert at Deale Attorneys. I really appreciate your time this afternoon on The Midday Report.
End of interview transcript.