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VIPsight

Corporate Governance – portrayed in the individual cultural and legal framework, from the standpoint of equity capital.

VIPsight is a dynamic photo archive, sorted by nations and dates, by and for those interested in CG from all over the world.

VIPsight offers, every month:
transparent and independent current information / comments / facts and figures on corporate governance locally and internationally,

  • written by local CG experts,
  • selected and structured by the Club of Florence,
  • financed by its initiator VIP and other sponsors with a background of “Equity and Advisory” interests.
     

VIPsight International


Welcome to VIPsight Africa - South Africa

 

Author

 
Terry Booysen  

12 May 2017

ENNERDALE CAPTURES THE HEART OF BRITONS

Ever since the abolishment of South Africa’s inhumane ‘apartheid’ system of racial segregation which ended in 1994, the effects of its almost irreversible social destruction are evident on a daily basis. No matter how a person wishes to describe the country’s young democracy, South Africa remains a land of stark differences. These differences are found within the ‘have’s and have nots’, rich and poor, the educated and those who are not sufficiently educated or qualified to hold onto any form of decent work that will adequately sustain their families and communities. From a social sciences perspective; South Africa is not only beset by stubbornly high unemployment levels and crime, the country also has massive challenges in respect of ‘child-headed homes’ where young, parentless children live entirely on their own, or at best, under the supervision of an older sibling who themselves are minors. Woven into this toxic social environment -- which is exacerbated by an almost complete lack of funding -- is the dismal health situation which exists within these impoverished communities; HIV AIDS being just one of the many health issues needing to be addressed.

Twenty-three years into South Africa’s democracy, the South African government has still not managed to deliver on all its promises to uplift the poorest of the poor. In many instances, the meagre social grants cannot do justice to an appalling situation, which is set to get worse as many corporates tighten their Corporate Social Investment (‘CSI’) budgets as a consequence of an ailing economy which has been intensified by the recent country downgrades to ‘junk-status’. Quite expectedly, as monetary aid begins to dry up, impoverished communities bear the brunt of immense suffering, and so do their children.

As a part of CGF Research Institute’s regular search to showcase registered small non-profit organisations (NPOs) who are involved in the care-giving of less privileged children in South Africa, we were introduced to Ilamula House, which is a culmination of the life-long dream of the late Winnie Mabaso. Despite all the gloom of South Africa’s social challenges, Ilamula House was established through the Winnie Mabaso Foundation and provides a loving home for twenty two young girls, ranging from the ages of 2-16. These girls are either orphaned, abandoned, vulnerable or abused and have been referred to the home by the local social workers. For some of the girls, Ilamula House will be their ‘forever home’. Others will live at Ilamula House temporarily until they are re-homed with extended families or adoptive homes. Either way, qualified social workers work tirelessly to ensure that the best interests of the children are observed.

Upon visiting Ilamula House in Ennerdale (south of Johannesburg), I was struck by the warmth of the people who provide the young girl’s care. Notably, the home was decorated with the girls’ artwork – but there was also a beautiful hand-painted lemon tree on their main entrance wall. The lemon tree’s branches were decorated with hand-painted lemons, and each lemon had one of the girl’s name placed on this symbolic tree of love and unity. I established later that the word ilamula is a Zulu word for lemon, and that the home’s name emanated from the beautiful lemon tree in the front garden of the home.

I also discovered how Ilamula House came into being. Approximately thirteen years ago, Lisa Ashton (MBE) was working on a BBC documentary marking ten years of South Africa’s end of apartheid when she met Winnie Mabaso for an interview. At the time, Winnie was caring almost single-handedly for orphans in the informal settlement of Ennerdale, where she provided them bowls of soup to sustain them during the day. There was an immediate connection between these two ladies, and as Lisa headed back to the United Kingdom (UK), she promised Winnie she would assist her to raise funds to provide a home for these girls. Sadly, and shortly after the two ladies met, Winnie passed away. But Lisa refused to allow her promise to Winnie of a home for the orphaned girls to be forgotten, and so Ilamula House was started through Lisa’s singular efforts to raise funds in the UK. The solemn commitment Lisa gave to Winnie was so deep, and equally so Lisa’s commitment to the members of Ennerdale; that she gave up her lucrative post at the BBC and dedicated her time to assisting Ilamula House and its young lady occupants.

Each year Lisa travels regularly to Ennerdale from the UK, placing her personal interests second to those of her CSI duties in South Africa. After years of hard work and dedication to include all of the Ennerdale community, the South African government recognised Lisa’s sterling efforts by donating an open field to develop projects for the community of Meriting. The community has since installed a library and a pre- school which is made from old shipping containers. From these containers, a homework club and horticulture programme is run. The field also includes a community gardening programme, boasting approximately 50 individual organic gardens. There is a feeding station, a play area to keep children off the landfill sites, as well as a granny club and reading workshops.

Given sufficient funds, Lisa and her team’s extraordinary work and management of Ilamula House -- as well as her project community work in Meriting village -- could easily be replicated and would undoubtedly benefit other impoverished communities in the same way that they have managed to achieve in Ennerdale and Meriting.

We hope that this article will capture the attention of potential donors who are able to assist Lisa and her team to continue their critical work in South Africa. Whilst CGF, with the support of Wot-If? and Big Five Duty Free Trust were able to donate decorative cushions for children’s beds, clearly so much more is needed to sustain the Winnie Mabaso Foundation and Ilamula House.

As my visit to Ilamula House came to an end, I was reminded of an African proverb that says: “it takes a whole village to raise a child.” I am most certain that the late Winnie Mabaso is smiling upon the promises and work Lisa has committed herself to in South Africa. In addition, Lisa’s compassion has led to the inclusion of a number of Britons in this ‘African village’ which takes care of the children at Ilamula House. Having said this, without financial support, Lisa’s work would be seriously impaired and the lives of so many would be adversely impacted. I am hopeful that this brief account of my visit to Ilamula House, will inspire the business community, and indeed society, to allow the Winnie Mabaso Foundation to continue its successes and thereby replicate itself across the entire South Africa.

 

 

16 February 2017

BOARD INDUCTION: A CRITICAL COMPONENT FOR BOARD UNDERSTANDING AND PERFORMANCE

Article by Terrance M. Booysen and reviewed by Andrew Johnston (Director: Corporate Services - Sun International)

As Sir Winston Church famously once said, “There comes into the life of every man a task for which he and he alone is uniquely suited. What a shame if that moment finds him either unwilling or unprepared for that which would become his finest hour.” Undeniably, this axiom would apply when new directors are not properly inducted within the context of their new board environment and the affairs of the organisation. Given the wide reaching implications and personal liability which is attached to directors in most juristic entities -- be these of a local or international arena -- it would be foolish for any person intending to occupy a board position, not to be properly inducted into the affairs of the organisation. It is imperative that the induction process is properly designed and that it covers as much relevant information in order to allow the new director entering the board an opportunity to become familiar with the affairs of the organisation as quickly as possible. The Chairman of the board, backed by the organisation’s Company Secretary, should ensure that the new director is inducted shortly after they have been formally appointed to the board, thereby enabling them to become ‘productive’ in board discussions. This being said, the Company Secretary fulfils a pivotal role vis-à-vis the induction programme, and further assists the newly appointed director to understand some of the following matters; namely the board’s expectations of the director, the manner in which they will be held accountable on the board as well as informing them of the proper discharge of their responsibilities and fiduciary duties. It goes without saying that all directors, not only the newly appointed ones, must be informed of all the relevant laws and regulations, including the prescripts found within the organisation’s constitutional documents, charters, delegations of authority, codes and key policies which have bearing upon the organisation. The sooner the induction occurs, the quicker new directors are able to meaningfully participate in the boardroom discussions; all of which are geared towards improving the organisation’s strategic position through proper oversight, appropriate risk management and judicious decision making. The induction programme should include sufficient detail to rapidly inform the new director of a broad range of organisational matters, covering not only the new director’s roles and responsibilities, but also making introductions to the relevant stakeholders. Expectedly, the programme may vary quite significantly in respect of its duration and content from one organisation to the next; in some cases a director’s induction may simply be a discussion with the organisation’s chairman and a meeting with the executive, but in other cases the induction programme may be extended over a period of time which is complemented by detailed site visits, key stakeholder interviews, product demonstrations and so forth. Either way, there should be no ‘gaps’ in the induction process, neither the induction programme.

“The purpose of an induction process is to ensure that the new director is in a position to maximise his or her contribution to the governance of the organisation from the earliest possible date. It is also to ensure that a board maximises the benefit from having new members. A well designed and explicit induction process should also be a signal to the board that things are not as they were. A new team is in place and the board as a whole now has to re-form its thinking and approach.”

Source: Getting on board - The new director process

(August 2010)

Many director induction programmes tend to rely on the new directors simply reading through a pack of documents, and often the detail is missing or limited which leads to the incumbent being left frustrated, or even uncertain of their decision to serve on the board. Together with a well-constructed director training programme, including informal social gatherings to acquaint new directors with their existing boardroom colleagues and the culture of the board; these activities are designed to provide maximum benefit for its intended beneficiaries, not least also the organisation. In many cases, an existing experienced board member may also be temporarily assigned to the newly appointed director to act as their mentor. This function is typically designed to ‘fast- track’ the new director into the functions and operations of the board, and it is phased out once the new director has been properly orientated regarding the board and the organisation. As the mentor would be largely responsible for updating the new director on the organisation and the board’s affairs, this relationship also greatly reduces unnecessary boardroom discussions and unproductive board time where the new director asks questions that may be irrelevant and such which may have been previously dealt with by the board. But having said this, a thorough induction programme will also create opportunities for the new director to add their own insights and value, even at this early stage. With the new director’s fresh perspective and experience, it is quite possible that existing norms or decisions which were previously not regarded as ‘defective’, may well be spotted by the new director’s fresh perspective and subsequently corrected. Some of the key objectives pertaining to new directors undergoing a comprehensive board induction include:

- enlightening directors regarding the purpose, values, culture and strategic objectives of the organisation;

- enhancing the knowledge, skills and experience of directors so that they are better equipped to discharge their fiduciary duties;

- improving the director’s levels of confidence, competence and boardroom participation;

- reinforcing knowledge, standards and behaviour, whilst debunking wayward corporate governance practices;

- understanding the Corporate Governance Framework® within which the board operates;

- addressing the expectations / requirements of the board, whilst understanding its broader challenges;

- addressing the expectations / requirements of the new directors to ensure they fulfil a meaningful role on the board;

- introducing new directors to the key stakeholders of the organisation; and

- creating a sense of engagement and building unity amongst the new directors and the existing board, including with the CEO, Company Secretary and executive management.

Various international codes of good governance encourage directors to be properly inducted prior to them occupying seats on the board. In this regard, the recently launched King IVTM Report on Corporate Governance for South Africa (2016) recommends that “the governing body should ensure that incoming members are inducted to enable them to make the maximum contribution within the shortest time possible” (Part 5.3, point 22) and that new directors with no or limited experience should be developed through mentorship and training programmes (Part 5.3, point 23).

“Unless there is very comprehensive initial induction into the regulatory regime under which the company operates, and thereafter on-going refresher training, there is a very real risk that an incorrect decision can be taken by the board of directors.”

Jason Howell (Chief Legal and Compliance Counsel Africa: Aon South Africa)

Finally, regardless of the size or type of organisation, the quality of the organisation’s board induction programme and processes should be professional, thorough and enriching. Failing to address any important matters which are expected of such a programme will inevitably have negative implications for the director, the board and the organisation. Whilst there are a number of shortcomings associated with a poorly conceived director induction programmes, notably when organisations get it wrong, the impact could lead to poor board performance, marginalised organisational strategic outputs and ultimately a tarnished reputation.

 

 

19 January 2017

HIGH PERFORMING BOARDS

By Jene’ Palmer and reviewed by Terrance M. Booysen

Board performance, or the lack thereof, has recently been quite prominent in the South African landscape. Unfortunately, the examples of mismanagement, poor oversight and lacklustre governance of our state- owned entities as well as some private sector businesses, abound. Poor and deteriorating financial results, high staff turnovers, lack of strategic direction and transparency as well as little to no stakeholder communication, are but some of the symptoms of a poorly performing board.

More often than not, the “trying economic times” are blamed for poor performance, but while tough economic conditions may increase the pressure in the boardroom, it should not be used as a catchall excuse for the overall poor performance of the board.

The reality is that stakeholders across a wide spectrum are becoming less forgiving of poor board performance despite a more complex and competitive operating environment. As such, it is time for businesses -- whether state-owned, public, private, profit or non-profit -- to take board evaluations far more seriously and use the results thereof to drive a culture of continuous improvement. Gone are the days that board evaluations can be viewed as a ‘tick box’ exercise for compliance purposes only. Board evaluations in fact act as a ‘dipstick’ to assess the overall ‘health’ of the board, its committees and individual directors, in much the same way as a dipstick of a vehicle is used to assess the oil level in the vehicle. The board evaluation, if properly performed, can provide early warning signs of trouble in a manner which enables the board to proactively address any potential performance and compliance issues.

The board evaluation should be used as an important diagnostic tool to assess whether the board, its committees and individual board members are meeting the desired levels of performance - and thereby positively impacting the performance of the business. An independent and experienced evaluator is often better positioned to objectively evaluate the performance of the board and will present a report which will identify strengths and weaknesses, and add value by recommending areas for improvement to help the board become a high performing board.

It is important that the board evaluation not only address related compliance matters, but it should also be tailored to assess the motivations and capabilities which impact on the performance of the organisation’s board as a whole. The board should identify those qualities and competencies which they deem important in being able to make an impact on the business and drive overall improved performance.

Some competencies which boards can consider in establishing themselves as high performing boards are set out below:

1 Increased engagement levels

Whilst compliance will always be an important component of the board’s oversight role, high performing boards are strongly engaged in strategy, performance management, leadership development, succession planning, resource and investment management as well as maintaining a robust Corporate Governance Framework®. When compared to an average or poor performing board, research which is supported by a McKinsey Global Survey indicates that high performing boards dedicate on average twelve days per annum to strategy.

To be an effective, high impact board member requires time. To fulfil their fiduciary duties, board members must take the time necessary to understand the business and prepare for meetings such that they can critically challenge decisions and policy. When necessary, they need to consult with experts and/or management to ensure that they have sufficient information to facilitate good decision-making. To properly perform these responsibilities requires an investment of time on the part of the board member. As such, the nomination committee must consider the number of boards that any individual can successfully serve, before finalising their nominations for an appointment or a re-appointment to the board.

2 Clarity in role definition and responsibilities

Most boards understand that they are ultimately accountable for the performance of the business. However, a higher level of engagement may increase the risk of the board getting involved in operational matters. It is therefore important for the board to understand the role it plays and the strategic boundaries within which it operates. A high performing board critically challenges and questions the status quo; it evaluates alternatives and approves resource allocations, without compromising its oversight responsibilities.

3 Board composition

The importance of having experienced, participatory board members working as a team cannot be under-estimated. The board needs to be balanced with individuals who bring their own strategic perspective and experience to the boardroom and who have a solid understanding of the organisation’s business environment. These skills, experience and competencies must be complemented by a blend of temperament and character which results in board members being able to objectively and comprehensively examine and debate issues critical to the business. Individuals who agree with one another simply to finish a meeting quickly, or who succumb to peer pressure, will not add value to the board and consequently the organisation and its business.

4 Effective chairman

The chairman plays a critical role in creating an environment for full engagement. The chairman must foster a culture of trust and respect in which board members can speak honestly and frankly without fear of ridicule. Every board member must be given an opportunity to express their point of view on any board matter being discussed.

The board agenda approved by the chairman must be meaningful and relevant, and sufficient time must be allocated by the chairman to discuss each topic on the agenda.

The chairman is also responsible for making sure that the board remains focussed on its objectives and that there is good cooperation between non-executive directors and the management team, particularly the chief executive officer. Structured engagement opportunities which allow non- executives to gain a better appreciation of the risks and opportunities facing the business should be encouraged.

5 Clear understanding of stakeholder expectations

The organisation’s strategic direction cannot be finalised without a clear understanding of its stakeholders’ expectations. This can only be achieved if the board knows who the stakeholders are and what impact they can have on the business. Armed with this knowledge, the board will be better positioned to set and measure the achievement of performance objectives as well as strategic and operational milestones of the business.

6 Culture of trust and respect

The board is responsible for ‘setting the tone at the top’ and nurturing the organisation’s culture. However, this is only possible if the board itself lives and practices the same cultural values it is trying to embed within the organisation.

Regular, transparent and accurate communication is required to build a culture of trust and respect which is necessary for a high performing board. Such a culture encourages honest, objective evaluation and inquiries with the objective of continuous improvement. Furthermore, it promotes full engagement from the board members and allows them to leverage their skills and experience to help drive and improve the performance of the organisation.

7 Effective Corporate Governance Framework®

An effective Corporate Governance Framework® adds value to the organisation by prioritising risk, thereby facilitating timeous decisions to deploy appropriate scarce resources. The framework in question needs to be tailored to suit the organisation’s business and it must be timeously updated to provide board members (especially non-executive directors) with meaningful and relevant information.

Information is an essential enabler for board members – without accurate and timeous information board members cannot fulfil their fiduciary duties to act in good faith, in the interests of the business and with due care, skill and diligence. However, organisations should make it easy for board members to internalise important information especially in a world where people are bombarded with a plethora of emails, articles, tweets and so forth. Dashboards are often a useful tool to quickly disseminate the organisation’s overall corporate governance status.

To achieve real growth and success in an ever-evolving and complex regulatory business environment, board members are going to have to move out of their comfort zones to improve their overall corporate governance and board performance. Independent board evaluations are a first step toward assessing the effectiveness of boards, board committees and individual board members. Indeed, board evaluations can be tailored to measure and compare year-on-year board performance, as well as track the successful implementation of prior year recommendations for improvement.

The challenge, however, for all types of organisations is to ensure that the results and recommendations emanating from these board evaluations are properly internalised and that the appropriate action is taken to continuously drive a higher standard of performance across the board as well as the organisation.

 

18 January 2017

INTOLERANT AND UNSOCIABLE BEHAVIOUR TO BECOME LEGISLATED

By Terrance M. Booysen and reviewed by Osborne Molatudi (Partner: Hogan Lovells)

South Africa’s first black President, the late Nelson Mandela famously said, “No one is born hating another person because of the colour of his skin, or his background, or his religion. People must learn to hate, and if they can learn to hate, they can be taught to love, for love comes more naturally to the human heart than its opposite.” It is against this backdrop that the issue of racism needs to be tackled, especially in light of the recent racist utterances and numerous incidents of vicious crimes which have been perpetrated in South Africa under the guise of racial hate and the associated social intolerances. Strangely, these utterances continued unabated this past December holiday period despite the Bill being mooted.

Notwithstanding the many pieces of international legislation, including a number of anti-racism treaties to which South Africa is a signatory, the scourge of racism and crimes of hate continue unabated. Indeed, whilst the South African Constitution sets out numerous rights and freedoms, in reality, many people still suffer the same effects of discrimination as was the case in the ‘apartheid’ era and prior to Mandela’s release from twenty seven years of incarceration. Principally, this is the reason why the South African government has published -- for public comment in the Government Gazette -- the Prevention and Combating of Hate Crimes and Hate Speech Bill (‘the Bill’) which was approved for public consultation by Cabinet on 19 October 2016.

The base offences most often committed against victims of hate crimes are offences to the physical and emotional integrity of the person, as well as offences against the property of the victims.” - Justice Minister Michael Masutha

Source: New hate speech bill opened for public comment (24 October 2016)

The Bill, as it is apparent from its Preamble, intends to right the wrongs of social intolerances through retributory justice, such that the rights of all South Africans are protected, and enjoyed on an equal level. Without such fairness, and where the rights of personal freedoms such as those which are enshrined in the Constitution are not adequately protected, the democracy and the sustainably of a nation cannot thrive.

In recent months South Africa has experienced a plethora of racial cases of abuse and not that they are dissimilar to other international examples where the underlying abuses have been linked to overt racism and offensive public commentaries, hate speech and comments inciting violence, religious intolerances, derogatory language and xenophobic crimes continue. These examples are typical hate crime and social intolerant offences which are covered in the Bill. The underlying prejudice, bias or intolerant attitudes displayed by its perpetrators is usually based upon the following characteristics (or perceived characteristics) of the victim or the victim’s families or friends, namely: race, gender, sex, ethnic or social origin, colour, sexual orientation, religion, belief, culture, language, birth, disability, HIV status, nationality, gender identity, albinism and occupation or trade.

The Bill follows similar legislation found in other parts of the world, and its framework follows much of the thinking which the regulators of the Bill drew from the experience of other countries, as well as their findings in early 2016 when the National Action Plan (‘NAP’) to Combat Racism, Racial Discrimination, Xenophobia and Related Intolerances was launched. NAP provides the basis for the development of a comprehensive policy framework against racism, racial discrimination, xenophobia and related intolerance.

We wish to indicate however that the Bill has not been without its controversy, and the general consensus amongst its critics is that a number of the Bill’s provisions, including its very broad definitions pertaining ‘racism’ and ‘hate speech’ do not meet constitutional muster. Furthermore, it is argued that it tramples on the individual freedoms of South Africa’s citizens. In its current form and existing provisions, hate speech now ranges from speech that incites violence and hatred, right through to insulting or making a mockery of a person, persons and even a group of people of whom the perpetrator does not know.

Expectedly, as is the case with most legislation, the Bill reaches well beyond the scope of a person’s personal behaviour in civil society. It will therefore become an absolute imperative for employers to carefully consider the implication this new legislation will have upon the organisation’s business operations, not least also its policies and practices, including its employee and other stakeholder interchanges. Those who step out of line will be dealt with, followed by severe consequences which could be monetary fines and even a jail sentence of up to ten years for repeated offenders.

“Darkness cannot drive out darkness: only light can do that. Hate cannot drive out hate: only love can do that.” - Martin Luther King Jr.

Source: A Testament of Hope: The Essential Writings and Speeches

Whether the Bill will be passed in its current form or not, it remains to be seen. South Africa has had a very long history of racial imbalances and existing legislation -- such as the Promotion of Equality and Prevention of Unfair Discrimination Act of 2000 and the Criminal Procedure Act -- may not be enough on their own to curb racism and hence the consideration to pass this Bill into law. This having been said, in our view the Bill in itself will also not end racism and other social intolerances. However, there is no doubt that it will act as a further deterrent against those who blatantly practice acts of social hate as outlined in the Bill. In order to ‘normalise’ and correct the very many racial and social intolerances found in South Africa, in addition to legislation such as this Bill, the country, together with its captains of industry, will have to educate their subjects upon such matters which espouse fairness and ethical reasoning across its diverse group of people. Essentially, this is what enriches a nation, collectively making the citizens strong, sustainable, patriotic and prosperous. Deadlines for commenting on the Bill ends on 31 January 2017.

 

6 November 2016

RESILIENCE: A POSITIVE DEVIATION AMID DIFFICULTY

Article by Dr Dicky Els and Terrance M. Booysen

With the accelerated pace of global development, fuelled by South Africa’s socio-economic and political uncertainty, there are obvious knock-on business implications that increase business risks, not least of which includes dampening the mood for local investment. It is therefore not surprising to see many organisations downsizing, restructuring and even being forced to shrink their trading operations in the face of declining revenue and higher cost pressures. Since the 2007-2008 global financial market crisis, organisations are operating in turbulent markets and have to constantly adapt to increasing business uncertainty and changing circumstances. Whilst there may be numerous economic challenges the organisation’s leadership must deal with in order to remain a sustainable and profitable concern, they also have to be acutely aware of the manner in which these severe economic stressors impacts their workforce.

Employees are not exempt from these socio-economic stressors as they are increasingly reminded by their employers of their precarious positions within organisations and that their employment is not guaranteed. In these circumstances, there is no doubt that employees are being placed under massive pressure given their unpredictable employment conditions. This leads to many personal challenges, some which may be perceived to be insurmountable. No longer does personal or business success automatically go to the swift, strong or smart individuals; instead, these ‘rewards’ are earned by the most adaptable, flexible and resilient of people and organisations. To be sustainable, employees (and indeed organisations) need to learn from their past experiences and evolve as complex adaptive systems.

‘Success’ appears to follow those organisations that accumulate more diverse experiences where their leadership spends time making sense of these experiences, and consequently becomes more resilient and develops more competencies to perform better. Leading organisations and people in these turbulent times require mindful leadership who have the capability to respond to the extraordinary challenges currently facing business and civil society. Good leaders need to be effective; their actions must be impactful, efficient and flexible.

What is going wrong?

In the absence of ethical leadership imbued with positivity; negativity will take root, grow and even thrive. Regardless of what the organisational values are -- or what ethical statements are displayed on the walls of the organisation’s reception area -- the real organisational culture will inevitably manifest in the behaviour of its employees. The manner in which employees relate, interact, communicate, handle conflict and disagree with each other serves as evidence for what is really happening in the organisation’s culture. By simply observing, listening to and reflecting on the employees’ communication, their interpersonal relationships and their group dynamics; one will quickly realise the true state of the organisation’s ‘health’ and the degree to which the organisational values are being upheld and lived.

What people tend to talk about the most is what they tend to value the most. Naturally, if negativity, back biting, disregard, distrust and emotional outbursts are observed on a regular basis, it then becomes evident how the workforce is actually dealing with the socio-economic pressures and other organisational stresses under which it needs to perform.

Our understanding of how the workforce is dealing with the pressures of modern day business, and the struggle for economic survival, deepens when we observe the particular behaviour of individuals. Many cases of disciplinary action, alcohol and drug abuse, obesity, garnishee orders, divorce and depression typically manifest because of organisational (mis)behaviour which should have been addressed by the appropriate internal structures of the organisation long before it resulted in the disastrous after-effects. When individuals work, and live in constant uncertainty, worry, stress and fear, and they lack the support of supervisors, peers, family and friends; they become more susceptible to not only ‘burnout’1, but sometimes also more detrimental illnesses. Employees with burnout feel cognitively, emotionally and physically exhausted, and in trying to cope with their overwhelming circumstances they also become socially detached.

Weathering the waves of change

For employees to effectively cope with organisational change, work and family pressures, to be resilient, to do well and to thrive, during difficult times they need to be self-aware and self-manage their own health and wellness. They should know their inner capability, talents, character strengths, personal values and ‘what makes them tick’. Without a significant measure of self-knowledge, employees tend to find meaning in what they do instead of in who they are. Likewise, they tend to invest a significant amount of time and energy to only develop their skills, instead of also developing their character strengths. In their hope to find success outside of themselves, or in a particular job or organisation, or even a different country, they become dependent on their circumstances and other people to foster happiness, wellness and success for themselves. Of course, when the economy is down, or when their hopes and dreams do not realise as they initially expected, they become despondent and disenchanted.

A healthy measure of self-insight, combined with virtuousness enables individuals to be responsible for their own progress. By knowing and understanding their inner capability, resilient employees2 are more responsive, open, connected, motivated, and engaged at work. When they are self-aware, they are mindful of their own intentions. They self-manage their thoughts, emotions, attitudes and behaviour to add value to their own, and the lives of others. When resilient, employees tend to share their character strengths, passions, competencies and skills compassionately with others, and in so doing they intentionally have a positive impact in the lives of those that they influence. As leaders, these employees understand and respect the difference between manipulating and motivating their subordinates.

Conclusion

As a source of organisational wellness, and in the context of employee resilience, it is imperative to understand the role that positive leadership plays. Positive leadership -- in parallel to the extent to which the culture, policies, and practices of the organisation promote employee resilience -- contributes favourably towards human capital development and organisational growth.

When employees are empowered to intentionally practice their character strengths, it generally has a positive knock-on effect within the organisation. Moreover, it also assists employees to persevere in the face of personal trials and adversities, thereby making them and ultimately the organisation they work for more resilient. Employees, who seek, promote, and utilise their inner capability and character strengths will be more inclined to thrive and less likely to withdraw or be mentally distant from their daily workplace duties. This may be attributed to the enjoyment, gratification and fulfilment that is experienced through their work which, when geared towards the development of their character strengths, will yield rewarding positive experiences that also cultivates organisational resilience.

1 Burnout is not a true mood disorder, but rather a psychological condition in which employees feel chronically sad, anxious, lonely, mentally distant and cynical which is accompanied by distress, a sense of reduced effectiveness, decreased motivation and the development of dysfunctional attitudes and behaviours at work. It is the result of consistent and unsuccessful attempts to resolve work (or personal) stressors. Work overload, inordinate time demands, role ambiguity and inadequate resources leads to burnout that over time results in ill health. Other factors that lead to high levels of stress and burnout include the lack of personal control, reduced decision making authority, dysfunctional team dynamics, poor job fit, a mismatch with the organisational values and constant experiences of negativity at work.

Generally, employees that suffer from burnout lack organisational commitment, and they are less capable of providing adequate client services, especially along dimensions of decision-making and involvement with clients. A number of challenges can be observed, such as a tendency to treat people mechanically, to be critical and cynical, and they are preoccupied with self-gratification. Burned-out employees are disengaged, and lack performance as they contemplate to leave the organisation but reluctantly stay. As a result, they tend to be complaining, controlling, impatient, indifferent, discouraged, frightened, frustrated, resentful, bitter and selfish. Burnout employees also report the absence of meaning, purpose and positivity in their lives. Ironically, these employees used to be enthusiastic, motivated and energised at work, and they used to function well in the same job or organisation but in the present time they require assistance as they struggle to recover on their own.

2 Resilience is the capability to “bounce back” to a normal or even optimal state of functioning, mostly in the mist of being stretched or challenged with adversity such as uncertainty and ambiguous circumstances. Resilient employees demonstrate positive psychological growth, accomplishment, and achievement regardless of their circumstances. It is their ability to cope from within, and positively cope with adversity, trauma, stress and illness. Amid being stretched or challenged with adversity, they demonstrate the ability to quickly recover from difficulties. It is their deliberate, positive and constant efforts (lifestyle) that help them to manage taxing personal and organisational demands. The most celebrated cases of resilience are often depictions of individuals that overcome overwhelming odds in order to be stronger, have a positive human impact and exhibit moral goodness.

It is important to understand that resilience is not an extraordinary gift but rather found in the daily conduct of individuals who demonstrate positive coping behaviour. Basically, they are able to effectively balance or counter negative experiences with positive ones while at the same time they learn new competencies to adapt in challenging situations. They are faithful, reliable, authentic, focussed, controlled and engaged. Resilient employees experience hope, efficacy, autonomy, meaning, fulfilment and happiness amid economic decline, downsizing and organisational change. In general, resilient employees are more thankful, peaceful, generous, forgiving, self-less and inspired while they enjoy social connectedness and supportive interpersonal relationships.

 

 

5 November 2016

ANTI-HATE SPEECH BILL INTRODUCES NEW BUSINESS RISKS

By Robert Davies (CGF: Lead Independent Consultant) and reviewed by Terrance M. Booysen

Saying or doing something racist, or performing various deeds which falls within a long list of things the Bill deems to be hate speech -- or a hate crime -- could see you ending up with a criminal record. It could also severely jeopardise your business, even if you had nothing to do with the original incident.

Minister of Justice and Correctional Services, Michael Masutha, has announced that government has published the Prevention and Combating of Hate Crimes and Hate Speech Bill (‘the Bill’) in the Government Gazette for public comment, which was approved for public consultation by the Cabinet on 19 October 2016.

Masutha said that the draft bill created offences of hate crimes and hate speech and would put in place measures to prevent and combat these offences. When enacted by Parliament, it is intended to build on the existing measures already in place (such as the Promotion of Equality and Prevention of Unfair Discrimination Act of 2000) to combat the social ills of racism, xenophobia and related intolerances.

An overview of the Bill shows that the proposed legislation intends to:

- give effect to the country’s obligations in terms of the Constitution and international human rights treaties concerning racism, racial discrimination, xenophobia and related intolerance in accordance with international law obligations;

- provide for the offence of hate crimes and the offence of hate speech and the prosecution of persons who commit those crimes;

- provide for appropriate sentences that may be imposed on persons who commit hate crime and hate speech offences;

- provide for the prevention of hate crimes and hate speech;

- provide for the reporting on the implementation, application and administration of the Act;

- amend certain Acts of Parliament relating to the new law.

However, concerns about the Bill and the effects that it may have when it is passed by Parliament, have been raised by various parties, who say that it has gone too far. There is a fine line between freedom of speech and hate speech and the question is: how onerously will the new law be applied? With the government eager to be seen stamping out hate speech and crimes, the Bill may become a very blunt instrument to do so.

William Saunderson-Meyer, a well-known journalist, argues that there is already sufficient legislation in place to deal with hate speech and crimes, including the Constitution and Bill of Rights, and that “robust, or even crude language, satire, mockery and the right to offend are all important aspects of democracy.” (The Citizen, 29 October 2016)

A number of comedians have also cautioned against the adoption of the Bill saying that it is “too broad and very restrictive” and could end up with comedians being jailed for up to 10 years for doing what they do best: picking on individuals, particularly politicians, and mocking aspects of their behavior or character. (City Press, 30 October 2016)

The Bill proposes hefty fines and a maximum 10-year jail term for anyone convicted of showing prejudice, bias or intolerance on the basis of race, gender or sex as well as ethnic or social origin, colour, sexual orientation, religion, belief, culture, language, birth, disability, HIV status, nationality, gender identity, albinism and occupation or trade.

Besides the punishment prescribed by the Bill, there is a very real and considerable risk of reputational damage to the person convicted of - or even just accused of - any of the offences created by the new law and this reputational risk would very easily extend to the companies employing such individuals.

There are already a number of high profile cases where a company has suffered as a result of an employee’s utterances or actions that emulate racial intolerance or hate speech. The consequences of Penny Sparrow’s Facebook rant and Chris Hart’s more balanced but perhaps also more esoteric Twitter comments immediately spring to mind.

Itisclearthatitisnotjustracismthatcouldleadtoabreachoftheproposednewlaw. Itpotentiallyintroducesa new and heightened level of intolerance that requires everyone to be more aware of their speech and activities and ensure that their attitude and behavior accords with the standards required by it. Companies should consider the impact this may have on their work place environment and review their key documentation and policies to update them and ensure compliance with the Bill when it is enacted.

Similar to most legislation that requires careful understanding in respect of its effect on an organisation’s reputation and overall sustainability, CGF is able to assist organisation’s to determine the necessary actions that may be required to prevent a calamity of epic proportions. Robert Davies, a CGF Lead Independent Consultant and attorney by profession, is able to assist organisations with an individual analysis of the organisation’s potential risks posed by the Bill, and then offer a practical solution to navigate its pitfalls.

 

28 October 2016

CGF’s CONSULTING TEAM GETS EXTRA BOOST WITH ROBERT DAVIES APPOINTMENT

We are pleased to welcome Robert Davies to our elite team of Lead Independent Consultants. Robert has a wealth of experience in corporate law, banking, finance law and financial services regulation where he has been involved in some of the largest banking and finance transactions undertaken in South Africa to date. His experience in this area has included working with various domestic and international banks, financial institutions and other businesses on regulatory matters, including finance and restructuring.

After obtaining his BA (KZN) and LLB (Wits), Robert began his career in law at a leading commercial and litigation practice in 1989 and was admitted as an attorney by the Supreme Court of South Africa in 1992. After several years in practice he went on to join a major bank as their legal counsel. During this time, he served as a member of the Banking Association of South Africa’s Legal Committee for sixteen years which included roles where he served as a member of the Working Groups which dealt with the National Credit Act (2005), the new Companies Act (2008) and the Consumer Protection Act (2008).

Robert’s extensive business experience exposed him to the rapid governance, risk and compliance (‘GRC’) evolution which has taken effect across the globe in recent years, and especially so within the financial services sector. In particular, Robert’s ‘hands-on’ approach to the legal risks within the financial services sector places him amongst the world’s best. Whilst the financial services sector is known across the world for its highly regulated and leading GRC approach, Robert’s experience bodes well for other non-financial business sectors who typically trail in the wake of the banks and insurance sectors. With deep business and legal insights -- and having refined his GRC skills over many years -- Robert was instrumental in managing the legal risk for the FirstRand banking group. He helped to develop the FirstRand Bank Legal Knowledge Centre which is a web-based information and legal resources aid for the group’s lawyers and GRC specialists. The center is also used as an electronic litigation database and reporting system for the bank’s various business units. To further his knowledge in the field of risk management, he completed additional training in Business Risk Management at the University of Johannesburg in 2006. Robert’s experience included work in Procurement and Sourcing, particularly IT projects but also more diverse contracts such as the FNB Classic Clashes for school sports (sponsored by FNB) and the FNB Varsity Cup. He worked in the FirstRand Group from June 1994 and left the organisation as its Deputy General Counsel of Group Legal Services in March 2010.

Robert then joined ABSA Bank as their Legal Counsel: Vice President in March 2010 - at the time when Barclays Plc returned to South Africa. Here he fulfilled the position until 2014 in a specialist role which saw him involved in the restructuring of Absa into the Barclays Africa Group. Robert was involved in numerous large projects which included the takeover of the Edcon book as well as IT payment projects such as the “tap and go” contactless cards for the Rea Vaya and MyCiti transport networks in Johannesburg and Cape Town.

As part of Barclay’s strategy, the consolidation and management of the rest of Africa business units was important and this provided Robert with the opportunity to work on cross border legal and regulatory issues.

Robert’s approach to business is to partner with clients in order to manage project risks effectively, and thereby achieve their objectives in a cost effective way. He believes that this is part of the ethos of CGF and is excited to be part of the team.

 

 

19 September 2016

LIFESTYLE AUDITS CURB ERRANT BEHAVIOUR

By Terrance M. Booysen and reviewed by Megan Grindell (Director: Carter DGF Risk Management) In today’s heightened times of public scrutiny and calls for ethical leaders, it’s not surprising that many concerned citizens have become far more demanding for good governance and transparency. Social media has been a major contributor to this call, such that a person’s privacy -- including matters such as their social pleasures and behaviour -- are broadcasted in seconds to almost any corner of the world. For example, if a work colleague is an avid user of Facebook or Twitter, it’s not too difficult finding out what that person’s likes and dislikes are, what gyms or sport clubs they attend and how often, right down to discovering their dream car or accommodation.

Many people have become habituated to sharing their and other individual’s personal details, and the information they openly disclose on public networks and other environments may become their greatest downfall. Besides the internet security risks amongst others, they may also have inadvertently alerted a number of parties, including the tax authorities of their lifestyle which may be at odds with the manner in which they initially led them to believe. So, in a workplace environment for example, if a colleague is on a low paygrade and there is no reasonable explanation regarding their sudden (or gradual) noticeable wealth, then this ‘new status’ could trigger a number of questions from envious co-workers, and possibly even the receiver of revenue and similar regulatory bodies.

Whilst a lifestyle audit is typically initiated by an official from the government’s revenue or tax departments, there are also legitimate reasons for an organisation to question their employee regarding a mismatch of their earnings as compared to the employee’s lifestyle.

Expectedly, an organisation should be concerned if say a low paygrade employee were to be arriving at work every day in a Lamborghini, and they were fully kitted with a R35,000 Kiton suit and Panerai watch. Indeed the extravagance depicted in this example may be a lot more subtle, such where the employee may not have wanted to attract unnecessary attention and they may then have quietly disbursed their illicit gains amongst their related beneficiaries.

Of course there could be a plausible reason that an employee’s income is unaligned to their new-found assets. But it is rare that these vast differences between income and assets are legitimately supported by a passing relative who left their massive fortunes to a remaining family member or friend. Besides the obvious questions that will be asked regarding the manner in which an individual acquired their unusual mismatched wealth of assets and lifestyle; the government authorities will most certainly be triggered into action to determine whether or not the individual acquired their assets on a legitimate basis, including the associated taxes that should have been paid on the individual’s earnings in such a position.

In relation to conducting a lifestyle audit; it is often used as a tool by government authorities to investigate claims and or suspicion of individuals who are evading their tax obligations. Quite different to tax avoidance, evading the payment of personal taxes is often categorised as a form of white-collar crime and employers have a responsibility to alert the authorities if they reasonably suspect this type of behaviour from their employees.

Whilst an employer does not have the legal grounds to conduct a lifestyle audit on their employees in the same fashion as the government authorities, it may be prudent to understand the mechanisms that will spark such an investigation. Given a government’s authority and extended legal reach, such an investigation is completely within their jurisdiction and powers. This having been said, increasingly tax and regulatory authorities across the world are uniting their efforts in order to apprehend individuals who evade their personal tax obligations.

In respect of employers making use of a lifestyle audit; employers do have the means -- whilst following proper procedures -- to make use of a lifestyle audit as a proactive way to determine the manner in which an employee’s lifestyle differs as compared to their financial means. This is even more so if a prima facie case has been established and where the organisation has suffered a loss as a result of an implicated employee and their errant actions.

Indeed such an investigation, undertaken by the employer, will generally require the consent of their employee being investigated. Obviously, with or without the employee’s consent, a lot of information will in all likelihood already be in the public domain for the employer to collect. Notwithstanding, it is imperative that the privacy rights of the employee -- or for that matter any person subject to a lifestyle audit -- are observed and protected.

Tax evasion as a white-collar crime is costing governments billions each year as perpetrators inflate their annual deductible personal expenses whilst not declaring all their income sources. Misrepresentation of this nature, such where the individual intentionally behaves in a manner to deceive the authorities and evade the payment of their personal taxes, falls within the category of occupational fraud and it is growing at an alarming rate.

Whilst tax evasion may not necessarily fall within the scope of the 2016 Report to the Nations on Occupational Fraud and Abuse (‘Report’) -- which has been produced annually since 1996 by the Association of Certified Fraud Examiners (‘ACFE’) -- the point is made that occupational fraud is a growing international threat and trying to prevent and detect it, remains a formidable task. Whilst organisations surveyed in the ACFE Report estimate annual losses of 5% revenue due to general fraud, the fact that perpetrators go to great lengths to conceal their fraudulent activities, makes it nearly impossible to determine the actual losses associated with individuals under-reporting their income and assets. This being the case, the ACFE Report confirmed that the more senior an individual is within an organisation and who have fraudulent tendencies, the greater the size of the fraud.

Interestingly, the biggest behavioural ‘red flag’ to occupational fraud, was found to be individuals who are living beyond their means, and this was followed by other warning signs such as individuals experiencing financial difficulties or those with excessive control issues amongst other factors. Although it may be debateable as to whether or not an organisation will accept that tax evasion on the part of their employees is an occupational fraud warranting their investigation or attention, an incongruent lifestyle on the part of an employee could be an indication of a potential fraud from within the organisation. But in addition, it could also form part of a reportable irregularity whereby the organisation has a duty to report such notable lifestyle differences to the government and regulatory authorities.

If an organisation operating in South Africa fails to report on such incongruence attached to an employee, this may well offset some form of vicarious liability as set out in legislation such as the Public Finance Management Act’99, the Municipal Finance Management Act’03, the Prevention of Organised Crime Act’98, the Prevention and Combatting of Corrupt Activities Act’04 and the Financial Intelligence Centre Act’01 (irrespective of whether or not the organisation has suffered a loss).

Given the many South African public personalities who have been implicated in rather dubious financial gains in recent times and which have been splashed over the media headlines, one wonders why there aren’t more lifestyle audits being conducted and bringing the perpetrators to book.

 

 

18 July 2016

PROTECTION OF INVESTMENT: HOW SAFE ARE SOUTH AFRICA’S ‘INVESTMENTS’?

by Terrance M. Booysen and reviewed by Ian Jacobsberg (Partner: Hogan Lovells)

At the time when South Africa re-entered the global economic arena in 1994 -- amongst a number of critical tasks set by the late President Nelson Mandela -- the newly elected democratic government realised the importance of establishing Bilateral Investment Treaties (‘BITs’) with foreign countries. These BITs were established in order to inter alia; boost the then ailing economy through international trade, as well as to attract their much needed foreign investment to South Africa.

Following South Africa’s return to the global economy, the country concluded approximately forty-nine (49) BITs with countries across the globe; some which were fully operational and others with countries such as Canada, Israel, Ghana, Tanzania and Turkey which were signed but were not in force. However, over the last few months, South Africa has cancelled numerous BITs with countries such as Austria, Belgium, Denmark, France, Germany, Netherlands, Spain, Switzerland and even the United Kingdom.

Against the backdrop of South Africa’s cancellations of the afore- mentioned international investment treaties, including the unfolding of the post-Brexit economic uncertainties, there is a critical need for the government to urgently reassess many of the country’s heavy handed legislation and various investor- unfriendly policies which appear to be deterring long term commitments by both local and foreign businesses.

Furthermore, the recent International Monetary Fund annual assessment of South Africa’s ailing economy does not inspire confidence, and the country’s economic growth forecast has been slashed once again; this time from 0.6% to a mere 0.1%. This so-called ‘growth’ is certainly no way to address the massive social ills being experienced in South Africa, characterised by unemployment figures upward of 25%, scandalous corruption, escalating crime and political uncertainty, to name a few areas of alarm. To even suggest, as the Minister of Finance Pravin Gordhan recently stated, that South African businesses should not take the “easy way out” by amongst others downsizing the workforce in tough economic times, is bizarre. Simply put, whilst the government sets the rules, business simply reacts in the best possible way it knows, in order to survive.

In order to revive the country’s growth -- which is currently the worst it has been since the 2009 recession -- it will take monumental courage on the part of the government to scrap its current ideologies, which in many instances is being outwardly rejected by many local and international businesses, and indeed vested stakeholder communities. It is true that since South Africa’s 1994 democratic elections, there have been considerable economic and social advances. However the effect of the change has not benefitted the majority of its citizens.

In this regard, income inequalities and unemployment in South Africa have remained amongst the worst in the world. Yet sadly, there is no commonly agreed or accepted plan of action between the government, business and civil society that will change matters any time soon. In reality, the National Development Plan (NDP) will remain nothing more than an idealistic dream for politicians to talk about, and this will continue for as long as the ‘rules of business engagement’ are not geared toward business-friendly regulation and energised growth. It is also critical that investors are assured of a stable environment which is safe, and that the rule of law is upheld, where all its citizens are protected by the Constitution and its Chapter 9 institutions.

Against the stark realities of the country’s massive challenges, it is important to note that under the leadership of President Jacob Zuma, the government has decided to revoke all South Africa’s BITs. The government anticipates re-negotiating international trade agreements, essentially under the auspices of the contentious Protection of Investment Act, 22 of 2015 (‘the Act’), which President Zuma assented to on 15 December 2015 and which was signed into law in January 2016. Notwithstanding the argument provided by the Minister of Trade and Industry -- Mr. Rob Davies -- stating that the Act will, amongst other benefits, provide equal protection to foreign and local investors, as well as ensuring that there is a balance of rights and obligations, many foreign investors have expressed unease, in view of the fact that the Act has in fact withdrawn many of the previous protections found in the BITs which were negotiated separately between their countries and South Africa.

As it is perhaps still too early to determine whether or not the Act will have a negative affect on the South African economy, already many investors have expressed deep concerns regarding the implications the Act will have on their businesses in South Africa. This is especially the case in respect of the intricate manner in which the Act is seemingly linked with the wider “public interest” provisions found in the Act, and supported by other South African legislation such as the Expropriation Bill, the Minerals and Petroleum Resources Development Act, the Broad-Based Black Economic Empowerment Act, the Employment Equity Act and the Competition Act 89 of 1998 (as amended).

Unlike the BITs which provided certainty in matters such as international arbitration, repatriation of funds and expropriation; foreign investors are of the opinion that their investment protection is very restricted and that the South African government is more focussed on protecting its sovereign rights, rather than those of the investors. Expectedly, both the European and the American Chambers of Commerce -- which jointly represent the largest of international investors in South Africa -- have strongly opposed the Act, stating that the Act will only further exacerbate the country’s dire economic situation which is thwarted by an average annual growthSouth Africa has not featured in the renowned A.T. Kearney Foreign Direct Investment Confidence Index® since 2014, and has been surpassed in this index by our BRICS counterparts, China, India and Brazil. According to the United Nations Conference on Trade and Development’s 2016 World Investment Report, South Africa’s foreign direct investment (FDI) dropped 69% last year to $1.8 billion (out of a total of $1.7 trillion global FDI) which is the lowest our country has seen in the last decade.

Foreign investors are already nervous of South Africa’s pending downgrade to “junk-status”, which was narrowly missed in June 2016 when Standard & Poors maintained their credit rating for South Africa at BBB- with a negative outlook. Besides the rating itself, South Africa is seemingly no longer the first destination of choice for foreign investment by the developed economies, and it would appear that the Act is adding yet a further reason not to invest in our country. Indeed, countries such as Nigeria and Egypt -- which are not as developed as South Africa -- are becoming more attractive for foreign investment especially since their economies are showing robust growth. Unquestionably, investors understand the risks associated with developing markets, and they are generally prepared to take these risks provided they understand the macro economic environment and that there is medium to long-term regulatory certainty.

Indeed, both these components -- including access to power, exchange rate volatility and political instability to name just a few additional investor ‘red-flags’ -- are reportedly scarring investors away from South Africa.The Act has undoubtedly left many foreign investors with more questions than answers, and if the Act does not provide the clarity which was previously contained in the BITs, and such where foreign investors enjoy benefits and protection on par with those they can expect in other developing countries, then the reality is simply that foreign investment will continue to move to more investor-friendly destinations.

As South Africa is a signatory to the SADC Protocol on Finance and Investment which came into effect in April 2010, it would be interesting to know how the government will defend the cancellations of the regional BITs, and whether the dispute provisions in the Act will undermine those of the Protocol.

 

3 February 2016

SOCIAL MEDIA - CHANGING TIMES AND INCREASING RISK

Article by Terrance M. Booysen

Many technologists across the world were completely bewildered by the claim Gordon E. Moore made in 1965, when he boldly predicted the rate of change the world would undergo through the rapid development of technology.  Famously known as “Moore’s Law”; it supports the notion that every two years the components found on integrated circuits would double, and the size of the components would half in the same period.  Simply put, this means that the computing power in various computerised devices is doubling every two years and the size of these devices -- which most of us use on a daily basis -- is becoming more powerful, and more pervasive.  Of course, Moore’s predictions have come to pass, and in fact these predictions may even have exceeded his original thinking.  One just needs to consider the average computing power found in cell phones, laptops and Personal Device Assistants (‘PDAs’) which are owned by most ordinary citizens.

Today the average person has in his possession, a wide variety of PDAs and similar computerised inter-connected devices which are more powerful in computing power as compared to that which was used to place the first manned Apollo rocket on the moon.  Indeed, technology of this nature has changed the world in a way that we have never seen before, and its impacts are felt at all levels of society; be this for a busy executive in New York right through to a young scholar in the heart of Africa.  It’s true - we are all somehow ‘connected’ and if it’s not through family ties or sport, it’s most certainly through the World Wide Web.

It was not that long ago when the first hand-held cell phones became vogue, introduced by Motorola in the early seventies.  This phenomenon certainly seemed the new way of staying connected, and it wasn’t too long before mobile phones became the pride and joy of almost every person, rich and poor, across the world.  While many may have thought this new communication medium would be enough, a brand new form of communication and networking was soon to rock the world with yet another creative way in which ‘social engineers’ developed media network exchanges through applications such as Facebook, Twitter, LinkedIn and Mxit.

And so today, in order to communicate and interact with people at a social and/or business level, we need no longer rely upon having to physically network with people on a face-to-face basis as was the case in the seventeenth century, or, for that matter, post a letter which was introduced to a select few South Africans in 1792 when the first post office was opened in Cape Town.

Time and technology has certainly changed our modus operandi and the speed at which we are able to collect and send information is unparalleled today.  Any person who has access to, or owns a computerised device which is connected to the internet is able to communicate on social media platforms where he can, inter alia, exchange details about his life such as biographical data, professional information, personal photos and up-to-the-minute thoughts.  Read More…

 

 

21 July 2015

BOARDS THAT CREATE VALUE: CORPORATE GOVERNANCE FRAMEWORK® Johannesburg

Article by Jene’ Palmer (CGF Lead Independent Consultant)

It has been painful to watch the likes of Lance Armstrong, Mike Tyson and Hansie Cronje sabotage their futures through poor decision-making. Similarly, many organisations and their boards have failed to demonstrate strong and responsible leadership qualities to motivate and drive their organisations to success. Awareness, decisiveness and accountability are some of the business leadership qualities required to achieve remarkable performances.

The ‘buck’ stops with the board of directors and it is the board of directors who are ultimately held accountable for the success of the organisation.   However, with the business landscape changing at an accelerating rate, risk management and decisive decision-making are becoming more challenging and business failures more prominent. A recent Harvard Business Review reports the failure rate for mergers and acquisitions to be between 70% and 90%. According to the United States Small Business Administration, only 44% of new businesses are still in existence after four years. Against this backdrop, how does a board create a sustainable organisation in what are clearly turbulent times?

The board is expected to ensure that there is a common understanding of the governance structures within the organisation and that relevant and appropriate information is available to facilitate risk management and decision-making across the organisation. In order to meet these expectations, the board will need to build and implement a Corporate Governance Framework® which clearly identifies those matters for which the board will be held accountable, and those matters for which management will be held responsible. (It is important to understand that in terms of ethics and governance, accountability means being answerable or liable for your actions, whereas, responsibility means being in charge of or being the owner of a task.) The Corporate Governance Framework® will provide a singular schematic status of the governance of the organisation at any one given point in time, furthermore indicating areas within the organisation’s framework that requires the board’s attention. Through the use of this framework, the board and management will be better positioned to understand the different components of governance which are important to the organisation.

“Governance and leadership are the yin and yang of successful organisations. If you have leadership without governance you risk tyranny, fraud and personal fiefdoms. If you have governance without leadership you risk atrophy, bureaucracy and indifference.’’

Mark Goyder (Director of Tomorrow’s Company)

The one-size-fits-all approach to governance does not create value and simply adds to bureaucracy within the organisation. The board must establish a process to identify those governance components which are relevant to its own environment and legislative boundaries. Consideration must also be given to the complexity of the organisation as well as its geographic and subsidiary sub-structures before finalising the governance components to be included in the organisation’s own Corporate Governance Framework®. It is worth spending some time on these decisions as the risk of business failure is increased when there is uncertainty as to which areas of the business are important and need to be regularly monitored. Examples can include matters such as strategy, business structure and key organisational policies for which the board is held accountable, which in turn are differentiated from matters such as internal controls, business processes and group wellness and skills for which management is responsible.

Once these critical governance components have been identified, they need to be routinely reviewed to confirm their status from a risk management point of view. A simple ‘RAG’ (red, amber and green) methodology will initially suffice and will give the board some comfort as to which areas of the organisation are being well managed and therefore have a low level of risk associated with them. Likewise, these reviews must be designed to highlight those areas of high risk requiring urgent attention. The board will then be in a position to take the necessary action to address these risks timeously and reflect the changes in risk status in the Corporate Governance Framework®.

Ideally, these reviews should be independently performed and form part of the organisation’s third line of defence in its combined assurance model. An independent review will provide the board with a greater level of assurance that each governance component has been objectively audited and its status objectively reported. The audited results as

reflected in the Corporate Governance Framework® should be included in the organisation’s Integrated Report (specifically intended for public disclosure and consumption) so that that all stakeholders can get a holistic view on just how well the board is actually managing the organisation’s risk.

The responsibility for maintaining the integrity of the framework should preferably be delegated to one person, normally the Company Secretary. This person is responsible for collating the information, updating the framework and reporting the outcomes to the board and/or its risk committee. The board may, except to the extent that its Memorandum of Incorporation (MOI) provides otherwise, invite persons who are not directors to the board meeting to provide further explanation on matters pertaining to the Corporate Governance Framework® in order to ensure that the governance components are being appropriately managed.

A strong board comprises different personalities with a range of different disciplines and perspectives. The Corporate Governance Framework® enables the Chairman of the board to positively harness and channel the power of such diversity to create value for the organisation by adopting a disciplined approach to performance management (at a strategic and operational level) and proactively attending to critical risk management areas. Indeed, the framework helps to eliminate a ‘’silo mentality” and enables greater cohesion between the board and key management by providing terms of reference, assigning responsibilities and ensuring the flow of information between all parties.

Access to up-to-date, independently reviewed governance information such as that included in the Corporate Governance Framework®, is critical for incoming non-executive directors as it provides them with information to make a quick high level assessment of the overall sustainability of the organisation including its level of compliance with relevant legislation. Such information is vital to candidates when deciding whether or not to assume the potential liabilities associated with a non-executive directorship appointment.     If too many critical components of the Corporate Governance Framework ® are marked as red (in terms of the ‘RAG’ methodology), the non-executive candidate is more vulnerable to incurring personal liability for a breach of his fiduciary duties.   Similarly, the Chairman should also use the framework as an induction tool when appointing and orientating new non-executive directors and Company Secretaries in order to put them in a position to more quickly deliver value to the organisation.

Developing a Corporate Governance Framework® requires a thorough understanding of the organisation’s strategic objectives, operations, internal and external environments. It is a continuous process which matures as the business is nurtured – a journey which evolves as lessons are learnt and new paths are travelled. It is a process which empowers the board to create value for all its stakeholders.

 

1 July 2015

RISK MANAGEMENT BOLSTERED IN GOVERNANCE SERVICES: APPOINTMENT OF JANINE JOUBERT

We are delighted to announce the appointment of Janine Joubert who joins CGF’s governance team as a Lead Consultant in Risk Management, Compliance and Governance. Janine is a recognised risk management expert with over twenty years experience in IT and Telecommunications. She has extensive practical experience in ERM, operational and strategic risk management, information governance, compliance, fraud management, revenue assurance and ICT project management. Janine’s forte lies within the implementation of innovative risk management solutions across various functional disciplines, and these solutions are specifically designed to reduce the risk inherent in new product and service development, portfolio management, business model design, business processes, privacy, stakeholder communications, financial services and marketing.

Prior to joining CGF, Janine was the executive head of the business risk management division for Vodacom, a leading IT and Telecoms organisation that delivers solutions in more than 40 countries, with revenues exceeding R77 billion per annum. Janine had full responsibility for the design and implementation of Enterprise Risk Management initiatives across local and international operations.

Janine has extensive experience of enterprise-wide embedding of enterprise risk management, information governance and project risk management. She developed governance frameworks, ERM tools, practices and policies to analyse, prioritise and report risks and effective monitoring of the operational, tactical and strategic risk profile.

Moreover, she is proficient at risk reporting of the various risk management activities that take place within the group of companies and reporting of risks to senior leadership, various oversight committees and Board of Directors.

Janine is also practiced at establishing information security risk governance to ensure compliance and encourage a risk based information culture within the organisation. She furthermore formulated governance frameworks to support risk management in innovation projects. Janine is skilled at integrating and interpreting best practices from diverse disciplines into risk management frameworks, taking cognizance of multiple risk variables to deliver innovative solutions.

Janine’s early career exposure to finance, management and executive reporting MIS systems, provided the foundation for understanding effective risk and financial reporting principles to support KPI’s and KRI’s development. Her subsequent career evolvement into ICT, provided the basis for ensuring effective risk mitigation within different projects and technologies. A thorough understanding of technology risks facilitated her ability to effectively function within fast-paced, complex technology and regulatory environments.

Janine has wide experience in managing diverse risk exposures. She is knowledgeable in conducting fraud risk assessments and providing forensic evidence to support criminal and legal cases. She moreover, is proficient at investigating and implementing controls to prevent revenue losses and fiscal inefficiencies to identify opportunities for enhancement of ineffective business processes. Janine has strong experience in analysing and developing legal and regulatory compliance directives (such as POPI) and the importance of implementing proactive controls to mitigate risks.

Janine has succeeded in demonstrating the value of risk management, leading to CEO mandates to defer high-risk project launches until sufficient mitigating controls have been implemented, whilst considering the risk appetite of the organisation. She has delivered remarkable risk management improvements within short time frames, (such as implementation of a risk management system) whilst functioning with a very lean, but highly motivated professional team. Janine believes that her experience from successfully deploying risk management projects in South Africa and internationally, can be beneficial to improve risk practices and ultimately deliver enhanced stakeholder and customer experiences.

Janine has a number of qualifications and awards to her credit. She completed her BCom Honours degree cum laude in Information Systems at UCT, followed by an MCom, also cum laude. Additionally, she stands on the verge of completing her PhD in Risk Management and Innovation. The most recent recognition for her talents came when she won the IRMSA Risk Manager of the Year Award, IRMSA Communication and Technology Risk Industry Award and Vodacom CEO Award in 2014. She has published research and presented papers at numerous national and international conferences on delivering risk interventions for risk management, fraud, mobile security and revenue assurance.

Janine is passionate about pioneering risk management solutions that inspire trust, deliver value, exceed stakeholder expectations and providing innovative solutions to reduce risk. She is convinced that effective risk management, governance and compliance can deliver competitive advantages for any organisation. Janine is passionate about risk management since it offers numerous opportunities to improve business sustainability. She is regarded as an empowering leader and an innovative thinker, who lead by example. Authenticity, integrity and professionalism are values she lives by.

Janine has also used her risk expertise to support a non-profit organisation, Badirammogo (meaning ‘working together’) in Olievenhoutbosch. The Badirammogo Old Age Home cares for disabled elders who survive solely on government pensions. Sustainable successes were achieved by the collective and continued participation of colleagues and peers in the project, which eventually lead to other projects (such as the Kids paradise children project).

Janine’s passions outside the office indicate she is not risk averse. She participates in high-adrenaline sports such as parachuting, bungee and bridge jumping and white-water rafting. A recent highlight was snorkeling and diving with sharks and manta rays in Fiji. As a rule, she expends her high energy levels at the cross-fit box, training for competitions. She also completed the Comrades Marathon, Two Oceans Marathon, enjoyed kickboxing and trail running.

 

26 June 2015

SEXUAL HARRASSMENT: DEALING WITH THE PESTS

Article by Terrance M. Booysen and reviewed by Bruno Bruniquel (Bruniquel & Associates: Chairman)

As sad as it may be, the incidents of a particular colleague walking past your table and greeting you, or even asking about your weekend activities may not be as ‘innocent’ as you may first have thought. And each time you ‘bumped’ into each other at the coffee station, this too may not have been a ‘coincidence’ at all. These occurrences may all be part of an elaborate plan -- designed by the initiator -- who has their own objective to forge a closer relationship with you, and ordinary business matters was certainly not on their mind. Needless to say, the organisation had very different intentions of providing employment to this person, and in the ordinary course of business, each employee is expected to behave in a befitting manner and such that the interests of the organisation are being met. That being said, trouble sets in for the employer when an individual selfishly uses the workplace to serve their own objectives, more specifically when they use the workplace as a ‘hunting arena’ to satisfy their private needs and which encroaches another colleague’s personal space with sexual overtures.

If an employer fails to address a sexual harassment complaint, the consequences may be serious. In Grobler v Naspers Bpk en n’ ander [2004] All SA 160 (CC), a manager was found guilty of sexually harassing an employee.

The court found the employer to be vicariously liable for the conduct of the manager because it had failed to take appropriate action to prevent the harassment.

The employer was liable for the resultant damages of just short of R1 million.”

Source: Bruniquel & Associates

This is where the term ‘sex pests’ finds its roots, and if the organisation does not have meaningful mechanisms in place to protect its employees against the perpetrators of sexual harassment, then the organisation may fully expect the victims of this unwanted attention to hold their employers vicariously liable. A sex pest is widely understood to be a person that imposes themselves -- in one way or another -- upon another person, and where the imposition has some attached sexual form or element to it, which is not welcomed by the receiving party.

As more of these sexual harassment cases come to light, in order for organisations to mitigate their risks against an employee attempting to claim vicarious liability against their employer, organisations will need to show that their working environment is free from sexual harassment by other employees. Moreover, it is imperative that management fully understand what the common law and labour law expects of the employer’s legal duty to protect its employees. This includes knowing how to deal with any allegations of sexual harassment levelled against the alleged perpetrators, even if the victim decides not to pursue the matter.

Organisations who are not able to show their reasonable steps which they have taken to protect their employees against sexual predators, may well find the Courts ruling in the favour of its employees who have suffered harm. Besides the perpetrators also being brought to book, the negligence on the part of the organisation by not establishing the correct policies and procedures to protect employees against sexual harassment, invariably brings a lot of public attention which could lead to even greater reputational damages.

Sexual harassment in the workplace is a widespread problem occurring in many organisations worldwide, and it may manifest itself in various forms, including physical, verbal and non-verbal conduct. Notwithstanding popular belief, sexual harassment does not only affect women.   Statistics reveal that both men and women experience sexual harassment in the workplace, with women generally experiencing it more often than their male counterparts. According to the International Labour Office, which is the permanent secretariat of the International Labour Organisation (ILO), it reported that nearly twenty five percent of workers interviewed in Hong Kong in February 2007 suffered sexual harassment with one-third of them being men. In this report, among male workers, only 6.6 percent reported their grievance (compared to twenty percent of women) because they felt too embarrassed to face "ridicule". In another report issued in Italy in 2004, 55.4% of women in the 14 to 59 age group reported having been a victim of sexual harassment. One out of three female workers were subjected to sexual intimidations for career advancement with sixty five percent blackmailed weekly by the same harasser, which was usually a co-worker or their supervisor. Alarmingly, the report showed that 55.6% of women were subjected to sexual intimidation and had resigned from their jobs. In staying consistent with these findings, in 2008, the Australian Human Rights Commission conducted a survey to investigate the nature and extent of sexual harassment in Australian workplaces. The survey found that 22% of women and 5% of men aged between 18 and 64 had experienced sexual harassment in the workplace, with 65% of the sexual harassment cases occurring in the workplace.

In order to limit these unwanted sexual workplace advances, it makes no sense for the victims not to report sexual harassment to the necessary workplace authorities. In a telephone poll conducted in 2008 by Louis Harris and Associates on 782 United States workers, it found that as many as 62% of the victims of sexual harassment took no action against their perpetrators. The poll found that the majority of perpetrators were either their supervisor (43%) or more senior persons (27%) than themselves. Considering the fact that the perpetrators are most often at more senior levels, and noting the high prevalence rates of sexual harassment in the workplace, organisations must protect their employees who have become victims of sexual harassment in order to avoid the immense damage its causes to both the victim and the organisation.

According to data complied by Equal Rights Advocates (a women’s law centre in the United States), victims of sexual harassment lose $4.4m in wages and 973,000 hours in unpaid leave each year in the United States. The data revealed between 90% - 95% of sexually harassed women suffer from some debilitating stress reaction, including weight loss (or gain), lowered self-esteem, anxiety, depression and sleep disorders. Whilst statistics on monetary benefits accruing to claimants of sexual harassment in South Africa are not readily available, statistics in America reveal that $35m accrued to victims of sexual harassment (excluding those obtained by way of litigation) in 2014 alone. Besides the fact that the victims may suffer from various disorders which most often impacts their productivity, the more worrying outcome is when the victim feels so helpless that they forego their career opportunities, or leave their employment or even commit suicide.

In South Africa, sexual harassment in the workplace is prohibited and an employee who commits sexual harassment may be dismissed. The victim is completely within their rights to lodge civil and / or criminal claims against the perpetrator, as well as their employer. According to the Employment Equity Act 55 of 1998, employers are obliged to take steps to prevent sexual harassment in the workplace, failing which, employers could be held liable for the acts of any of their employees who engage workplace sexual harassment.   The Code of Good Practice on Sexual Harassment -- which is a regulation under the Labour Relations Act 66 of 1995 -- contains guidelines on how to deal with sexual harassment in the workplace, including offering principles and procedures to be used when dealing with sexual harassment.

And whilst there are many genuine cases of sexual harassment in the workplace, one should also not forget the potential scorn of a person who may have been ‘jilted’ by the other person who did not welcome their sexual advances. There could be instances where a ‘victim’ of sexual harassment makes a false accusation against the ‘perpetrator’ and this could have serious consequences for the accuser. Whilst the accused is completely innocent of the charges, most people (especially wives and husbands) will think ‘there is no smoke without fire’ and therefore a cloud of suspicion is likely to hang over the accused, regardless of whether or not they are innocent.

Making false accusations of sexual harassment is a major transgression and it certainly warrants a mandatory disciplinary enquiry by the employer. If the accuser is found guilty of falsely accusing another person in the workplace of sexual harassment, they could in all probability be dismissed from the organisation. The perpetrator in sexual harassment cases, invariably waits until the victim is alone so that there are no witnesses to prove or disprove the allegations made by the ‘victim’. Therefore offering both the ‘victim’ and the ‘perpetrator’ the opportunity to undergo a polygraph examination will at the very least, provide the investigator some indication regarding the veracity of the allegation, even if the parties refuse to take the test. A ‘victim’ who is lying is unlikely to agree to a polygraph and if the ‘perpetrator’ is innocent, they will jump at the chance to prove their innocence.

Indeed, it is important that management are adequately equipped and know how to deal with sexual harassment in the workplace in a timely manner, as well as how to avoid the common mistakes. Some of the most common mistakes in investigating complaints of sexual harassment typically occur when organisations lack proper policies and procedure to protect their employees in this regard, or when an investigator who is not qualified and/ or who lacks experience is chosen to lead the investigation. But when the organisation does not have a proper strategy and investigation plan, including preliminary time lines for interviewing witnesses, or gathering documents and completing the necessary reports, it simply spells disaster for the victim and the organisation.

 

2 May 2015

NPOs LEND A HELPING HAND

In a world filled with many selfish acts, it is refreshing to witness an act where someone -- or an organisation -- goes beyond their call of duty to help another without expecting anything in return. Indeed, there may be a number of these selfless deeds taking place which are not seen or promoted enough. Many of the people behind these good deeds are in fact people who do not actively seek recognition for their work and they continue their work driven by their passion, regardless of who may be watching. Upon reflecting more about the term ‘selfless deeds’, one may be reminded of the Dalai Lama XIV’s wise words saying that our prime purpose in this life is about helping others and if we cannot help them, we shouldn’t hurt them. This makes so much sense.

If only more people would roll up their sleeves and instead of asking what can be done to help another person in need, to just spontaneously greet a stranger, or offer a helping hand to an elderly person crossing the street, or pay for the loaf of bread to the beggar in front of you at the queue in the supermarket. These random acts of kindness are seldom seen, and when -- through some strange twist of fate -- a person witnesses such acts, they do somehow affect you in one way or another. For some people caught up in this moment they may have cynical thoughts, for others they may have a pang of guilt, or they may be consumed by the kindness of others and this invariably causes them to also want to get involved.

No matter whether a person wants to view these acts of kindness from either a philosophical, academic or emotional perspective, even the hardened tightfisted
corporate executive will have some sort of emotional activity taking place in his/her heads, no matter how slight this may be. In South Africa, most of her people were moved by the acts of one man -- Tata Nelson Mandela -- who initially was a fierce freedom fighter who stood for the principles of a democracy that would apply to all the people of South Africa. As the world learnt more about this extraordinary man after his 27 years of incarceration and subsequent release from Victor Verster prison in 1990, he showed the world, including his jailers, love and kindness instead of hatred and anger.

Tata Madiba was a person who personified the principles of “ubuntu”. As the meaning of ubuntu was spread to all culture groups in South Africa, it was also spread to millions of people across the world. Ubuntu is all embracing. In one of Madiba’s last public interviews, he explained how in the old days -- through the principles of ubuntu -- an African traveller would arrive in a foreign village and would not have to worry about asking for food and water. The village people welcomed their travelling guest, provided him with food and water, and they refreshed him as he moved on to the next village. This courtesy was never taken for granted, neither was it to be abused where one person would benefit at the expense of another.

As Madiba encouraged us to follow these old African values, enriched with tolerance and ‘humanness’, it is wonderful to see organisations such as the Wot-If? Trust -- who epitomise the type of values that seem to be from a by-gone era -- practicing their good deeds for impoverished people on a daily basis. Recently, the Wot-If? Trust (NPO) contacted CGF in search of another registered NPO (non-profit organisation), wanting to donate 250 Teddy Bears to small children who are less fortunate than others. CGF, who is a well recognised and networked organisation that specialises in a variety of corporate governance services, quickly jumped at the opportunity and contacted the Tshwane branch of Soroptimist International (‘SI’) in Pretoria in order to “find loving homes for the Teddy Bears”.

As a matter of interest, the name ‘soroptimist’ is derived from the Latin word ‘soror’, meaning sister and ‘optima’ meaning best. It can thus be interpreted as ‘the best for women’. Within minutes of CGF contacting the SI Tshwane branch, SI provided CGF a list of their registered NPOs who deal with infants and young children ̴ and so the Teddy Bears were almost ready for ‘adoption’. On 13 May 2015 a surprise Teddy Bear party was arranged by SI, at the Rebokamoso Creche, at Tau Village for the toddlers. Later the same day, at the opening of the new library in Mamelodi, more young children from the Tateni Home Nursing Services’ St Francis Drop-in Centre and the Mapula Embroidery Project were able to ‘meet’ their new Teddy Bears.

What a joyous occasion it was seeing the faces of so many toddlers being able to not just have their own Teddy Bear, but even more heartwarming was the fact that these cuddly toys were theirs to keep and take home.

In staying aligned with the principles of corporate social investment and good governance -- in commercial terms -- ‘ubuntu’ should be seen in a far broader context and it need not always be linked to some form of pay cheque. In reality, particularly considering the current and tough economic climate, many organisations and people may be financially pressed and are perhaps not in a position to contribute financially to others who are not as fortunate. It is often these acts of kindness that go a long way to make the lives of others somewhat better, and these are often the most memorable.

 

30 July 2014

GENDER DIVERSITY IN THE BOARDROOM

“Countries and companies can be competitive only if they develop, attract and retain the best talent, both male and female. While governments have an important role to play in creating the right policy framework for improving women’s access and opportunities, it is also the imperative of companies to create workplaces where the best talent can flourish. Civil society, educators and media also have an important role to play in both empowering women and engaging men in the process.”

The Global Gender Gap Report 2013

As South Africa heads toward National Women’s Day--which has been established as an annual public holidayto commemorate the role women have played in South Africa’s democracy--it is appropriate to focus ongender diversity in the boardroom and how South Africa is fairingagainst other developed and developing countries worldwide.Unlike a number of other business areas where South Africa may not be doing as well as its SADC or BRIC country counter-parts, South Africa is currently regarded as one of the top performers in boardroom gender diversity.

Besides the recommendations provided in the King Report on Governance for South Africa 2009 (King III) which calls upon organisations to consider their board’s effectiveness in terms of its size and diversity; it would appear that local organisations have understood the importance of balancing their boards with women in representation. According to the GMI Ratings 2013 Women on Boards Survey, South Africa is leading the world on gender diversity in the boardroom in the developing countries with 17.9 percent of women occupying board positions whilst only 11 percent of women hold board positions at a global level. Placed at 5thposition overall in the world, South African organisations are well above their BRIC counterparts who trail at 5.1% (Brazil), 4.8% (Russia), 6.5% (India) and 8.4% (China).

The business case for increasing the number of women on boards is clear, with evidence that shows gender-diverse boards have a positive impact upon organisational performance. Indeed, the International Corporate Governance Network (ICGN)provides that constructive debate and independence within the boardroom --which allow boards to better fulfil their expansive oversight responsibilities --can be accomplished more effectively by recruiting a board which is diverse inthe broadest sense of gender, race, national origin, culture, expertise and thought leadership. That being said, the ICGN emphaticallystates that a gender diverse board established over the head of a non-gender diverse organisation is “unlikely to be wholly effective” and that “investors will certainly be somewhat cynical about gender diversity grafted on only at the very highest level of a company as this may appear somewhat cosmetic and management’s ability to listen effectively to a full range of views may be in doubt.”

Whilst South Africa is placed ahead of most countries in respect of gender diverse boards, it’s interesting to note the Nordic countries currently lead the world with Norway, Sweden and Finland leading the developed countries with their female board directors at 36.1 percent, 27 percent and 26.8 percent respectively. Japan has the lowest percentage of female directors of all developed countries, with a mere 1.1 percent of women on boards; andSouth Korea is placed last at 1.9 percent of the developing countries.

Back home, in South Africa there has been a lot of criticism levelled against the Women Empowerment and Gender Equality Bill 2013 which --amongst other --imposes a minimum quota of women on boards and other decision making roles. This Bill, if brought into law in its current form, may have a profound impact on the composition of boardrooms across South Africa. The Bill contains one of the toughest gender quotas in the world where designated private and public organisations will be required to have a minimum of 50 percent women on boards and decision making structures.

Given the apparent successes of South Africa’s ratings in respect of its gender empowered boards, and furthermore considering the additional SA legislation protecting women employees, there’s no doubt that women in South Africa are being fast-tracked which will in all likelihood equate, or even exceed the Nordic successes. Interestingly, whilst the Norwegian Government has made significant stridestoward gender diversity through their prescriptive legislation to enforce a 40:60 female-to-male gender quota, theirrequirements are only appliedto listed companies and not to their smaller private companies and small family businesses.

The American non-profit organisation, Catalyst, is well known and respected for their competitive landscape studies. In their 2011 study with over 520 Fortune 500 companies, they concluded that companies with three or more female directors outperformed companies with all male directors by 40 percent on return on equity; 84 percent on return on sales, and 60percenton return on invested capital. Their results between enhanced organisational performance and gender diversity are fairly consistent with similar gender studies conducted by the Conference Board of Canada in 2002and McKinsey’s in 2007/2012.

Following the overwhelming evidence and obvious rationale for the importance of non-discriminatory conduct against women;organisations that value gender equality are more likely to retain staff and have a far better competitive advantage in attracting not only the best available talent, but also locking into better and more sustainable business. Expectedly these are just some of the very good reasons to enhance women in business; and insodoing, organisations also embellish their corporate social and moral values that underpin their corporate governance structures.

 

26 April 2014

Transparency and good governance lacking in the Retirement Industry

Article by Ian Young and Terrance M. Booysen

Johannesburg

With only six out of 100 people in South Africa being able to retire comfortably, much can be said about the state of the local retirement industry.  Why are so many citizens unhappy at the pay-out stage and why aren’t people saving enough for their retirement?

The answers to these questions are actually quite simple.  The industry itself has caused this dilemma because of inter alia; historically high cost and commission structures, structuring of products such as guaranteed products, smoothed bonuses and penalty clauses.  This has also been allowed to happen by Trustees Boards approaching retirement fund issues from a perspective of what suits them personally – and not “walking” in their members’ shoes.  The same goes for employers who participate in umbrella funds. Too often the “corporate speak” of these meetings is more important than the real needs of members.  In reality, the average person simply cannot actually understand the complexity of their insurance products and they become bull dozed with fear tactics adopted by many unscrupulous players in the industry.

A “less is more approach”

There is a clear case in the industry for a “less is more approach”.  Members care about benefits – not posh offices, boardrooms and egos.  National Treasury clearly states the obvious: the industry needs to ensure simpler products, lower costs and improved savings.  Too many suppliers are using the “market beating” returns to attract business but their high costs negate any benefit these returns may derive for the man in the street.  In fact seventy-five percent of asset managers do not beat the index.

A retirement fund is after all a savings vehicle, or at least it is supposed to be.  As employers, we have to be seen therefore as placing people at the heart of the issue, and tackling the perceived lack of care for their wellbeing and that of their communities.  It is easy to grow R250 per month (escalating annually) to R1m over 40 years.  Why are we not seeing this?

The questions we raise in this article are; where do you stand as a leader in industry and are you taking a lead as the perceived guardian of your employees’ future?

What needs to happen?

For ease of getting straight to the point, let’s not debate the fact that it is the company’s obligation and moral duty to provide a retirement fund for its employees.  However, in creating the fund it must be established upon the basis that it meets the requirements of all the company’s employees, and not for the leaders of the company alone.  Remember of course that whilst the management of the company only consists of between 10 - 15 percent of its structures, the pay differential between management and the average employee remains quite uneven. With this in mind, employers should also bear the following factors in mind, namely:

  • choose the fund carefully, and ensure that -- as the guardian for others -- the benefits of the fund will meet the needs of all the employees;
  • diligently eliminate cost layers and complexity;
  • choose simple benefits and structures;
  • maximise savings and ensure transparency; and
  • ensure suppliers’ smart technology can easily support members and keep them informed.

There are countless examples in South Africa where employees have been members of their company’s retirement fund for their whole working lives, only to discover at the end of their working lives that the fund value is nowhere near what they had been promised, leaving them in desperate poverty.  With class actions now alive and well in South Africa, including the myriad of employee protective legislation already in place, it won’t be too long until someone takes legal action against employers and boards for knowingly, over a period of many years, allowing such a situation to arise.  Irrespective as to how this situation has come about -- by omission or otherwise -- employers will need to rapidly address this unacceptable state of affairs, particularly since companies in South Africa are generally expected to report upon the manner in which they safeguard the interests of their human capital within their annual Integrated Reporting. Since most employers are counselled by actuaries, consultants and investment gurus when deciding upon the manner and type of funds the company will support, clearly it is nearly impossible for companies and their board of directors to claim ignorance when retirement funds have been ill-chosen and where employees are left stranded.

Company directors to be held liablefor non-payment of contributions

In terms of the Financial Services Laws Amendment Act 2013, signed into law in January2014, convicted employers can now face a fine of up to R10 million and/or imprisonment of up to tenyears. Previously, what was only a ‘referable event’,is now a criminal act. The revised Act stipulates “the key directorwho is regularly involved in the management of the company’s overall financial affairs” will now be personally liable for the payment of fund contributions. Employers and their trustees are required toidentify such persons, failing whichall the directorswill be heldpersonally liableif they do not pay fund contributions.

What are the employer/trustee responsibilities?

The role of trustees is very clear; through the employer, trustees need to manage the retirement funds and ensure there’s compliance with the legal requirements that apply to these funds. This includes ensuring that all decisions and actions are taken according to the retirement fund laws and rules. But it also means acting in the best interest of the members(i.e. employees).Employers need to ensure their members (employees)receive the best return on their invested funds by asking appropriate market and socio-economic related questions and making sure that wise decisions are made.

In addition, it is the responsibility of the trusteesto make sure that the assets they are responsible for are not abused and that they themselves do not become open for bribery. This means keeping a close watch over fund administrators to ensure members’ assets are managed properly according to the law, and that trustees are beyond reproach.Moreover,regular auditsas well as checks-and-balances should be a regular governance exercise that is undertaken by the employer so that the necessary assurances and/or counter measures can be proactively managed to avoid any possible unwanted investment risks.

Uncompromised transparency

There needs to be absolute transparency with both trustees of a retirement fund and the recipients of these funds-about what they are getting. Members must understandwhat the fee structures are that potentially eatinto their savings. At the same time, members must be empowered in such a way that they have a say upon their retirement products, and especially so in order to lowercost structures which enable them to achieve a greater return in the long run on their savings. The only way to do this is to redistribute the wealth from the retirement companies into the pension savings of members –this means changing cost structure models and fee layering for the best interest of the people.

Complex products, with many options, variables, split investment choices, multiple asset managers, and bespoke plans for the employees’“personal needs” –all cost more. Companies should notlet anyone tell themotherwise. If theywant this, then they must go in with theireyes open and make sure theypay a fair price.

Complete overhaul needed

More forward looking investors who underpin their retirement plan solutions with sound governance practices are needed in the Pension Fund Industry. There is no need to waitforNational Treasuryto force this change.

Companies and investment firms need to challenge the status quo and bring about change in the financial services industry. Undeniably, the world would be a better place if everyonepracticed the good governance principles espoused within the King Report on Governance for South Africa 2009 (‘King III’). Good governance, which includes ethical business practices,requires all the industry players to be transparent in their advice, their actions and their products.

Retirement fundscan only be transparent if theyare in “good health” and have nothing to hide. The industry needs to ensure that there are better governance practices,by forcing full fee disclosure at one touch point. To this extent, retirement fund providers should operate under the business principle that “less is more”and they should become an early adopterof full disclosure and not wait until transparencyis enforced by legislation.

Companies can also lead this changeby ensuring their retirement fund providers operate with integrity, good governance and are fully compliant. Besides being FAIS compliantand meeting other industry regulations,companies should seek out providers that have audits and controls which are continuously updated throughout the year. In addition, they should havea robust technology system in place which has solid control of the processes and workflows, is able to match assets and liabilities on a daily basis and provides a 24/7 view of the fund’s investments.

Innovating by doing it differently

LifeSense Financial Services is leading the changefor complete openness as well as the creation of a financial model that means “fewerfees for themand more money for the members”. Theyhave done this by creating simple products with the lowest fees on the market,balanced with strong market investment returns. LifeSense has proven that its business model works-having improved its members Net Replacement Ratio (NRR) enormously by bringingsimple products with no penalties, fees or commissions other than what has been provided for in their client agreements.

 

 


 

VIPsight Archives Africa - South Africa

2010 2011

 

28 October 2011

ACCURATE MINUTE TAKING CAN SAVE YOUR REPUTATION, EVEN YOUR POCKET

Most notably, and after the collapse of many well known corporations, including the countless scandals of poor corporate governance practices and corruption; there is little doubt regarding the value of a reliable and thorough paper trail. Whilst it is important to have access to the documented information of a meeting, even more critical would be the accuracy of the information that was originally captured. These factors apply to all organisations, and have become increasingly relevant, particularly considering the increased liabilities attached to directors and prescribed officers when there are disputes on past decisions and when matters go awry.

As organisations become more exposed to risk, and considering the ever increasing regulatory burdens being imposed on directors and prescribed officers (in their personal and joint capacities), informed directors of Boards will most certainly want their dissenting views and opinions recorded in their minutes. Clearly, if there is no accurate company record of their dissent, trying to protect themselves after the event is a lot more difficult and therefore an accurate reflection of their views, comments, disputes and actions becomes paramount in their defence. Legislation has tightened, and directors and prescribed officers may now be held accountable for the organisation’s activities even after they have resigned.

Yet so often, organisations disregard the value of its recording, documentation and storage of its minutes which at Board level, is the responsibility of the Company Secretary. In many instances -- and whilst this may not be as common in listed companies -- the Board of directors of smaller companies and parastatals regard their Company Secretary simply as the ‘minute taker’ or worse, a glorified clerk. Of course, the Company Secretary fulfils a critical role not only in the Boardroom, and whose duties extend well beyond minute taking; indeed they play a pivotal role in the affairs of the organisation and ensure there are accurate records of the proceedings at executive meetings, including whether or not directors have met their fiduciary obligations. Directors should be cautious to check the level of accuracy, and the competency of the people tasked to capture and store the minutes of these meetings.

It therefore goes without saying that the preparation of minutes and the resolutions taken by the Board are important to an organisation and these documents are a valuable source of evidence in support of the organisation’s operations, particularly when the organisation and its leadership is headed for difficult times. Clearly many time-pressured executives may tend to ignore the importance of minutes, little realising that the capturing and storage of Board and Board committee minutes is a legal requirement, with specific and onerous provisions.

Organisations are best advised to consider the implications attached to poor record keeping and the manner in which its leadership is impacted; more importantly the organisation’s reputation, brand and image amongst the shareholders and greater stakeholder community. Naturally, the proper keeping of minutes and records management will not earn the organisation any fame, but when the chips are down, the diligence of performing these activities will certainly provide an assurance to all the organisation’s stakeholders -- that sound governance is being applied, such where the organisation’s leadership can be held directly accountable and without loss of memory.

 

19 September 2011

THE NET BROADENS FOR ‘PRESCRIBED OFFICERS’ OF A COMPANY

Following the introduction of the new Companies Act No.71 of 2008, (‘the Act’), employees may well want to establish with their HR departments whether or not their job-related functions fall within the ambit of a prescribed officer, as defined in the Act.

 

In the Act, Section 66 (10), refers to a “prescribed officer” as “a person who, within the company, performs any function that has been designated by the Minister in terms of Section 66 (10)”. In this section of the Act, it states that “the Minister may make Regulations designating any specific function or functions within a company to constitute a prescribed office for the purposes of this Act.”

Moreover, Regulation 38 of the Act elaborates further, saying that a person is considered to be a prescribed officer -- despite not being a director -- if they exercise (or regularly participate to a material degree in) general executive control over and management of the business, or a significant portion of the business and activities of the company. This applies to a prescribed officer irrespective of any particular title given by the company to that prescribed officer.

“Executive control” can be roughly defined as the consistent application of directive or regulative decisions or acts in the management of the business. At its extreme; any individual who takes actions to (i) changing the circumstances or (ii) makes executive decision-making in the business can be said to be in “executive control”. The Act unfortunately offers no definition of “executive control” and therefore one must endeavour to find a practical middle ground.

Furthermore, in Regulation 58 (1), it says that: “in this Regulation, a reference to directors, proposed directors or prescribed officers of a company includes any person holding one or more material contracts to perform any executive function for the company.”

To this end, the most likely persons who may be deemed prescribed officers of the company could be the following individuals:

•    Chief Executive Officer and / or Managing Director;
•    Executive and Non Executive Directors;
•    C-suite Executive (e.g. CFO, COO, CIO, CPO, HR, etc.);
•    Company Secretary;
•    Senior Management;
•    Internal Auditor; and
•    Members of a Board Committee.

Based on their office and/or function, some individuals will be defined as prescribed officers of the company, regardless of the specific title given to the person by the company. The definition is wide, and encompasses additional employees of the company, other than its directors, who now have to comply with certain provisions of the Act, which were not applicable to them in the past.

In conclusion, the company must be able to determine who may be deemed as its prescribed officers. Each and every case needs to be assessed on its own merits. For example, and similar to the questions around the independence of directors, it is both a subjective and objective enquiry. Therefore a Chief Operating Officer in one company may well be a prescribed officer, but not necessarily in another company.

Due to the fact that there are certain fiduciary liabilities attached to prescribed officers, employees should inform themselves of these new developments and understand the implications thereof.

 

4 August 2011

ONE PLANET, ONE CHANCE...

“Waste not, want not” or so the adage goes. Yet, year after year people carry on regardless of the negative consequences their careless and wasteful behaviour has on natural resources. The persistent abuse, pollution, and over-exploitation of natural resources is pushing humankind closer and closer to the brink of extinction. The predictions made in the WWF’s Living Planet Report 2010 are unsettling - at the current rate of consumption of natural resources, humans will need two planets by 2030 in order to sustain themselves. According to the Report, humans are using thirty percent more resources than is sustainable.

Half a century ago, most countries lived and consumed within the limits of their ecological resources. Figures show that today, three-quarters of the world's population live in countries where the inhabitants consume resources at a rate faster than they can be replenished. Moreover, there is ongoing pollution of air and water, deforestation, degradation of arable soils, and worrying declines in the numbers of various species of flora and fauna.

Humanity finds itself very much wanting, as increasing modernisation sees more and more countries adopting wasteful, consumptive habits. The question is: what happens to all the resources after consumption?

All activities that cater to human needs – which range from those in the home to the large-scale production within industries – generate waste. There is an ever-growing demand for a variety of resources, including space to dispose of these wastes. This is particularly true for the carbon dioxide that results from burning fossil fuels, and the dumpsites that are increasingly being filled with discarded materials.

Due to the fact that humans have shown scant regard for the manner in which they use natural resources, there is an inevitable security threat as our supply of these materials shows signs of failing to keep up with growing demand. The link between environmental policy and security is undeniable. A lack of resources -- be it as a result of overuse, pollution or wastefulness -- will destablise populations as people grow desperate to fulfill their basic need to survive.

If we faced an anarchist plot to poison water supplies or release poison into the air, there would, no doubt, be swift action in response. Sadly, a more subtle, but no less dangerous threat to environmental security is growing day by day. Society continues to poison natural resources with pollution, and our treatment and disposal of waste is inadequate. Whilst scientists and environmentalists have raised this alarm for many years now, generally the reaction and remedy from governments, business and civil society has been lacking in decisiveness.

We only have one planet and our actions need to be informed by the fact that we are ‘borrowing’ natural resources from future generations. We need to ensure that we leave future generations an earth that can maintain and sustain them.

Within this context, the South African government has passed the National Environmental Management: Waste Act (Act 59 of 2008) or ‘NEMWA’. NEMWA entrenches international best practices of waste management into law, and espouses an environmentally responsible and sustainable approach. It is one attempt to respond to the growing threat of contamination and dwindling resources. NEMWA follows the National Environmental Management Act (Act 107 of 1998) or ‘NEMA’, which was developed to integrate environmental management on a nationwide scale.NEMWA gives effect to the Constitutional right that guarantees the right of all South Africans to an environment that is not harmful to their health. The key aspects of the new legislation include:

•    decreasing the consumption of natural resources
•    minimising waste generation
•    recycling
•    appropriate and sustainable waste disposal
•    preventing pollution
•    promoting effective waste services
•    remedying land degradation, and
•    achieving an efficient integrated waste-management reporting and planning regime.

The NEMWA provides comprehensive and integrated waste management legislation for waste throughout its life cycle.

Companies must be familiar with, and compliant to the legislation as NEMWA introduces criminal liability for directors and companies and an offender may receive a fine of up to R10 million or imprisonment of up to ten years for certain offences. Moreover, directors need to ensure that their companies are compliant to the legislation, or they risk being brought to book by the Department of Environmental Affairs’ Enforcement Directorate, and its dedicated environmental team, known as the ‘Green Scorpions’.

As the legislative requirements have become more rigorous and the costs associated with the treatment and disposal of waste are increasing, so more companies are becoming aware of the need to improve their waste management. Additionally, the costs associated with the treatment or disposal of waste are on the rise, which in turn impact upon a company’s financial performance. The private sector has to act on the need to have more improved and integrated waste management systems in place, and waste generation must be examined and reduced at all phases of a product’s life cycle.

In line with the philosophy of “waste not, want not”; the issue of waste management speaks to the efficient use of resources and a reduction in waste generation. While the generation of waste can be limited, it cannot be avoided entirely. This may be seen as both a challenge and an opportunity. Any portion of waste, once it has been re-used, recycled and recovered, ceases to be waste. Companies may gain revenue by selling recyclables, and recycling is a way to extract value from the waste stream. The other benefits include creating opportunities for Small, Medium and Micro Enterprises (SMMEs) and, in the process, creating jobs.

The challenge around waste and waste management is therefore two-fold: reduce the amount of waste that is generated, and of the waste that remains, try to re-use it for another purpose.

Waste management strategies need to be informed by sound environmental practises, as espoused in the King Report for Corporate Governance (King III). These practises must be sustainable in the economic and environmental sense and will form a critical component of a company’s integrated reporting. The methods used need to promote the effective use of valuable resources, support the reduction of waste generation and must encourage resource conservation and recovery.

The risk to human health and the degradation of the environment may be reduced through the implementation of systems that help to prevent pollution and promote a cleaner, ‘greener’ environment. This will ensure that the different types of waste are separated, that waste is collected regularly, transported and stored safely and appropriately treated, and – as a last resort – disposed of.

What remains to be seen is which companies will rise to combat the growing threat, and adapt themselves to play a more active role in effectively championing, as one key area, sustainable and integrated waste management?

 

12 July 2011

BERNARD PETER AGULHAS: ACCOUNTABLE TO GOOD GOVERNANCE

In the contemporary environment there is the undeniable need for organisations to be adequately informed and equipped in order for them to meet the increasing demands to adopt and implement sound governance practices. This includes benchmarking against both local and international best practices. The significance of having good governance practiced by the fiduciaries found within the nations’ leadership of both governmental and corporate spheres cannot be downplayed.   These individuals fly high the flag for good governance and set an example to encourage those around them.

CGF strives to support and advise its constituents to function soundly and sustainably, in line with good governance practices. Central to this is looking at Corporate Governance, Risk and Compliance (GRC) as related to the strategy, people, processes and technologies of an organisation.

This is no small mission and assisting CGF in its role as educator are key individuals who have been carefully selected to stand as Honourary Patrons. CGF regards its Honorary Patrons as iconic people; each one being highly regarded for the important contribution they make to society as well as for their ideals and their ethical leadership. The Honourary Patrons exemplify accountable citizenship and serve as models of good governance.

In partnering with CGF, these individuals play an essential part in assisting CGF’s campaign to see more people and organisations evolving to embrace and effectively implement sound governance practice. They support CGF in its drive to ensure that good governance is laid down as a strong foundation within both the public and private sector. CGF is proud to announce that Bernard Agulhas has joined the ranks of its Honorary Patrons, namely Dr. Mathews Phosa, Professor Shirley Zinn, Ms Devi Sankaree Govender and Mr Michael Judin.

Bernard’s extensive knowledge and experience, particularly related to the field of auditing, allows him to provide -- among other contributions -- an invaluable oversight function to CGF.

Having grown up in the Eastern Cape city of Port Elizabeth, Bernard went on to read for his Degree in Accounting at Rhodes University, Grahamstown. After becoming a Chartered Accountant, Bernard further pursued the profession of auditing, which is a very important niche profession within the accounting industry. During his career he has been recognised as an ambassador for the auditing profession.

Bernard has had years of experience in the technical departments of the offices of the Auditor-General and the South African Institute of Chartered Accountants (SAICA). His diligence, hard work and aptitude saw him rising through the ranks to his current position as the Chief Executive Officer at the Independent Regulatory Board for Auditors (IRBA). Here he is tasked with ensuring that the auditing standards around South Africa are upheld and remain aligned to international standards, as well as promoting the skilled profession of being an auditor.

The role of oversight body is to ensure that auditors protect the public, and that this happens in a manner which builds public confidence in what auditors do. To this end, it plays a vital role in protecting the financial interest of the South African public and international investors in South Africa by effectively regulating the audits conducted by registered auditors, in line with internationally recognised standards and processes.

Bernard also represents South Africa on the International Forum of Independent Audit Regulators (IFIAR) and is Chairperson of the Standards Coordinating Working Group of IFIAR. He also participates in various projects of the International Auditing Standard-setter. His expertise in this area will be of great value as he partners with CGF.

CGF is honoured to welcome Bernard and looks forward to working with him. He will make a valuable contribution in his role as an Honorary Patron, and the benefit of this will be felt by CGF constituents and within the GRC landscape at large.

 

4 Juliy 2011

DIRECTORS BEWARE: THERE’S A NEW MEANING TO BUSINESS RESCUE

All too often, the dream of setting up a company and establishing a business is rushed into by zealous individuals, eager to make a quick profit. Many self appointed, unqualified directors fail to ensure the business is grounded upon sound governance principals, and are often oblivious to the lurking legal requirements that protect the company as an entity, as well as the stakeholders who become involved in the company’s business.

Directors who establish businesses in this haphazard manner ought to be reminded of the fact that there are a number of legal mechanisms that protect the rights of the company (the juristic entity), but there is little, if any, protection afforded to those who set up the company, and run its daily operations. The juristic entity is afforded the right -- through common law, legislation and the company’s constitutional documents -- to be protected by the people charged with this duty, and who are now referred to as prescribed officers in the new Companies Act 2008 (the Act).

Rather ironically, many of the prescribed officers, who consist of the company’s directors and its senior management, are not able to articulate what is expected of them in terms of their common law duties, which include the duty to act honestly, diligently and in the best interests of the company at all times. Moreover, their duties also extend to complying with all applicable law, acting with independence, but also notifying the company’s stakeholders should there be any concern that the company may be in financial distress. For these errant directors, one would hope that they will rapidly rethink and change the nature of their reckless behaviour, which so often causes devastating financial losses to the company’s shareholders, employees and creditors.

Fortunately, the legislation appears to be tightening its grips to control the actions of those company’s directors whose imprudent actions and blasé attitudes result in financial distress to the company and all concerned.

Directors on the boards of South African companies are now legally bound to follow specific guidelines, as well as deliver a written notice to each of its affected stakeholders informing them that the company is in financial distress, as a result of Chapter Six and Section 129 of the Act -- which became effective on 01 May 2011 -- including those recommendations of the King III Report on Governance 2009 (King III). Business rescue proceedings may be initiated either by an ordinary company resolution or failing this, a court order may be issued for the proceedings to begin. More reassuring is the fact that if directors vote for a resolution for a business rescue, and it becomes evident that this was indeed not necessary, the directors of the company will be penalised.

Increasingly, directors of the board will need to ensure that they have the mental agility when conducting the affairs of the business. Never has this been more true as some directors -- particularly in tough economic times -- continue to chase the deals irrespective of the costs or implications. Whilst there are now better safeguards for the protection of the company’s assets, cashflow and the stakeholder’s interests; directors will most certainly need to raise their game, and broaden their knowledge of prudent risk management, or they will face the wrath of the law, the scorn of the investors and even delinquency.

As a result of these new provisions, it is most likely that the company’s board will consider more carefully the manner and extent to which they engage future business, to ensure that they do not trade their companies whilst in an insolvent position where they cannot pay their creditors.

One wonders whether this gloomy message, which is intended specifically for those directors who have financially plundered so many companies and destroyed the lives of countless individuals, will take these new provisions to heart. Failure to do so could mean that these individuals will be subject to repaying the debt to the affected people, or even receive a declaration of delinquency, which carries criminal implications and could mean that the director is banned from serving on a board for life. This certainly should cause even the most reckless of boardroom junkies to rethink their next moves.

Never before in the history of South African law, has there been more of a need for directors to understand their fiduciary responsibilities, particularly when it comes to ensuring they are conducting business in the best interests of the company, and not their own.

Directors will need to understand how the new provisions of Business Rescue will affect them, both at a personal and at a business level, not least the fact that there is also a claw-back provision of three years which creditors can exercise should this be necessary.

 

28 May 2011

 

DISREGARD OF COMPANY POLICIES CAN CRIPPLE YOU

When you first hear your colleagues discussing the need to draft or revisit a company policy, you may be inclined to think this is a menial task meant to keep someone busy. Nothing could be further from the truth. In fact, a company’s policies -- particularly its key policies -- are critical documents that generally describe the intentions of the company, and they set the manner and principles to which the company will govern its actions in achieving its goals.

That said, the company’s key policies are meant to provide the necessary guides to formulate the company’s strategy and plans, whilst ensuring that it complies with its statutory documents, the respective legislation and its long term objectives. Clearly, as the success of a company often depends upon a good strategy, one must therefore not lose sight of the fact that both the strategy and the company’s policies, which have a symbiotic relationship, are an evolving process. Most often when companies are first established, eager policy writers may produce a policy that sets for example the manner in which the company and its employees will manage its ethical behaviour. Yet somehow, notwithstanding the company’s initial great intentions, things can go horribly wrong for some of the following key reasons:

  • the policy is either not in place, updated or agreed to by the company’s main stakeholders (i.e. shareholders, directors, managers, employees, suppliers and customers); or
  • the policy is not aligned to the company’s vision, ethos or strategy; or
  • the policy is not visible, neither understood or practiced; or
  • the policy does not encompass legal and/or industry benchmarks or practices, and finally;
  • the policy is in conflict with changes in legislation.

Of course there is an irony when the company commits itself to producing its key policies, but allocates an inadequate person (or process) to fulfilling the function of not only producing and maintaining the polices, but more so ensuring that there is a functional balance and alignment of these policies to the critical missions of the company. Needless to say, there are countless examples of failed organisations, who have seen their demise as a result of poorly governed policies and the procedures that flow from these crucial documents.

It is therefore critical that company’s and their leadership take full responsibility to ensue that their key policies are in place and effectively being applied within its operating structures. Equally important to understand is the fact that policies are specifically designed to suit a specific set of criteria which is relevant to the nature of the company, its stakeholders and its operating environment. For example, the policy for a dress code in a financial services industry cannot in all reasonableness be expected in a mining or manufacturing environment. Yet so often -- and probably due to ignorance or even laziness -- people who have been tasked to produce a company’s key policies, may have no problem ‘borrowing’ say a sexual harassment policy from a vastly different industry sector, and by modifying a few of its sections believe it will be suitable in their own environment.

Policy and policy formulation should therefore be a key area of focus for the executive leadership of any organisation. Its formulation must be done on a consultative basis, more particularly as companies will be expected to improve their stakeholder relationships and its integrated reporting.

There is no doubt that a well constructed, and relevant policy can bring many advantages to a company, some of these being that:

  • there is a documented process which governs the behaviour of the company and all its employees in an equal manner;
  • through the policy, there are agreed values, objectives and participatory practices;
  • the goals to attain the objectives are clear, or in the case of certain behaviours, that they are defined
    between that which is considered good or poor behaviour;
  • there is consensus regarding the manner in which the company will set its priorities, and then meet them;
  • there are clear guidelines which define the roles of authority, delegation and where the boundaries ofaccountability and responsibility lie;
  • through the implementation and monitoring of the company’s policies, the organisation will experience an
    improved level of service or customer satisfaction;
  • there is a greater alignment of the company’s value and its purpose towards civil society, target groups and
    other stakeholders.

Of course with the continued bombardment of additional legislation in South Africa -- with an average of six new acts each month over the last ten years -- companies need to question whether their policies adequately reflect the changing legislative, regulatory and business landscape. If this response is in the negative, then the question arises not only regarding the company’s state of legal compliance, but indeed also its ability to comply?

The consequences of failing to give the necessary attention to a company’s statutory documents and its key policies could be dire. If the company’s documents are in conflict with, for example, the new Companies Act or the Consumer Protection Act, decisions made by the board could be rendered null and void. This in turn could lead to personal liability on the part of the directors and/or officers of the company. In addition, there could be unintended consequences for a company that does not ensure that these documents are aligned to the changes in legislation that govern it. This is particularly pertinent to the new Companies Act, where certain classes of companies that do not amend their statutory documents -- to bring them into line with the new requirements -- will have their status changed by default. This will lead to unintended tax and other consequences which could be disastrous.

As company officers charged with the fiduciary duty to serve and protect the company, directors and managers would well be advised to reconsider their views and participation in their company’s policies, charters and terms of reference documents, rather than to relegate this critical task to their junior counterparts. Ignore these key policies and other statutory documents at your peril.

 

26 April 2011

COUNTING EACH DROP . . .

Is it not ironic how some people can take things for granted and simply believe that the current presence of natural resources, such as water for example, is in itself a guarantee of a future supply? Let us take another example such as the famous Twin Towers of the World Trade Center, New York City, United States of America (US). The years of planning and the building of the Twin Towers in the 1960’s was obliterated within 56 minutes on the morning of September 2001. Interestingly, whilst it took the US around eight months of an intensive clean-up campaign, it was a mere five years later that the first building of the new World Trade Center was opened, in May 2006. Whilst this is a stark reminder that devastation will endure in the hearts and minds of millions of people across the world, what is important to note is the speed and action people of the US took to re-build not only their buildings, but also their national pride which was -- and continues to be -- symbolised within their democratic values, as well as within iconic features such as the Statue of Liberty, big brands such as McDonalds, and their world famous rivers such as the Colorado of some 2,333 km long. Going by the example of the World Trade Center, one need not wonder what the people of the US would do if any of these features -- that sustain their sense of nationhood -- were to be threatened, lost or even destroyed.

Of all those things that ‘define’ and sustain human beings (whether in America or Africa), without doubt our most precious resource in the world is under threat. Water - fresh water is increasingly being brought under the spotlight by international communities; such where the shortage of fresh water and sanitation issues have been the focus of intense debate. It is ironic that a natural resource such as water -- which we take for granted -- may be the cause of future wars as countries fight for a depleting resource. For this reason, water has been described as the ‘new oil’ and the potential for “water wars” has been flagged as a future risk1. Given the fact that the world considers problems with the quality (and access) to fresh water as a massive threat to the future sustainability of civil society, the question arises regarding why there is no haste (by governments and civil movements) to act severely against those who threaten our water quality and supply, and why a response is not executed with the same sense of urgency, such as was the case with the 9/11 disaster? The stern warning from the UK Minister of State for International Development, Gareth Thomas, states that, "if we do not act, the reality is that water supplies may become the subject of international conflict in the years ahead" and this undoubtedly has a bearing on us all.

South Africa should take greater heed of this warning due to the fact that our country may be more susceptible to the lack of water assurance than other developed countries, which may be the result of -- among other reasons -- a harsh semi-arid climate, spatial variability of water resources, mismanaged water supplies, poorly managed regulation and certain errant corporate behaviour. The scarcity of water is likely to worsen as the demand for water outstrips the supply.

“There is no doubt that climate change is going to be potentially the biggest source of water stress,” he said. “If average global temperatures go more than two degrees above pre-industrial levels you are looking at 2 to 3 billion people potentially suffering water shortages. It’s a pretty serious business.”

Charlie Kronick: Greenpeace - Senior Climate Adviser

Of course, the call to action to provide all South African citizens access to fresh water is not only underpinned in our Constitution. South Africa -- as signatory of the Millennium Development Goals (MDGs) -- commits itself to fulfilling the targets of at least seven of the eight goals. By not assuring the supply and quality of water for all the people of South Africa, and where its security is compromised, both the Constitution and the MDGs remain nothing more than a long forgotten, unfulfilled promise.

Indeed we have heard the call for action by President Zuma, reciting the critical importance for South Africa to meet its MDG commitments to halve the proportion of people without access to safe drinking water by 20152. The question of course is how far along are we really to meeting this goal and if we have achieved this goal, why still do we hear of a coalition of 27 international charities demanding action to give fresh water to 1.1 billion people who currently have poor supplies / poor quality water? It is a known fact that global warming -- amongst other exacerbating factors -- is compounding the water crisis, furthermore, that two-thirds of the world’s population will live in water-stressed countries by 2025. This in itself, and evidenced in South Africa, leads to massive instabilities and conflict between communities and their governments.

According to the World Health Organisation (WHO) and UNICEF3 (the United Nations Children's Fund), there are 1.1 billion people, which represents 18% of the world’s population, who lack access to safe drinking water and 2.6 billion people (42%) who lack access to basic sanitation. This calamity leads to many other problems, not least the health issues such as those of diarrhoea and the fact that 443 million school days are lost globally to this illness and 1.8 million children die from water related diseases every year. Realistically, while the MDG for access to safe drinking water appears likely to be reached in most regions, sub-Saharan Africa does not appear likely to achieve this goal.4

Consider the fact that the WHO/UNICEF estimate that an additional investment of US$ 11.3 billion per year5 will be required to achieve the MDG for the most basic drinking water and sanitation, it takes no genius to understand that this is a global crisis and that all hands will be required on deck, so to speak.

Clearly, whilst this problem directly affects individuals -- and mostly those in outlying rural areas -- there are also massive implications upon businesses, who are not immune to the consequences. A social entrepreneurial South African company engaged in prospecting for, and developing new energy and new water resources, Touchstone Resources (Pty) Ltd, quickly points out that a key issue facing our businesses relates to the assurance of its water supply (AOS). AOS is the guarantee that a given quantity of water, including its pressure and quality, will be delivered at a given place and time and such that through its provision the business operations will not be disrupted.

Interestingly, according to the National Water Resource Strategy of 2004, 98% of the national water resource had been allocated as AOS at that date. That AOS is now rapidly declining and some enterprises will start to see more frequent breakdowns as the security of our water becomes more threatened. When the breakdown happens, it can be catastrophic, particularly considering our existing challenges with service delivery in most of the municipalities in South Africa, who offer piecemeal repairs. These breakdowns can become permanent and those businesses who are largely dependant on water -- as a part of their operations -- will need to expedite their risk strategy to consider the manner in which they deploy on-site water storage, redesign their operational parameters as well as the manner in which they will generate water pressure required for their factories, which is normally provided by the water bulk suppliers.

Once again, there is a call upon the attitudes and actions of governments and business leaders regarding their strategic plans, their timing and the investment they are instituting to address a worsening and potentially catastrophic situation.

Simply put, when there is no water, our health, our food and our business supply chains are directly impacted and human health protection becomes a major challenge. And so the final question remains; have we run out of time to save the world’s most precious resource -- fresh water -- and if not, will South Africans act with the same speed and action undertaken in our US example, to protect and sustain the people of our nation?


1.    Water will be source of war unless world acts now, warns minister - by Ben Russell, Political Correspondent, Saturday, 22 March 2008

2.    The Millennium Development Goals (MDGs) http://www.un.org/millenniumgoals/pdf/MDG%20Report%202010%20En%20r15%20-low%20res%2020100615%20- .pdf

3.    WHO/UNICEF - http://www.unicef.org/

4.    WHO/UNICEF, 2005 : 26 5.    WHO/UNICEF, 2005 : 2

 

28 March 2011

FRUSTRATING THE TRANSACTION

The new Companies Act 2008, has been looming over the heads of South African businesses for a number of years, and whilst this has caused much frustration and criticism regarding its delayed implementation; one thing is certain - the Act will bring about lots of change and even further criticism once it is implemented.

Of course, many business folk who are not close to the changes might only have heard that the Act is more in line with international trends, more modern in its terminology and simpler to deal with than its predecessor Act of 1973. And so, those directors and company secretariat who may have -- at their peril -- kept an arms length of the new Act due to this generalist, perhaps over simplified talk, may be in for a nasty surprise. It may be true that the new Act is more modern, and that the formation and running of a company may seem easier to deal with than previously, however one must not be unguarded by what may at first appear simpler to adopt, neither be fooled by the continuous delays of the new Act and the effort that will be required by companies to implement its provisions. If the truth be told, there are a number of areas within the new Act which will catch many unsuspecting people by surprise, not least the many new provisions of personal liability for non compliance.

One such area of considerable change found in the new Act is -- for example -- the manner in which company takeovers and mergers will be conducted, including the manner in which the regulator (currently the Securities Regulation Panel [SRP]) will be replaced by the Takeover Regulation Panel (TRP). As expected, the administrative functions of the TRP will increase considerably and beyond those of the SRP at present. The new regulatory body will be responsible for -- among other -- keeping South Africa in line with international regulatory bodies vis-à-vis what is known in the new Act to be ‘fundamental and affected transactions’. The TRP will function as the new regulatory body that will protect the minority shareholders who are affected by such transactions and ensure that they receive fair and equal treatment during the course of their proceedings.

Another significant change is the introduction of “fundamental transactions” within the wider definition of “affected transactions”. Fundamental transactions (Sections 112, 113 and 114) deal with; the disposal of all or the greater part of the company’s assets or undertaking; an amalgamation or merger; and, a scheme of arrangement. These transactions seem straight forward enough, and depending on the company’s MOI, a lower threshold to pass a special resolution can be agreed. However, Sections 115 and 164 can massively disrupt the afore-mentioned process if they are invoked by minority shareholders.

A scheme of arrangement currently requires a court to convene a scheme meeting and following a favourable vote thereon, a court sanction of the scheme. However, the 2008 Act does not require court intervention in any fundamental transaction unless 15% of shareholders (or in certain circumstances a single shareholder) voted against the fundamental transaction and require the company to obtain court approval.

Whether the courts will hear such matters on an urgent basis is yet to be seen. If not, it could leave transactions in limbo for a prolonged period of time to the detriment of the offeror and the company. The company can abandon the resolution if it does not wish to contest the matter in court. Suddenly, instead of an easier process, a 15% belligerent body of shareholders, or even a single shareholder, can upset the applecart.

Section 164 further exacerbates the woes of the company attempting a fundamental transaction; here a single dissenting shareholder can demand that the company pay the shareholder fair value for all of his shares. If the shareholder does not accept the offer made to him by the company as being fair value, this too would ultimately be settled by the court. Of course the company can abandon the special resolution rather than incurring the expense of a court battle. It does seem that this creates fertile ground for shareholders to “green mail” the company.

A beleaguered company could always implement a restricted array of measures to frustrate an offer provided that such measure was approved by a majority of non-conflicted shareholders in general meeting. The 2008 Act requires that the same restricted measures must receive the prior written approval of the Panel, and the approval of the shareholders of the relevant securities. The Act is silent on whether this approval is by a majority vote in general meeting by non-conflicted shareholders, or whether it requires the written approval of every non-conflicted shareholder. If the latter is the case, as it appears the Act reads, then it will be nearly impossible for a company to take such frustrating action.

Considering the fact that many skeptics -- or those who have adopted a “wait and see” approach -- may still be uncertain as to whether or not the new Companies Act 2008 is ready for its anticipated release come 01 April 2011, the jury may still be out regarding the implications and impacts upon South African business, not to mention of course the many more frustrations which may be attached to other vague or uncertain areas of the Act.

 

01 March 2011

UNTIL DEATH US DO PART?

One wonders just how many people may have misunderstood the meaning and the commitment they made when they uttered the words, “until death us do part”? These words are mostly associated with special life- changing events such as the marriage between two people, or even when extraordinary acts of bravery may be required on the parts of one or many parties. Events such as the sinking of the Titanic, or the Japanese “kamikaze” pilots would also come to mind when one ponders the incredible implication behind this pledge of service which is made between parties. In the case of the World War II Japanese pilots, the commitment of death was pledged as a service of honour and victory.

Whilst physical death would not ordinarily be associated with directors accepting their appointments on a company’s board, one’s imagination could be stretched to comparing Japanese pilots and their commitment, as opposed to the many so-called ‘directors’ of companies today? When directors are appointed within a company, they essentially make a personal commitment to serve the company to the best of their ability, furthermore subordinating their personal interests to those of the company and its shareholders. In essence, the act of accepting a directorship position pre-supposes that the individual is prepared to ‘lay themselves on the line’ for what they believe in, whilst also protecting the shareholders’ investments.

Indeed it is the initial responsibility of the shareholders to appoint competent people who will devote their time and attention to direct and manage the affairs of a company in which the shareholders have invested their money. Hereafter, common practice generally allows the board of directors to appoint additional directors as the need arises, and careful consideration must be given to these appointments in order to ensure that things do not go awry.

Whilst the original allegiance between the shareholders and the first appointed directors may have been a stalwart relationship, one certainly needs to consider if the same level of commitment exists between the ‘next of line’ directors as the baton is handed from the one set of directors to the next?

Clearly this may be a contentious debate. One must be reminded of the directors’ pledge to serve the interests of the company and that they will hold themselves accountable to protect the shareholders’ investments -- as well as the other company stakeholders’ interests -- and at all times. Gauging from the many corporate collapses, most particularly those directly relating to poor leadership and governance practices, this begs the questions as to whether:

i.    directors have become blasé to the shareholders’ expectations and requirements, or whether

ii.    directors are truly informed of their liabilities for non-performance, reckless trading or willful misconduct and to which personal fines or even jail sentences are involved?

Of course not all directors fall into this ambit, and those who are indeed fulfilling their fiduciary duties and meeting the shareholders’ expectation should not be too concerned about the increased personal liabilities directors will incur for the non-performance of their duties (as provided in the new Companies Act, No 71 of 2008). Some would agree that more public examples should be made of directors who flout their duties and ignore the law, whilst others insist that the personal fines should be far greater, furthermore preventing delinquent directors from being able to hold office ever again after their conviction.

It is incumbent upon all directors to be constantly aware of their co-director’s conduct, commitment and performance and in terms of the new Companies Act, it does become a “one for all” and “all for one” type situation. Whilst the individual director will be held liable for their reckless behaviour or gross negligence, so too will the remaining directors be implicated with potential liability, most particularly where they did not act to prevent such behaviour.

Directors -- in fulfilling their directorship obligations both on the main board and other board committees -- are duty bound to act against their fellow directors who disregard their basic fiduciary responsibilities, which include the duty to:

i.    exercise the degree of care, skill and diligence which is exercised by a reasonably diligent individual and

ii. act honestly and in good faith and in a manner the director reasonably believes to be in the best interests of and for the benefit of the company.

Moreover, the new Act makes provision for the Companies and Intellectual Properties Commission to determine whether the company is trading in a reckless manner and, if this is the case, can close the company down. In this regard, directors are well advised to act sooner against their fellow directors who may be falling short of their duties, rather than later. Not doing so, not only suggests their condoning of this behaviour, but also places a massive burden and liability upon the board and its remaining members who have diligently served the company and its shareholders. It is important to also remember that directors of the board no longer require the shareholder’s approval to remove a non-performing director; they can do this themselves through an ordinary resolution. The power to remove a director is provided to the directors of the board and will provide a degree of comfort for those who have remained committed to their duties and loyal to their pledge of service, most notably to the shareholders. Willful misconduct or even a breach of trust in relation to the director’s performance and duties is now also taken into consideration when declaring a director delinquent.

The stakes have most certainly been increased as the new Act and the recently launched King Code on Corporate Governance 2009 (King III) have taken their top spot positions in most South African boardroom discussions. Not only are there numerous, wide ranging personal liabilities attached to directors, there are also new areas that protect the company’s stakeholders and which directors must become familiar with. These include business rescue, IT governance, risk management, new requirements for audit, social and ethics committees amongst other areas of similar importance.

There is no doubt that South Africa needs ethical, sustainable and profitable businesses to be able to provide decent employment for all its people. In order to achieve this, there must be excellent leadership at the helm of companies. Increasingly, these leaders are expected not only to provide good returns for their shareholders’ investments, but also to satisfy their integrated reports when dealing with the ‘people’ and ‘planet’ components affected by their business and operations. Long may our companies live, and may our shareholders be protected from unscrupulous and greedy self-serving directors.

 

31 January 2011

THOSE WERE THE DAYS . . . OF DIRECTORSHIPS

In comparison with the late 1980’s -- which seems just like yesterday -- it’s difficult to remember whether there were as many directors of companies then, as we know and experience it today. Somehow it now seems in vogue to simply appoint an individual as a ‘director’; or people may indeed assign this status to themselves in order to self elevate their importance, without realising the potential devasting implications and personal liabilities attached to the title. This is especially true for individuals who don’t have the credentials to fulfil the position and the fiduciary duties it entails. In what seems to be a ‘prehistoric’ era -- and prior to the King Reports on Corporate Governance in South Africa -- one has the sense that only a few were eligible for directorship positions and that to acquire these elite positions took much time, training, business skill and acumen. Of course, there were also those individuals who were fortunate enough to belong to family-run businesses and de facto became directors as the ‘baton was passed down’. And whilst many of us were perhaps a little too young to understand the implications attached to the by-gone days of these more traditional styled directors, it is a well-known fact that times have changed and the ‘game’ with its rules of directorship have most certainly been seriously altered since the demise of Enron, Worldcom and so many others.

What of course is now crystal clear to directors and their fellow company officers (well for most anyway) is the fact that personal liability is totally unparralled to years gone by. Being a director is serious business; there is most often big money attached to this post and many have described it as a “contact sport and not meant for sissies.” Yet somehow, increasingly there are more individuals being appointed to directorship and other executive related positions, many of whom may not have the necessary skills to fufill their duties. Moreover -- and particularly in an inter connected e-business economy -- the levels of individual performance and experience expected by company stakeholders of directors has notably increased, not least to mention the massive surge of business laws, recommendations, business charters and legislation. One wonders just how directors cope with such complexities, increasing business competition, pressurised profits, integrated reporting and indeed, greater protection of civil and environmental rights.

Of course this leads to a few questions? Are directors of today really coping and are they better qualified than their predesecors? Perhaps these are questions to which answers may not be entirely understood, or even forth-coming? Yet we do know that many directors have become quite brazen, even to the draconian regime where new legislation appears to have overtaken the production cookie machine as they continue in their abusive, self indulgent ways. Contrary to this argument, many would believe that the recent formalisation and role of the Non-Executive Director (NED), as set out in the King Report on Governance for South Africa 2009 (King III) for example, would assist companies and their board of directors to behave in a fashion which is becoming of a more upright, moral society.

Indeed in most cases the role expected of the NED -- if excercised correctly -- will bring many benefits to the company, its full time executive directors and the company’s wide array of stakeholders. Amongst the numerous benefits offered through the NED, their independence and ‘outside’ experience is probably their most valueable asset. These traits are meant to assist or guide executive directors in the organisation’s strategy, or when the executive directors themselves become self consumed, particularly where this may lead to damage within the organisation and its stakeholders.

Of course there are those who argue that the independence of the NED could either be a good or bad thing, both for the individual and the organisation. There is a fine line attached to the understanding of a NED’s independence of the management of the organisation and its interested parties. Regretably, independence to many NEDs -- it would seem -- means a total abdication of their duty to the organisation and even an ignorance to the very nature and functioning of the business. This thinking is bizarre as it becomes impossible for the NED to be able to function as a check and balance to the Board, and the organisation as a whole. Naturally this stand-offish approach cannot be good for an organisation. Its adoption is much the same as the historical view organisations may have deployed when appointing NEDs, which in many cases was simply based upon the retiring executive director’s name or reputation, and the supposed value such an appointment would bring the organisation, with scant regard to that which NEDs of today are expected to deliver.

Frankly speaking, this window dressing may not have changed much through the years, however organisational stakeholders, institutional investors and activists have, in more recent years, become a lot more informed of this reckless attitude which still prevails, in spite of the increased regulatory frameworks. That said, NEDs must be cautioned against their naievity or laissez faire actions, believing that their roles as part-time directors are without personal liability. To their peril; the courts in most countries, including South Africa, do not offer a disctinction or limit the liabilty between the wrong- doings of an executive or Non-Executive Director. In other words, if an executive director who is employed full time in the organisation and causes damage, the courts will hold the Board of directors collectively responsible (especially when public interest is at stake). Clearly then, NEDs must play a more active role in the organisations they represent, furthermore taking the necessary time to fully apply themselves to their fiduciary duties owed to the organisation.

Finally, the performance of the NEDs should be assessed on an ongoing basis and processes must be in place to deal with underperformers who don’t add value to the Board and organisation. Therefore, amongst other critical functions, the organisation has a legal, but also moral duty to evaluate the effectiveness, the performance and the value -- individually and collectively -- of each member of the Board.

 

27 January 2011

As you may be aware, since the launch of the King Report on Governance for South Africa 2009 (King III), listed companies will be obliged to produce an Integrated Report which covers the financial and non-financial related matters that pertains the affairs of the company.  Typically, this has also been referred to the people, planet and profit (PPP) components of the company, also known as the triple bottom line (3BL).  Whilst reference to Integrated Reporting is made in King III, until now there have not been any definitive guidelines and companies may have found themselves at different levels of understanding when trying to compile such a report, which essentially replaces the traditional annual financial reports.

Earlier this week, Professor M King -- chairman of the Integrated Reporting Committee (IRC) and the King Committee on Corporate Governance for South Africa -- released a discussion paper on the Framework for Integrated Reporting and the Integrated Report.  And whilst the JSE has made it compulsory for all listed companies to comply with King III, including the requirement for these companies to produce an integrated report for its financial year starting on and after 01 March 2010, non-listed companies may also find themselves gravitating more toward this thinking and business practice.

The Discussion Paper is open for public comment until 25 April 2011 and can be downloaded from www.sustainabilitysa.org

Please feel free to contact our offices if you require further information about our governance, risk and compliance services.

 


 

21 December 2010

"As you may be aware, the Minister of Trade and Industry (the dti) has deferred the implementation date of the new Companies Act of 2008 to 01 April 2011, allowing companies and their officers more time to prepare for this Act."

BUSINESS WILL BE CALLED TO ACCOUNT - IPAP2

Only recently, President Zuma’s cabinet revealed their new economic growth plan which envisages the much needed creation of new and decent jobs; in fact 5 million new jobs by 2020. This ambitious target can only be achieved through the commitment and support of both government and business and, if it is successful, the country should see a 15% reduction in our current unemployment levels.

Naturally, much needed change will also have to occur within government itself, and the (2010/11 - 2012/13) Industrial Policy Action Plan 2 (IPAP2), which was released on 18 February 2010, goes a long way to respond to the various economic and industrial imperatives that addresses the many weaknesses in South Africa’s economy.

Whilst IPAP2 draws upon the theory and practices of other developing peer group countries, it also builds on the policy perspectives of the National Industrial Policy Framework (NIPF) which was adopted by cabinet in January 2007. Both the NIPF and IPAP2 -- read in conjunction -- provide greater clarity to the private sector and its public social partners with respect to the strategic processes and changes which are required for South Africa to become more ‘normalised’ after decades of social and economic oppression.

And so IPAP2, which is guided by the NIPF, is a radical shift that seeks to grow our developmental economy through, amongst other, deliberate steps to create sustainable employment for 2,5 million people, initially within the automotive and clothing and textile sectors.

Of course there are many challenges; some of these include the high cost of capital, insufficient skills, transport and energy costs, a retarded BBBEE system and a widening poverty gap.

Whilst IPAP1 (2007/8) concentrated mainly on more basic actions, such as strengthening the Competitions Act and providing support programmes in the automotive and textiles and clothing industries, IPAP2 will provide more practical and focused steps to alleviate some of the previous challenges (of the R8.2 bn financial support programme pledged over the next three years, R2.6 bn and R1.7 bn have been respectively allocated for these two industries).

IPAP2 sees a more focused, labour intensive plan which essentially resides within seven key initiatives; these being:

i) aligning macro and micro economic polices
ii) ensuring greater concessional financing through the Industrial Development Corporation
iii) overhauling existing public procurement processes to leverage local procurement
iv) adopting a strategic approach to trade policy
v) targeting anti-competitive practices
vi) increasing skills levels
vii) boosting production in newly targeted sectors

On the flip side of this ambitious plan (IPAP2) there are naturally some critics who are concerned that the plan may in fact be too broad in its approach and that fewer sectors should initially be targeted, as opposed to the current 12 which have been earmarked. Allied to this, whilst South Africa is also a member of the South African Customs Union (SACU) which also has a goal to develop a SACU Industrial policy, there is seemingly no concrete steps of action which aligns the IPAP2 with the 2002 SACU Agreement under its provisions of Article 38.

Unemployment in South Africa is not an unfamiliar theme; other parts of the world are also being challenged and are grappling with ways to deal with the rising problem. Whilst many developed countries may now be showing some signs of a slow economic recovery, the unemployment crisis is still set for some time to come. According to the Organisation for Economic Co-Operation and Development (OECD), experts believe that countries will need to create at least 15 million new jobs to get the employment levels back to where they were prior to the world economic crisis. To this end, perhaps South Africa may be seen to be overly ambitious with its 5 million new jobs by 2020? Or maybe not...considering that South Africa has been known to be a country that somehow creates miracles in the face of adversity. In support of this argument is the fact that South Africa was able to host one of the greatest World Cup Soccer events ever, as well as the fact that South Africa’s annual GDP per capita growth rate exceeds that of many higher income OECD countries.

Being part of the BRICS constituency, South Africa is considered (South Africa being the ‘S’ in BRICS) -- similar to that of Brazil, Russia, India and China -- a thriving emerging market (since the abolishment of Apartheid in 1994). Considering that South Africa also participates in the G20 and OECD, there is good reason to believe that IPAP2 can be realistically achieved; but this will take considerable effort, commitment and belief in the country, its leadership and its governance practises, which currently are not that desirable.

Upon past reflection, in 1996 only 3 million people in South Africa had access to social grants and today over 14 million people receive these benefits. Similarly, only 58% of the population had access to electricity -- today the figures stands at 80%. In 1996, only 62% of the population had access to running water -- today over 80% of the population have access to running water. Most of these achievements have been made possible due to the commitment of our government, who have been supported by business.

Considering the state of South Africa’s rising unemployment levels, including the recent announcements of even further wide-scale retrenchments in the banking and mining sectors, South Africa is going to need a miracle to reverse the destruction which continues to loom over every South African. According to Ebrahim Patel, the Economic Development Minister, he is quoted saying that SA’s employment situation has become desperate, and in this regard he speaks of “absolutely enormous challenges” and that government can’t create 5m jobs alone: business and labour also have to make a contribution.”

So, could IPAP2 be the plan that South Africa has needed for all these years gone by? And what are the “great sacrifices” Minister Patel is referring to, including the role to be undertaken by business?

It’s obvious our country needs a plan that will equate to the wonderful successes South Africa enjoyed in the recent 2010 World Cup Soccer event. The winning plan of course must be actionable, fair and transparent whereby all South Africans can truly become sustainable and united once and for all.

 

29 November 2010

Speech by the Minister of Police, E.N. Mthethwa, MP at the American Chamber of Commerce in SA dinner on 24 November 2010:

“A focus on the future plans of the South African Police Service, in the short term and medium term”

The Castle Kyalami, Gauteng

Programme Director;
US Ambassador to South Africa, Mr Donald Gips;
President of the Board of the American Chamber of Commerce in South Africa, Mr Doug Franke; Members of the Board of the American Chamber of Commerce in South Africa present; Various CEOs and MDs of major corporations present;
Representatives from Business and Government present;
Distinguished Guests;
Ladies and gentlemen;

We wish to express our appreciation to the entire Board of Directors of the American Chamber of Commerce in South Africa at an invitation to address this grand occasion.

Although we look forward to a great evening of dining, we also intend to utilize this opportunity to derive valuable input. Our intent stems from an understanding that to succeed in dealing a blow to the crime scourge, we need to broaden our interactions with all sectors of society.

To us, engagements such as these represent a continuation of our crusade. They continuously help us in our policy formulations, advancements in programmes and where necessary, assist in fine-tuning some of our current approaches. It is vital to ensure that the policies we develop are intertwined with current safety and security challenges.

 

Working together in winning the war on crime

Perhaps from the onset, we want to emphasize government’s uncompromisable commitment to fighting crime and all its evils. We will fight it toughly, smartly and within the confines of the law. Coupled with this is our unmovable stance on a community-policing philosophy.

Tonight, we have been requested by the Board to talk about “A focus on the future plans of the South African Police Service, in the short term and medium term.” While we shall briefly elaborate on our current and future plans, we still view this as an interaction as opposed to a one-way dialogue. We shall therefore be expecting constructive engagements going forward.

On the occasion of the release of the national crime statistics in September this year, we shared with the nation challenges and successes in the fight against crime. In the main there were more positives, from a viewpoint that in many crime categories such as murder and business robberies, there were significant declines.

Such successes were not achieved coincidentally, but through intensified operations, proper policing, changes in legislations, commitment from both police and society and a stance that says: enough is enough about crime! This was firmly supported by a strategy to tackle crime and giving expression to government’s prioritization, through a multi-facetted approach. We outlined this strategy as follows:

 

Enhancing a government-led, community-policing philosophy

Some of the current programmes that we are currently implementing include the finalization of a Community Safety Forum Strategy by the Secretariat of Police.

This strategy will outline and contribute to a greater understanding of the role and responsibility of the public in crime combating. It will also focus on building partnerships with civil society and corrections as a societal responsibility (which includes the successful reintegration of offenders in the community).

In addition the Secretariat of Police is currently engaging with academics and other institutions to continuously share best practices. We are also collaborating with Statistics South Africa to initiate another Victims Perception Survey to understand patterns of victimization, which will begin in January next year.

 

Strengthening the Criminal Justice System

As the CJS cluster, we have developed and signed a service delivery agreement which gives concrete expression to key areas of delivery required within this criminal justice review process.

We are now focusing more on ensuring that post the arrest phase, criminals receive the harshest sentence. Police, through doing a thorough job in the investigations, can influence an outcome of a case. This is what we term the ground work.

 

A strengthened Detective and Intelligence arm in fighting crime

Intelligence acts as a nerve centre in any policing environment and plays [a] crucial role in all aspects of policing. It is for this reason that we have prioritised the need to revitalise the intelligence component of SAPS and ensure the integration of intelligence into all aspects of policing.

Equally we continue to up-skill and capacitate our detective services. This includes not only increasing the number of detectives but also the quality of those we recruit. The success of this approach has been seen in the cooperation that has developed between the detective service, the Hawks and our Crime Intelligence.

 

Reducing backlogs and capacitating our forensics

Recently there have been a number of reports about our forensics capacity and problems related to this. We are well aware that we cannot strengthen our detective services without equally addressing our forensic capacity.

Encouragingly, we are beginning to see some improvements in our forensics backlogs, which augur well for our fight against crime. The total entries on hand decreased with 19% between the 1st of April 2009 and the 31st of March 2010. The backlog in ballistics decreased by 39%, in the biology section there was a 33% decrease and a 21% decrease in questioned documents.

Addressing our forensic capacity is not just about purchasing new equipment or employing new staff. Such an approach would imply re-inventing a broken wheel. Instead, we developed a plan with clear monitoring evaluation processes that is currently being implemented.

 

Adopting and implementing a triple-C approach

In achieving our vision we need to address service delivery within the police. Lazy cops will have no place or space in the Force. To achieve this we are now placing a concerted focus on what we have termed the triple-C approach. This methodology speaks to the following aspects:

• A need for greater command and control within the police. Part of command and control must address how we are managing our members, particularly at police station level. Management is not only about issuing instructions, but also managing the how these instructions are implemented. We are emphasizing the need for management to be held accountable and to reassert discipline within the police.

• The need for greater co-ordination also requires our focus. All our different components of the police need to be working together and supporting each other.

• The final C refers to both internal and external communication. We are improving communication within the police as well as how we communicate with the society we are policing. Police must ensure that once they arrest criminals, [that they] communicate to society that such scoundrels are now behind bars. Failure to do so, leads to anxiety and perceptions that police are ineffective, when in fact they are effective.

 

Controlling firearm proliferation to reduce crime

Our stance on crime is further informed by the prevalence of firearms in the hands of civilians and widespread readiness to use them. This goes together with the availability of military expertise amongst criminals which have drastically changed the nature of crime in our country especially in the past decade.

A key focus for government is addressing the proliferation of firearms. We need to look at how we are implementing the Firearms Control Act, the manner in which we are controlling the weapons that are in the hands of the State (including the Police) and the scourge of illegal firearms.

To address this we have adopted an approach of working with both communities and firearm owners in finding a solution to address illegal firearms. Equally we have intensified our seizure of such firearms through more focused visible policing.

 

Police visibility – a deterrent to crime and criminals

All research conducted by our Crime Information Analysis Centre (CIAC), now known as the Crime Research and Statistics component of the Crime Intelligence point to a trend that in the face or rapid economic and population growth, massive urbanization – one of the factors that can lead to crime reduction is through police visibility.

High police visibility has resulted in the following impacts: trio crimes have been significantly lowered particularly in the traditional flashpoints of crime and at peak times of occurrence. It also increases the risk run by robbers, for example, decreasing the reaction time of the police or shifting the robbers’ operations to areas and time they are not familiar with.

 

Defeating criminals, in their own game

It goes without any hesitation that the kind of criminal we are dealing with in the modern century is sophisticated, often times, smarter yet still with limited room to maneuver. What this means in essence is that as government, supported by all our social partners we need to be ahead of the game.

It cannot be a foregone conclusion that one is facing petty criminals, who decide to rob at instinct planning. We are dealing here with selfish people who by the way some of them possess advanced training. They plan with precision. They kill with no mercy. They amass wealth without ever having established businesses legitimately, nor ever applied for a job. This is the modern criminal, who must be defeated in a modern manner.

 

Utilizing ICT to effectively fight crime

The critical questions become: what resources are available to us? What skills are available? What Information, Communication and Technology (ICT) systems are being utilized? Are these systems sustainable? What partnerships are being formed and fostered?

There are still serious challenges facing government when it comes to utilizing ICT systems, to make a dent on crime. On the one hand you have a HANIS at Home Affairs, eNATIS at Transport and Vehicle Circulation Systems at SAPS.

Admittedly there is currently no clear coordination and integration of these systems to achieve synergy. These need to talk to each other. You have examples where police are searching for the most dangerous criminal, when in fact he is already behind bars. This then becomes a strenuous exercise to the police not only physically, but also on the cost elements and resources, which may not be readily available.

How can business, including this Chamber assist government in this regard? We believe you [have] some of the latest technological systems which may be valuable. We are not merely referring to setting up facebook groups, or twitter updates but looking at reliable, advanced and cost-effective ICT systems which can assist us.

 

War Rooms – a new smarter way to fight crime

To thwart these criminal activities head-on, we have introduced provincial centres in some provinces known as War Rooms. In the Western Cape, where these operations were conceptualized and implemented, we have reduced crime significantly and plans are afoot to roll them out nationally.

The most obvious success of the War Rooms is that improved, higher level linkage analysis and profiling of all criminals can be done expeditiously and smarter. This has been of major assistance with regard to provincial assistance to police stations, clustering investigation teams and focusing on crime series (dockets dealing with the same suspects, targets and/or modus operandi).

Again this is an area we believe forums such as the American Chamber of Commerce can contribute towards more positively. We need not re-invent the wheel, but build upon what has been attained.

 

Strengthening the fight on crime against women and children

A nation that does not protect its mothers and children is doomed. This government has therefore prioritized and strengthened its efforts in protecting women and children against vicious acts of rape and abuse. We have now begun with the re-establishment of the Family Violence, Child Protection and Sexual Offences (FCS) units.

FCS structures are being aligned with the cluster policing model to serve the stations. Best practices have also been identified where FCS units and non-governmental organizations will be able to work together. There is a clear positive impact of these models in the turn-around times, detection and court readiness of dockets pertaining to FCS crimes.

The mandate to the police stations is clear: women and children, who come to the station reporting such crimes, must not be treated as criminals. There are instances where such victims are humiliated, harassed and inhumanely interrogated [.][This] will be a thing of the past because we will have specially-trained personnel who understand the trauma.

 

Corrupt police officers have no place in SAPS

We are certain most of you have seen in the past increased arrest of police, whether through being in cahoots with criminals or actively leading the charges on criminals. This is an unacceptable conduct.

However the increase in police being busted for criminality and the exposure thereof should be understood in two contexts: that government will not tolerate corruption. Secondly that instead of being in denial that there may be a few rotten apples in this bag, we are decisive in rooting out such ‘criminals who hide behind our uniforms and badges.’

There will be a process to look at how we address criminality within the police, particularly in Gauteng where more police officers have been arrested. Part of this process will require finding ways of dealing with people who have been convicted of serious offenses. The process will also have to look seriously at disciplinary procedures and weaknesses that have allowed criminality to creep in. We will also need to address certain behavioural challenges such as substance and alcohol abuse and how these impact on the police.

We need to root out criminality within the Police. Senior management will need to set an example and become part of this implementation process. Organisations stand or fall on leadership and if corruption exists at the top it will have impact all the way through our structures.

 

Time to implement the 2010 FIFA World Cup policing legacy

One of the fundamental successes derived from the World Cup was changing the negative perceptions about our country in relation [to] crime. Foreign visitors who came to our shores with negative perceptions are now singing a different tune. We intend to consolidate these gains.

A lasting and irreplaceable legacy is the re-skilling attained by our police. Here we are referring to the direct interaction between members of our Force with those from other international Forces such as the FBI from US, Gendamarine from France, UK and many others.

 

Police to people ratio, SA compares favourably

Our analysis points that the South Africa Police Service favours comparatively with other Forces around the world, including those of US, UK and France. The police to person ratio therefore put us in a better position to thwart these scoundrels.

We are also reviewing the functioning of the police to achieve integration and coordination. As evidenced in the past months, we are actively combating serious and violent crime by being tough on organized syndicates. Emphasis must therefore be on the calibre of the cadre of cop as opposed to focusing on the numerics.

 

Out with the ‘microwave’ training, in with the ‘well done’ training

In this respect, have begun increasing the capacity of the SAPS through recruitment, rigorous training, better remuneration, equipping and increasing the capacity of the detective services, forensics and crime intelligence.

In the past we may have produced police officers who fought crime. We now need to raise the bar. We now need police officers who will put a serious dent to crime, smartly, faster and toughly. We may have achieved this by putting our officers through the microwave who were warmed, but we now need to make sure we produce well done, cooked officers who are ready to deal with any crime obstacle.

We are now in the process of revising how and what is involved in training. This must speak to both the content and the manner in which we train. Training cannot be just about churning out numbers but must be ongoing and relevant.

 

Securing our borders

Part of our CJS review pointed to a free-for-all entry gap at some of our borders as having contributed to increased crime levels. Cabinet therefore relooked this matter and a decision was taken to redeploy the Army at all borderlines.

As most of you may be aware, cross border criminal networks tended to utilize borders for the variety of crimes; including vehicle hijacking, drug and human trafficking. Since the deployment, we have seen tighter controls and lesser criminal activities.

In dealing with the illicit regional trade in vehicles, government is also enhancing co-operation with other regional police agencies to strengthen the implementation of regional protocols and agreements.

 

Strengthening our international relations

Irrespective of how creative our plans are in dealing with crime, if they are not coordinated at regional and international levels, success is bound to be minimal. Crime is a scourge that does not respect borders, with syndicates that have made the entire globe the theatre of their operations.

As a result of this understanding, we have realized (we realize) a need for a co-ordinated effort to address this scourge. That is why as government we continue to engage with bodies such as the Southern African Region Police Chiefs Cooperation Organization (SARPCCO) and INTERPOL.

We should not underestimate the resolve of these criminals. Criminal gangs will employ every trick in the book to disunite, disorganize, and destabilize forces such as INTERPOL through fraud, bribery and corruption and by direct intimidation.

 

We shall overcome crime, together as a united front

As we conclude, we want to say that we are under no illusion that there are no quick fix solutions to policing challenges in South Africa. We do believe that over the last year we have begun to put in place processes that are not only yielding some successes, but will also become the building blocks for the Police Service we envisage.

It should not be a government-only responsibility to tackle crime. We believe your experiences as a broader business fraternity enable you to better grasp and understand some of the key issues faced by police. Whether as multinationals operating in developing and developed economies, you have a vital role to play.

The new ethos of our strategy in dealing with crime entails a new orientation in the provision of service to society, rooting out corruption and introducing a new organizational culture and motivational values.

It is increasingly becoming obvious that things cannot be done the same old way. Things must be done smarter and faster. Through intensified partnerships, the tide is now turning. More and more South Africans are joining this crusade.
I thank you.

 

14 October 2010

Article by CGF Research Institute (Pty) Ltd & PricewaterhouseCoopers

MDGs SLIPPING AWAY: HAVE OUR LEADERS UNDER-PERFORMED?

Since the Millennium Development Goals (MDGs) were launched in September 2000 at the Millennium Summit (attended by various heads of state and prominent business leaders), one pressing question has to be asked regarding the reasons why -- ten years later -- the MDGs are under threat of not being universally achieved by 2015? Surely, with the political will between 189 nations and 147 heads of state, the message should have been significantly different? Was the political will there in the first place? Maybe not, and in the meantime many developing nations have arguably regressed as the leaders of various countries have continued their political debates, and made poor excuses for not meeting the MDG targets.

In many instances, the MDG targets which give rise to critical concern -- and being far behind schedule -- most notably in sub-Saharan Africa are; poverty and hunger, increasing access to education, boosting maternal health and combating disease. At the recent meeting held in New York in September 2010, alongside the General Assembly of the United Nations, the MDG Summit reported that circa 32% of Africans are still undernourished and that this figure has hardly changed since 1990. This in spite of the lofty discussions by world leaders who appear not to have the same sense of urgency as that of the people they are meant to be protecting. Whilst over 900 million people currently suffer worldwide from chronic hunger, child mortality under the age of five years shows that one in seven children are still dying. How much more must be said in order that the politicians and other leaders understand that action must be taken now. Africa still has one of the highest mortality rates for women in childbirth and measures 900 deaths per 100,000 births (2005). This figure has only marginally improved since 1990 when the death rate was 920 per 100,000 births.

According to The Globe & Mail, areas where no progress has been made in Africa to reach the MDGs by 2015 include the issues of productive and decent employment, reducing maternal mortality by three quarters and the halting and reversing of tuberculoses.

Indeed, the call for yet a further and special MDG Summit Assessment of what our leaders should have done by 2013, is absolutely critical. However, one needs to question whether this action is not ‘a little, too late’ and whether it is not prudent to have more regular reviews between now and 2013, and then again prior to the MDG deadline of 2015?

It appears that the world recession (and locally the energy crisis) has been used by politicians and leaders for non-performance against the MDGs. Surely if finances (among other reasons) were the problem, why were bailout packages to commercial risk taking businesses seen as appropriate and more important of the continued funding of genuine development opportunities? Why are business and political leaders still rewarded for failure? Why do government continue to prop up and protect trade barriers resulting in inefficient and ineffective use of resources. In this light, there seems to be no attached accountability, neither moral consciousness against many of the goals found within the MDGs? When will the nonchalant and protective attitudes and behaviour change - and will the change which is needed to get the MDGs on track be delayed further whilst millions of people suffer at the expense of the apathy found within the few elite and so-called leaders?

We have elected this leadership to take our country into the future and have entrusted them to ensure the future of generations to come. Indeed, leaders across the world need to act with haste to ensure that they have fulfilled their fiduciary obligations and most basic function to serve and protect the poor and vulnerable. Ironically, many leaders talk with a ‘head-knowledge’ of the wide scale destruction which is ravaging millions of people’s lives and their communities. Yet there is seemingly little, if any, connection to the actual people and their problems. If there were, why then don’t we see and hear from the people themselves, who suffer this inhumane plight, speaking from the MDG podiums so that the leaders can shamefully explain their non-performance?

Of course, notably missing is not only the people who are the subject of the abject living conditions that necessitated the MDGs in the first place; but also the fact that the MDGs do not address the world’s population growth rates or access to family planning. Currently, there is no focus being placed on this area and at the current trends of increasing population in developing countries, the existing MDG challenges can only worsen and derailment is quite imminent given the status quo. Whilst many African and Asian countries have high population growth rates of circa 4% to 5% per annum (as compared to their first world counterparts at circa 1.10%), it is clear than that the urgency to get the MDGs back on track is critical in order that the developing countries can become less dependant on developed countries.

According to the UN’s Population Division, in early 2010 it was estimated that Asia accounts for over 60% of the world’s population, while Africa is representative of some 14% of the total. Understandably, where there are exceptional population growth rates, there is proportionally a strain on the country’s infrastructure, health and educational resources – worse so in under-developed regions where the infrastructure is weak or the resources are scarce. Where the population growth rates exceed 3% p.a., this means that the total number of people is doubling every 20 years or so. In March 2010, the UN Human Settlements Programme revealed that providing these extra people with housing, water, electricity, sewerage, hospitals and schools would be a major challenge. Moreover, the programme showed that 227 million people had escaped the slums in the last 10 years, however that the people subject to this lifestyle, had increased from 776.7m to 827.6m. This growth is mostly due to an increasing population.

In conclusion, there is cause for great concern; leaders must be held accountable for their tardiness to perform and act hastily to prevent what may become the biggest collective humanitarian disaster in the history of mankind. The Globe & Mail reports that there are almost 1,000 women per 100,000 dying in childbirth each year and over a billion people starving. We need leaders who are committed to action in order to save the MDGs, and positively cause the change needed avoid certain disaster - and words alone are not sufficient.

 

16 August 2010

Article issued by Executives Online and CGF

EO AND CGF COLLABORATE TO ENHANCE SA DIRECTORSHIPS

The advent of the New Companies Act, coupled with the implementation of the King Report on Corporate Governance (King III), has again focused the need for suitably qualified, experienced and committed Non-Executive Directors (NED's). Given that King III now applies to all companies, no matter their size, the need for fresh, unbiased guidance to these companies in assisting them achieve their governance goals is critical. Executives Online provides a specialised approach for recruiting Non-Executive Directors.

Since the release of the King III in March 2010, companies should know the standards of skill, ability and performance expected of directors. When the prerequisite criteria are lacking from directors, or haphazardly applied, severe forms of penalties can be applied against the company and its failing directors. And so it is not a surprise, particularly given the many examples of failed corporations -- exacerbated by corporate greed -- that some companies have taken to produce various forms of internal policies to guide their leadership in terms of considered good business practices and benchmarking. King III is one of the most recognised codes, however there are other codes across the globe who equally espouse ethical business practices which include the Turnbull Report (UK:1999), the Codex (Germany: 2002) and the Higgs & Smith Reports (UK: 2003).

Common to all these governance codes is the need for companies and their leadership to not only exercise effective leadership, good corporate citizenship and sustainability; but indeed that these requirements of companies be evaluated to determine that they are living up to their commitments. Achieving this will require, amongst other issues, a great team of directors who are knowledgeable, skilled and fit well with the company's board and culture.

Read more ...

 

03 August

Article issued by CGF Research Institute

Poor governance impacts future generations

The increasing reference to 'good governance' may contribute to a perception that it is a new 'buzz phrase' which has been introduced to cause leaders to reflect upon their actions, and behave more responsibly.  Contrary to this belief, both the concept and the underlying principles that govern responsible and accountable business behaviour have been around for a very long time.  Many business leaders still plead ignorance to their understanding of good governance.  And even when they are aware of transgressions of good governance, they simply just don't care and believe their behaviour to be above the law.  More worrying about this arrogant behaviour is the fact that they somehow manage to survive -- and retain their powerful executive positions -- in spite of their wrongdoings and continue to derive more power and wealth.  Any ordinary citizen given similar wrongdoings would, in all likelihood be facing jail time.

There are countless examples of the sheer arrogance many business leaders portray; whether it is executives defrauding their companies, or accepting bribes and gifts from their suppliers, or demanding exorbitant unwarranted bonuses, or taking unprecedented risks which are callously calculated - all these being in the name of greed.  Even the strictest of laws found within countries such as the United States of America don't seem to phase the brazen so-called leaders; and who in the case of British Petroleum, have caused the single biggest environmental disaster in the Gulf of Mexico.  And this is undoubtedly the biggest environmental disaster in the history of mankind.  Given the strict letter of the law approach of many countries, where business leaders face stiff penalties and even jail sentences for poor governance business practices, one wonders how such neglect of duty still occurs?  Might it be that certain people, masquerading as 'leaders', have become immune to the system of good discipline and their greed has overlooked the consequences of their actions? Or could it be that the penalties are just not severe enough?

The questions will continue -- and while questions remain questions -- we can most certainly expect far more, and even greater environmental disasters to occur as more defunct leaders get away with their criminal behaviour, obscene 'fat-cat' bonuses and pay cheques.  In all instances, these types of leaders leave disaster in their trail.  Interestingly, and in spite of the law, these people seem to get away with their antics -- being normally quite charismatic -- and somehow they 'bounce back' while most often hundreds, sometimes thousands and even millions of people will suffer at the hands of a single person's wrongdoing.

Read more ...

 

Johannesburg

22 July 2010

Article issued by CGF Research Institute and the International Federation of Business and Professional Women (South Africa)

WHEN WOMEN WIN, SO TOO DOES THE WORLD

Gone are the days when the rights of women were restricted, and they were relegated to ‘second class citizens’, expected only to tend to the domestic chores around their home and taking care of their children. With the abolishment of various draconian laws and abandonment of certain male dominant perceptions regarding the role of women in leadership -- increasingly -- we are experiencing the positive effects women bring to business, sport, politics and religion.

In a modern business world, which espouses the values of fairness and equality, it is essential that past prejudices against women’s abilities to lead and rule is eradicated and that key leadership positions are filled by women who have the skills, ability and appropriate credentials which are not pre-determined by gender issues.

Moreover, and particularly due to the fast pace of change in business and its competitiveness, employees generally require a lot more motivation and inspiration from their leaders in order to achieve their targets for success than previously. Interestingly, such motivation does not generally come from male leaders who may tend to be more dogmatic in their leadership style and approach. Predictably, most women leaders tend to be able to inspire their followers to achieve the required successes through their three basic leadership attributes, these being; motivation, reward and commitment. Considering these qualities are found amongst most women in leadership positions, and also that they tend to choose a particular course of action (or career) over a longer period than their male counterparts, one wonders why there are not more women placed in leadership roles where they can influence, and cause positive change in our society? Further, it is admitted that women leaders are "more likely to be transformational leaders, defined as those who serve as role models, mentor and empower workers and encourage innovation even when the organisation they lead is generally successful" (Evanston, 2005).

In light of the importance that is attached to the role of women in corporate leadership (amongst their other positions), CGF Research Institute is proud to be strategically aligned to the largest international businesswomen’s network in the world, namely the International Federation of Business and Professional Women (BPW International). BPW (SA) is the premier business network for women who want the professional edge.

The first South African BPW branch opened offices in Johannesburg in April this year, with the idea of expanding its reach throughout Gauteng and South Africa. The networking initiative aims to develop the professional, leadership and business potential of women through advocacy, mentoring, networking, skill building and economic empowerment programmes and projects.

BPW International targets businesswomen from mid to senior management and has over 90 branches in 5 continents, representing over 250,000 members that include leaders, entrepreneurs, business owners, executives and professionals. BPW's aim is to encourage equal participation of women and men in decision-making roles through a combination of capacity and confidence building. Through hosting various business events and aligning with organisations such as CGF, the BPW is paving the way by enriching the knowledge base of women directors and stakeholders when it comes to taking responsibility in a corporate setting.

To conclude, it is generally known that female leaders will exercise patience to assist their followers to develop their behavioural and cognitive skills in order that they can become effective self leaders. To this end, an important aspect to determine one’s own leadership and success lies within the leader’s followers. That said, leadership must start from within and the strength of a leader is measured by their ability to facilitate the self leadership of others.

 

Johannesburg

15 July 2010


Article issued by CGF Research Institute and Executives Online

CGF AND EO COLLABORATE TO ENHANCE SA DIRECTORSHIPS

Since the release of the King Report on Governance for South Africa 2009 (King III) in March 2010, companies should know the standards of skill, ability and performance expected of directors. When the prerequisite criteria are lacking from directors, or haphazardly applied, severe forms of penalties can be applied against the company and it’s failing directors. And so it is not a surprise, particularly given the many examples of failed corporations -- exacerbated by corporate greed -- that some companies have taken to produce various forms of internal polices to guide their leadership in terms of considered good business practices and benchmarking. One of the most recognised and recent Governance Codes is the King III Report, however there are other codes across the globe who equally espouse ethical business practices which include the Turnbull Report (UK:1999), the Codex (Germany: 2002) and the Higgs & Smith Reports (UK: 2003).

Common to all these governance codes is the need for companies and their leadership to not only exercise effective leadership, good corporate citizenship and sustainability; but indeed that these requirements of companies be evaluated to determine that they are living up to their commitments. Achieving this will require, amongst other issues, a great team of directors who are knowledgeable, skilled and share a similar ‘chemistry’ found within sound corporate governance principles and practices.

It is in this vein that CGF Research Institute (‘CGF’) and Executives Online (‘EO’) embarked on a journey to assist their respective constituents. Through our collective market strengths and experience, CGF and EO will offer much needed assistance for companies to improve the calibre of their Non-Executive Directors (NEDs) by proactively searching, selecting and recruiting credible and experienced candidates.

Both CGF and EO have extensive reach within the local and international markets and their strategic alliance will undoubtedly bring much needed relief to companies in their quest to find the right calibre individuals with the skill-set mix to serve on boards, be these executive and non-executive directors.

Executives Online boasts a Global Executives Talent Bank of 80 000 plus, comprising both local and international executives who have been defined within EO’s database by their roles, country or industry. Between the two companies, CGF and EO have formulated an aggressive strategy which will provide companies a unique service that adds a substantial value-add as compared to the traditional executive recruitment operation. Our joint efforts and collaboration with our respective clients should come as good news for the chairpersons and CEOs of companies, considering the increasing challenges companies face when attempting to find new directors, most particularly skilled and independent NEDs. As companies are required through their Memorandum of Incorporation (MOI) to rotate their NEDs on a staggered basis, it becomes a critical imperative to know that there will be a healthy pool of new NEDS to draw upon, and to ensure that the continuity of the businesses’ leadership and culture is not compromised.

CGF is delighted with the EO alliance; as is customary within CGF’s pioneering approach to assist companies to apply governance in a practical and meaningful way, we will inform our constituents of the exciting developments in this arena as more developments unfold.