Welcome to VIPsight Africa - South Africa

 

Author

Terry Booysen

13 October 2022

THIS ARTICLE – AND GOOD GOVERNANCE – COULD SOON BECOME OUTLAWED

By Terrance Booysen and peer reviewed by Dave Loxton (Schindlers Attorneys: Partner)

In the context of the proposed changes set out in the Protection of Constitutional Democracy against Terrorist and Related Activities Amendment Bill (“POCDATARA Bill”) currently before parliament, if it is passed in its current form, this indeed may become the “final straw that breaks the camel’s back”, and all aspirations of holding the South African government to account for poor or no governance may come to an end.

Given the wide definitions of “terrorism” and “terrorist activities” contained in the Bill, any person or organisation that criticises or challenges the government in respect of their legislation, policies or dubious activities -- such as landing a private chartered jet at Waterkloof Air Force Base or citizens paying for senior government official’s utilities bills -- may conceivably find themselves on the wrong side of the law. Indeed, governance reporting itself may also become problematic for government organisations and their leadership. This is so as governance reporting mechanisms and systems highlight the real facts in order to improve the organisation’s governance at strategic and operational levels.

Government institutions, and even those organisations contracting with such institutions, might well be disinclined to expose poor governance if that might land them in a criminal court facing hefty fines and jail time. Sad as it may be, non-profit organisations such as OUTA, Afriforum, Corruption Watch, Dear SA, Business Leadership SA and many similar watchdog organisations -- which have been instrumental in exposing crime and corruption, especially within the South African government sectors -- will essentially be exposed to a high risk of fear and intimidation, through criminal prosecutions for alleged terrorism. Donors and sponsors of these organisations will most likely withdraw their funding for fear of reprisal, which includes massive fines and/or lengthy prison sentences to those who directly and/or indirectly criticize or pass adverse comments about the government, should these criticisms and comments be found to be terrorist activities.

Social media platforms -- which in South Africa and other countries -- have played a pivotal role in creating national awareness of a great deal of important and critical issues, might also be under threat. Freedom of expression as we know it in our Constitution and hard-won democracy, may also be muzzled as a result of the impending changes contained in the POCDATARA Bill.

What is most surprising is the absence of dissent from the legal profession, governance professionals, academics, religious leaders and indeed the human rights champions in South Africa. It is as though they are all in a deep slumber, and as the watchdogs continue to gradually lose their bite, these draconian laws continue to instil fear amongst those who understand the likely consequences of this Bill being passed in its current form. Expectedly, if all the watchdogs have not understood their imminent threat of being silenced (extinguished) once and for all, then how will ordinary citizens even know that the looming deadline to dissent upon their civil liberties -- as contained in the SA Constitution – which will be substantially eroded, ends on 18 October 2022. To this end, at the time of writing this article, less than 20,000 concerned citizens have commented and voiced their disapproval of the changes contained in the POCDATARA Bill on the Dear SA website. Whilst there may be other non-profits similar to Dear SA creating a platform for concerned citizens to object to these draconian changes against critics of a corrupt government, the numbers are alarmingly minuscule. Should the legislators ignore the objections, there will no doubt be constitutional challenges, but more importantly, those who are vacillating about leaving, and who can afford to do so, might well view this legislation as just one more step towards a failed state which will make their decision that much easier.

History has taught the world many lessons. The utilitarian philosopher John Stuart Mill, who delivered an 1867 inaugural address at the University of St. Andrews once said, “Let not any one pacify his conscience by the delusion that he can do no harm if he takes no part, and forms no opinion. Bad men need nothing more to compass their ends, than that good men should look on and do nothing. He is not a good man who, without a protest, allows wrong to be committed in his name, and with the means which he helps to supply, because he will not trouble himself to use his mind on the subject.”

Should we do nothing more than watch these proposed changes as set out in the draft bill being implemented, we must appreciate that in the future we might not be able to speak out against any poor governance imposed by the government, and if anybody is bold enough to do so, there is every chance they will be accused of being a terrorist.

 

23 April 2022

MEASURING THE ORGANISATION’S GOVERNANCE EFFORTS

By Terrance Booysen and peer reviewed by Jene’ Palmer CA(SA)

For many years corporate governance has been a sensitive topic for many boardrooms. In reality, despite the writing of the various codes of corporate governance, the business and state environments remain littered with examples of failed governance.

Given that the South African business landscape still finds itself in deep trouble, one may argue that the introduction of the latest King IV™ Report on Corporate Governance for South Africa 2016 and its outcomes-based reporting has still not had the desired impact in driving governance change.

With South African business confidence indexes at an all-time low over the last three decades, the county’s poor levels of governance have contributed toward multiple country downgrades, loss of foreign investment and the highest recorded levels of unemployment since World War II.

The enforceability of governance codes

Essentially the various reports on Corporate Governance for South Africa (King Codes) have only been recognized by the larger South African corporates and government organisations. Whilst the reports have changed dramatically over the last two decades, moving from a shareholder-centric to a stakeholder inclusive model, the recommendations for better governance found within the King Codes are exactly that; they are only recommendations and therefore not every company may feel it necessary to adopt or subscribe to them.

Whilst the King Codes have also been cited in South African case law, including a few other international jurisdictions, where boards have been found wanting in respect of not properly fulfilling their fiduciary obligations, at best, judges can only make reference to the recommended practices found with these codes. Exactly the same challenge applies to any othergovernancecode produced anywhere else in the world, for example the UK Code for Governance (2018) and the German Corporate Governance Code (2019). None of these codes provide clear guidance on how to measure whether the application of these codes is leading to good governance within the organisation concerned. This makes it very difficult for a court of law to impose effective sanctions on an organisation or a director for practicing poor governance. Any sanctions which are imposed are largely subjective and the consequences attached to poor governance vary quite considerably from one judgment to the next. It is therefore not surprising that many regulatory bodies are also not more proactive in driving (and enforcing) good governance practices across all sectors and industries.

International standards and benchmarking

The introduction of ISO 37000 in the last quarter of 2021 presents an opportunity to change the landscape. Whilst ISO 37000 is very similar to the governance codes in that it also provides for “principles and key aspects of practices to guide governing bodies (boards) and governing groups on how to meet their responsibilities”, its differentiator is that it is written to serve as a universal standard which will allow key stakeholders to more accurately measure and compare governance performance across all geographies and forms of business.

With ISO 37000 there are also some significant departures from a governance code such as:

1. Many governance codes are country-specific and have regional application whereas an international standard is applied as a ‘universal language’ irrespective of where the organisation is established or does business. It is broadly recognized and measured using the same requirements for compliance and certification across all businesses.

2. A governance code is mostly aspirational, and whilst many organisations may work towards the improvement of their governance practices, the ‘act of improving the organisation’s governance’ remains largely subjective in nature. An international standard, however, identifies specific areas that must be assessed and measured by an independently approved and qualified assurance provider in order to obtain formal certification. In addition, for the organisation to retain its certification, the continued proper application of the standard must be regularly re-assessed and confirmed.

Following a governance code or being ISO compliant?

It is essential not to confuse a governance code -- such as King IV™ -- with ISO 37000. Each ‘instrument’ fulfils a very specific purpose within not only the organisation itself, but its key stakeholders too.

Given that governance by its very nature is a complex topic, with myriad nuances, it is important to understand the practical benefits of using a widely accepted international standard which can be used as a common platform for all organisations (regardless of their type, size, location, structure or purpose) to guide and measure the application of good governance making use of comparable reporting indicators. That being said, organisations must also be cognizant of their respective jurisdictional regulatory and compliance obligations such as the JSE Listing Requirements which specify compliance with King IV™.

Many leading organisations subscribe to the renowned ISO standards such as ISO 27000 and ISO 14000 and there is no doubt that the independent assessment process involved in obtaining and retaining an ISO certification provides an additional level of comfort and assurance to key stakeholders, including investors and regulators. It is therefore likely that certified early adopters of ISO 37000 will be significantly differentiated from their peers. In this regard, the increasing pressure being placed by stakeholders on organisations to proactively and positively impact global sustainable development is also likely to fast track the implementation of ISO 37000. In addition, the adoption of ISO 37000 may also help multi-jurisdictional organisations to simplify the interpretation of different governance codes and apply a common standard of governance across geographies.

Boards will therefore need to carefully consider what makes sense in their business and organisational environment as they strive to ensure that their organisations implement robust governance frameworks which are strategically aligned to their purpose, vision and mission and which offer them a competitive advantage.

New meaning to governance

Although still in its infancy, ISO 37000 has established new benchmarks for assessing governance frameworks across the world. It has sparked vigorous debates and uncomfortable questions about measuring, auditing and comparing one organisation’s GRC (governance, risk and compliance) inputs and outcomes to another, including assessing their aligned values, profitability and long-term goals.

In South Africa it is mandatory for JSE-listed companies to apply King IV™, however, one wonders how these current requirements may change as the benefits of adopting an international standard become more firmly entrenched? On the other hand, one also has to consider whether the introduction of ISO 37000 will really help in setting the stage for smaller and non-listed companies to willingly subscribe to the principles of ISO 37000 as the governance playing fields are leveled?

For many reasons, external stakeholders, in particular, are looking for an easy way to assess an organisation’s governance status. In the face of mounting of pressure, organisations are going to have to consider how they actively demonstrate (as opposed to simply communicate) their GRC status. The old adage of “what’s not measured is not managed” rings true for board members as calls for accountability strengthen. Future boardroom discussions will have to include an objective and quantifiable review of the organisation’s actual GRC status (in every area of the business) compared to internationally benchmarked best practice or at the very least, to that of its peers.

 

18 November 2021

USING THE CORPORATE GOVERNANCE FRAMEWORK® IN TIMES OF GREAT UNCERTAINTY
By Terrance Booysen and peer reviewed by Jene’ Palmer CA(SA)

Whilst most corporations across the world have had to make drastic changes to their business operations as a result of the Covid19 pandemic, many business leaders believe that the disruptions caused by the pandemic have inadvertently introduced more advantages than disadvantages. However, are the odds actually stacked against the organisation?

Besides the obvious health risks and workplace social distancing requirements, research conducted by McKinsey & Company in February 2021 (The Future Of  Work After COVID-19) estimate that more than 100 million employees in the eight  countries surveyed will probably switch occupations by 2030. Moreover, that a hybrid remote work-from-home (WFH) model is likely to continue well beyond the pandemic, with 20%-25% of employees in advanced economies working from  home 3-5 days a week, and about 10% doing the same in emerging economies.

In the same research, new trends suggest that the concentration of jobs in the world’s largest cities and in traditional offices, are reversing. With greater numbers of employees choosing to work from home, the geography of work -- including office vacancy rates -- has seen significant changes across major cities since 2020. For instance, San Francisco has seen office vacancies dropping by as much as 91%, Edinburgh 45%, London 32% and Berlin 27%.

With such dramatic changes to the traditional workplace, it is necessary for organisations to consider whether their existing risk management policies and procedures are still appropriate. The new ‘unstructured’ work environment is likely to introduce new strategic and operational risks onto boardroom agendas. To exacerbate this perturbing situation, the multiple economic pressures may now lead stressed employees to commit fraud or other commercial crime and this is sure to show marked increases across the world in the months ahead. Notwithstanding a 17% reduction amongst South African companies who have experienced economic crime -- as reported in PwC’s 2020 Global Economic Crime and Fraud Survey -- South Africa’s rate of reported economic crime (currently at 60%) continues to remain significantly higher than the global average of 47%. In these uncertain times, we are reminded of the great Nobel Prize winner – Marie Currie (1867-1934) – who said, "Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less." Given the profound work-life altering changes we are experiencing, accompanied by the critical need to reduce economic crime, now is the time -- more than ever -- for a more scientific and analytical approach to the manner in which we understand, manage, measure and compare the governance practices within and across organisations.

As the world, and indeed South Africa, marks the International Fraud Awareness Week (14-20 November 2021), it is imperative for organisations to adopt a comprehensive Corporate Governance Framework® which provides the board of directors with greater oversight over the strategic and operational functions of the organisation. By clearly depicting the strategic and operational areas within the organisation -- and indeed its supply chain -- where governance, risk and compliance ('GRC’) vulnerabilities exist, the board is provided with early warning signs of impending trouble.

Boards can no longer afford to play “catch-up”. The effective deployment of a Corporate Governance Framework® enables the organisation to inter alia; proactively analyse GRC trends; identify areas of business which require further investigation or independent assurance reviews; highlight policies which are outdated or not in place; rapidly determine business processes which are not delivering value; investigate conflicting information or messages; and promote cohesiveness and common purpose amongst the management team itself as well as between the management team and the board. These outcomes can be used by the board and management to not only initiate further action, but also make decisions about the importance and urgency of reallocating resources to mitigate risks on a case-by-case basis.

The advances of the Fourth Industrial Revolution (4IR) have enabled (and compelled) organisations to rapidly deploy smarter technology solutions and review their business processes to optimize their value creation activities. The Corporate Governance Framework® is a useful assessment tool which assists boards and management to sustainably improve the way in which they govern the organisation and complements the organisation’s existing business and risk management systems by integrating their critical outputs. In this way the Corporate Governance Framework® strengthens the organisation’s combined assurance processes and helps to protect the interests of the organisation.

Notably, PwC’s 2020 Global Economic Crime and Fraud Survey reported that South African companies have seen an increase (from 15% in 2016 to 34% in 2020) in instances of senior management perpetrating fraud. The Corporate Governance Framework® recognises the interdependencies of different areas of the business and as such, assists in identifying possible areas of collusion and override.

Boards of directors inherently have to deal with the changing dynamics of risk which is a fundamental part of their boardroom duties. To borrow some of Marie Currie’s sharp thinking of fear; the pandemic may have struck some fear, and even raised concern within the organisation’s leadership vis-à-vis their unpreparedness in these volatile times. However, this is certainly no time for panic -- nor fear -- especially considering the many challenges we may still face ahead. The board, together with the organisation’s executives, will need to become even more agile and embrace the challenge of governing these new unprecedented risks arising from Covid19 and its impact on business. Objective and reliable information about the state of governance within the business will be essential in ensuring that boards and management can tackle this “new norm”.

SOURCE REFERENCES:
- The future of work after COVID-19 (2021) https://www.mckinsey.com/~/media/mckinsey/featured%20insights/future%20of%20organizations/the%20future%20of%20work%20after%20covid%2019/the-future-of-work-after-covid-19-executive-summary-vf.pdf?shouldIndex=false

- Global Economic Crime and Fraud Survey 2020 https://www.pwc.co.za/en/assets/pdf/global-economic-crime-survey-2020.pdf

 

2 August 2021

THE PUBLIC AND ORGANISATIONAL STAKEHOLDERS – ARE THEY THE SAME?

By DrIrma Meyer and peer reviewed by TerranceBooysen

When does anymember of the publicbecome a stakeholderof an organisation? How would an organisation know when such a publicmember -- or group of members -- has become a stakeholder?Adding to this important line of thinking, who deserves more attention:publicmembers/groupsor the organisation’s traditional stakeholders? Is there a difference between publicand organisational stakeholders andif so, what is it?

“If you work for and eventually lead a company, understand that companies have multiple stakeholders including employees, customers, business partners and the communities within which they operate.”

Don Tapscott, Co-Founder and Executive Chairmanof the Blockchain Research Institute

Clearly organisations and public relations practitioners also battle with these questionsand distinctions. Some organisationshave astakeholder relations department andapublic relations department,or a well-staffed public relations department, as well as an individual responsible for stakeholder relations.

Such organisationsarguably viewpublic relations and stakeholder relations as two distinctly different functions, aimed at different outcomes. This being the case, they obviously also make a distinction between publicsand stakeholders. However, when questioned, individualsin these organisationsresponsible for stakeholder relations,find it difficult to articulate the difference between their roles and those of the public relationspractitioners. This confusing and seeminglycomplicatedmatter of semantics couldbe resolved if organisationsaccept that there no longer is a distinctionbetween the publicand stakeholdersand start to embracean all-inclusive stakeholder approach.

Edward Freeman introduced the stakeholder approach to corporate management in 1984 when he suggested that organisations should move away from being shareholder-centric to becomingstakeholder-centric. He defined a stakeholder as “any group or individual who can affect or is affected by the achievement of the organisation’s objectives” (Freeman, 1984:46) and despite many proliferations, Freeman’s definition is still regarded as the standard definition in the literature. However, considering the challenges we are currently facingsuch as the climate crisis and pandemics, one should probably change the definition slightly to “any group, individual [or thing] who[that]can affect or is affected by the achievement of the organisation’s objectives”, thus making provisionfor the flora and fauna in this definition.

Freeman’s introduction of the stakeholder concept coincided with Ferguson’s view that relationships should be the main focus of communication management and not the organisation, publicor the actual communication process (Ferguson 1984:16).It is concerning that, despite Ferguson’s insight, the uptake of the stakeholder concept and stakeholder theory in the public relations domain has beenslow. Numerous stakeholdertheoryapproaches and stakeholder identificationstrategies followed Freeman’s seminal stakeholder concept, but only a few of these emanated from communication science theorists. A possible explanation of this phenomenonis the birth of Grunig and Grunig’s excellence public relationstheory approximately at the same time as Freeman’s stakeholder concept. Despite shortcomings, critique and advanced developments, the excellence theory has remained a dominant and founding theory in public relations, overshadowing stakeholder concepts and theories.

What is equallyconcerning is the apparent ignorance amongst public relations practitioners ofthe significant inclusion of the stakeholder concept in the King III Report on Corporate Governance which came into effect on 01 March 2010. For the first time, it dedicated an entire chapter to stakeholder relationships, outlining six principles for governing stakeholder relationships.

The subsequent King IVReport on Corporate Governance™(2016) retained thisfocus on stakeholder relations. The stakeholder concept, albeit in aconfusing and uncertain manner, is slowly surfacing in some public relations areas. At least one South African university now offers a stakeholder relationship management module and a number of organisations have established a stakeholder relationship department orappointedan individual responsible for stakeholder relationships. None, however, has been so brave toreplacethe terminologypublic relationswith stakeholder relations.The terms publicsand stakeholdersare often used interchangeably. Theorists argue thatthe termstakeholderis found in business literature and used by organisations’ management, whereas publics relationsemanate from the public relations literature and is used by publicrelations practitioners(Rawlins, 2006:1). Some argue that organisations choose their stakeholders, but that “publicsarise on their own and choose the organisation for attention” (Grunig &Repper,1992:128), while others believe that publicsare formed when certain stakeholdergroups recognise an issue and organise themselves to deal with it (Steyn & Puth, 2000:199 –200)

However, in ourexperience in dealing with and training them, public relations practitionersfavour stakeholdersover publics. They may also refer to the receivers, readers and listeners of their media messages as audiences, but very seldom do they use publics.

Perhaps it is time to end the debate on publicsversus stakeholdersand accept that a stakeholder is anything, group or individual who can affect or is affected by the achievement of the organisation’s objectives, purpose and/or mission.

Given the current volatility experienced as a result of the COVID-19 pandemic, where new stakeholders have been introduced to the business supply chainor known, but previously neglected stakeholders have become very important, executives are quick to agree that organisations now have to operatein a so-called “new-normal” mode. Very few, however, have defined “new-normal” succinctly yet, and structures, processes and policies still reflect a pre-COVID-19 mind-set. To paraphrase freely from Albert Einstein –we cannot solve our new problems with the same old thinking we used when we created them. Organisations now need to start thinking laterally and creatively about the future and how to engage with all their stakeholders.

To this end, organisations should be brave and rename organisational public relationsfunctions tostakeholder relations.A stakeholder relations organisational department could, for instance, comprise of several divisions, such as employee relations, media relations, investor relations, community relations, government relations and consumer relations. Given the importance and role stakeholders fulfil within an organisation, the significance of stakeholder engagement within an organisation’s governance framework, is therefore not surprising. Indeed, it cannot be emphasised enough just how important it is to maintain proper, relevant and two-waycommunication with the organisation’s stakeholders, moreover,maintaining a high ethical standard with them at all times.

Perhaps a simple name change is all that is needed to understand that legal compliance is only a small part of corporate governance,and that effective governance has a touchpoint with all areasin the organisation and with all stakeholders, whether they are latent (unaware), active or activists. One can onlyhope thatsuch aname change would elevate the public relations function from apublicity-seeking, propaganda function, which it sadly still often is,to a communication discipline strivingto establish solid relationships with all the organisation’s stakeholders through honest two-way conversations.

 

21 July 2021

WHAT DOES THE FUTURE OF SOUTH AFRICA LOOK LIKE IF LEADERS REFUSE TO BE HELD ACCOUNTABLE?

By Terrance Booysen and peer reviewed by Jené Palmer CA(SA)

During the years of President Jacob Zuma’s leadership, the country experienced many great governance challenges which played out in the courts and the public domain.  The Public Protector at the time -- Ms. Thuli Madonsela -- appeared to be winning the battle against corruption, notwithstanding the great odds that she was facing.

One may also recall how little support was found in the National Prosecuting Authority, with Adv. Shaun Abrahams at its helm and the Special Investigations Unit (SIU) with very little to offer in the battle so desperately needed to beat this scourge which both then and today erodes the moral fibre of our society, including the economic engine that is expected to sustain the country.

“Leaders inspire accountability through their ability to accept responsibility before they place blame.”

Courtney Lynch

Founding Partner Lead Star, N.Y. Times Bestselling Author

With President Zuma being forced to step down, there was renewed hope found in President Cyril Ramaphosa’s appointment; his “new dawn” promises thrilled both the worn-out citizens, including the business sector and many investors.  It appeared that the worst of times was in the rear-view mirror, and for a period of time conditions in South Africa seemed to improve.  However, our optimism appears to have been short-lived with many promises to hold people accountable for their actions being broken or simply ignored.

Sadly, with President Ramaphosa now in the position for almost three years, many South Africans believe that the conditions in South Africa have in fact deteriorated.  Questions are being asked about the internal leadership battles within the ruling party, deep rooted and widespread corruption particularly in the public sector, poor policy decision making by government, abysmal governance and poor economic growth.

Given the extent of SA’s dire circumstances, where the global rating agencies have downgraded the country’s sovereign rating well into “junk status” -- and the IMF themselves increasingly more concerned about South Africa’s growing debt ratios to our GDP -- it is hardly surprising that many anxious citizens and investors have turned their attention and focus to other destinations that offer better conditions which are more conducive to safer living and diverse working and investment opportunities.  Whilst there are countless references to the shocking crime and declining business statistics that continue to plague South Africa, which is referenced by many market commentators including the Auditor-General each year, surely the simple truth must be exposed where the relevant people are held to account?

After billions of Rands have been wasted on dysfunctional state-owned companies in South Africa, how is it possible that the respective leaders – including their boards of directors – have not yet been brought to book?  When their actions, both individually and or collectively, have proven to be reckless, why have these people not been prosecuted and declared delinquent?

In almost every case, organisations without a governance framework, for example SAA, SABC, Eskom, Denel, SA Post Office, Transnet and PRASA, have any consistent form of determining who exactly is to be held accountable when matters go astray. This is very convenient and whilst the status quo continues, three dead certain consequences are inevitable:

- boards of directors, including their executive management will continue getting away with poor leadership, unacceptable business behaviour and sub-standard organisational performance;

- SA taxpayers, who are already a dwindling base of tax revenue, will be expected to continue to subsidise the malaise of poor leadership within the government business structures, and

- failed governance will inevitably lead to dysfunction which can take on many forms, including the ultimate ‘death’ of an organisation.

It is without any doubt that South Africa’s future survival and sustainably depends upon exemplary leadership, ethical people, robust governance frameworks and a stakeholder community that demands accountability of people in leadership positions or those charged with governance. 

Anything short of this will not end well!

 

 

12 November 2020

DIRECTORS’ SENTIMENT INDEX ™ REPORT: 5TH EDITION – CGF’s observations from a governance perspective

By Glen Talbot (CA) SA and Terrance Booysen and peer reviewed by Jene’ Palmer CA(SA)

A review of the Institute of Directors in South Africa (‘IoDSA’)’s recently released report for 2020 raises some interesting observations from a governance perspective. It should be noted that the study was concluded prior to the nation-wide lockdown and national state of disaster due to the Corona virus (‘Covid-19’) pandemic. It is likely that the sentiments expressed by respondents may have been significantly more pessimistic had the study been concluded in the second half of 2020.

The findings of the report illustrate the views of 454 South African directors and track the changes in business sentiment over the past 5 years across various categories, comprising Economic, Business, Governance and Directorship factors.

The Governance category, although ranked highest of the 4 categories, shows a steady downward trend from a score of 3.6 in 2014 to 3.3 in 2020, out of a possible maximum score of 5. Responses to the question in the Governance sector: “What do you consider to be the three main governance challenges currently facing your business?” included a variety of responses by some of the respondents which is provided in the table below.

QUESTION: “What do you consider to be the three main governance challenges currently facing your business?”
RESPONSE	CGF’s RESPONSE
None. My business is not challenged by any governance factors	It is interesting to note that 34% of respondents indicated that their business is not challenged by any governance factors. Based on CGF’s interactions with directors over recent years, a response of this nature may be a case of “you don’t know what you don’t know”. When organisations have been asked by CGF what their organisation’s governance framework entails, many would offer their organogram, board charter, delegation of authority or company secretary’s job description as a response. From these responses it is clear that these organisations do not have a thorough understanding of the GRC status for every area of their business. As such, the Board of Directors (and therefore the organisation) will be unnecessarily exposed to unforeseen and unanticipated risks. A well implemented Corporate Governance Framework® can assist the Board in ensuring that the organisation has identified and is mitigating important “governance factors” well beyond the afore-mentioned documents.
Lack of sustainable thinking	Visionary leaders appreciate the importance of the Corporate Governance Framework® in nurturing organisational sustainability by driving values-based decision-making to “play the long game”. The framework helps to break down siloed thinking and promotes decisionmaking which is aligned to the organisation’s corporate vision. It is important to ensure that the organisation’s Corporate Governance Framework® addresses sustainability issues and highlights the effective and efficient deployment of all resources, as contemplated under the 6 capitals model, on a balanced and coordinated basis. In this way, integrated thinking is promoted such that the longer term impact of the organisation’s actions can be carefully considered and monitored.
Too cumbersome and time consuming	Too many organisations (and indeed directors) view governance as just an additional layer of bureaucracy, not truly appreciating that governance speaks to the way in which an organisation is directed and controlled. The Corporate Governance Framework® is a useful management tool which supports strategic value by strengthening performance and optimising the governance of the organisation’s people and processes. The objective is to improve efficiencies and productivity in the long term interests of the legitimate stakeholders.
Lack of understanding (King IV™)	The Corporate Governance Framework® should be aligned to the legislation, rules, policies and codes of best practice applicable and relevant to the organisation. As such, it provides a meaningful and practical understanding of how and where the organisation either meets or falls short of the applicable local and/or international GRC prescripts, including the requirements of King IV™ as may be necessary.
Unethical behaviour (bribery and corruption)	The implementation of a Corporate Governance Framework® strengthens the organisation’s combined assurance approach in that it introduces thirty-two lines of defence supported (or not) by organisational evidence. The segregation of duties in performing governance assessments in the framework while recognising the inter-connectivity between different areas of the business further underpins the usefulness of this tool in driving transparent and ethical behaviour. Moreover, ethics as an organisational discipline lies at the heart of the Corporate Governance Framework®. As such, the framework assists business leaders (management and the board) in assessing whether a rules-based mentality permeates the organisation or whether a culture of accountability and “speaking up” is being inculcated within the organisation.
Lack of understanding the overall benefits	Based on interactions with directors over the years, CGF can attest to this response highlighted by the survey. Against the backdrop of a complex and evolving business environment, the implementation of a Corporate Governance Framework® enables boards to become more purposeful and agile in their decision-making while better appreciating the risks facing the organisation. Moreover, a real-time GRC dashboard provided by a Corporate Governance Framework® promotes a common understanding of the organisation’s GRC maturity and assists in prioritising areas for improvement.
Too costly or the perception of being too costly	This response begs the question: can the organisation afford the cost of failed governance? The evidence and dire outcomes of failed governance processes are very evident in the South African public and private sectors. The cost of such failed governance is yet to be determined. CGF would argue that the benefits of implementing and maintaining a Corporate Governance Framework® far outweigh the costs. The implementation of a Corporate Governance Framework® drives organisational resilience by supporting evidence-based decision-making to drive accelerated strategy implementation. The business intelligence gained from performing the governance assessments required by the framework leads to a more engaged workforce, integrated thinking, increased productivity and quicker execution. The return on investment is evident.

As a recognised thought leader and governance solutions provider in South Africa, CGF has reviewed these questions and their related responses from the perspective of having implemented a Corporate Governance Framework® for various organisations.

The above highlighted outcomes of the IOD’s Directors’ Sentiments Index, underline CGF’s concerns about the general lack of understanding of governance and the critical role it plays in ensuring that an organisation is able to sustainably and responsibly deliver on its strategic mandate.

The board’s ability to direct and control an organisation can be simplified by implementing a Corporate Governance Framework®. In this way, the board will truly understand that good governance is a business enabler, rather than a business inhibitor.

 

 

26 August 2020

INVIGORATINGTHE INTERNAL AUDIT PROFESSION THROUGH ROBUST GOVERNANCE AND CONTROLS

By Jene’ Palmer CA(SA)(CGF Lead Independent Consultant)and peer reviewed by Terrance M. Booysen

The recent public censure and financial penalties imposed by the JSE Limited on Tongaat Hulett Ltd and EOHLtd for non-compliance with the JSE Listing Requirements, again brings the effectiveness of the internal audit profession (and indeed external audit) into question. Is internal audit adding value?

The question is relevant to both the public and private sector where examples of financial misstatement and the circumvention of internal procurement policies and procedures are increasingly being uncovered. In these circumstances, questions need to be asked about the future role and stakeholder expectations of internal audit.

While most organisations’ internal governance instruments (e.g. the internal audit charter) are aligned to the requirements of King IV™ and clearly outline that the CAE(Chief Audit Executive)should be independent of management and should report directly to the Audit Committee, in reality, the role of internal audit is often diluted by an ineffective Audit Committee and/or by a controlling CEOor CFO. The situation is compounded by the complexities of an increasingly digital business environment which demands a better understanding of the organisation’s strategic intent and risk appetite to enable internal audit to be relevant and effective. The typical reactive risk-basedapproach to internal audit will need to evolve into a more proactiveapproach which embraces the business’s strategic drivers and the conditions which give rise to business volatility.

While continuous audits will go a long way towards assessing the consistent implementation of internal controls, the CAE and members of internal audit will necessarily also need a broader, more practical understanding of how the organisation deploys technology to achieve its strategic objectives. This knowledge is critical in ensuring that internal audit processes are properly scoped and are relevant. A superficial and mainly theoretical knowledge of industry best practice applicable to the different areas of the business will not add value in assessing the financial and non-financial controls. The Audit Committee should consider the extent to which the internal audit function may need to be outsourced to multiple service providers who are experts in their field, so as to achieve the desired level of comfort that internal controls are being appropriately applied across the business.

“The purpose of an audit is to help establish and maintain deserved confidence in a company, in its directors and in the information for which they have responsibility to report, including the financial statements.”Sir Donald Brydon (CBE)December 2019

In addition, the Audit Committee (and indeed the CAE) should ensure that the internal audit plan is sufficiently comprehensive to proactively address all areas of the business over time. The Corporate Governance Framework® plays an important role in prioritising areas for internal audit and highlighting the levels of governance, risk and compliance (GRC) maturity associated with each area. Indeed, the governance framework presents an opportunity to strengthen the second and third lines of defense andto improve the quality and integrity of the organisation’s integrated reports. The mandating of XBRL reporting and the requirement for meaningful sustainability reporting should also inform the scope of the organisation’s internal audit plan.

Against this backdrop, the roleand valueof the internal audit function should evolve to a combination of watchdog and strategic advisor in the areas of GRC. As such, internal audit will need to get more involved in the organisation’s strategic planning and risk management processes –while at the same time remaining independent. Not an easy feat! However, this approach is necessary given that internal audit is increasingly expected to act in the public’s interest across a broad range of matters and make a demonstrable impact on the organisation’s credibility and long-term sustainability.

 

28 July 2020

SURVIVING DISRUPTIONS IN BUSINESS CALLS FOR MORE AGILE BOARDS AND A ROBUST GOVERNANCE FRAMEWORK

By Terrance M. Booysen

After a few months of Covid-19 lockdown in South Africa, there is no doubt that somehow all the rules seem to have changed for civil society, and indeed also for the world of business at large. Businesses across the world have had to quickly adapt to their respective Covid-19 regulations with South Africa having become known as a country with some of the strictest Covid-19 regulations in place in an attempt to flatten the Covid-19 curve, and save lives.

Even prior to the Covid-19 pandemic, the ease of doing business in South Africa was already under great pressure. According to the World Bank’s annual ratings, South Africa’s ranking had deteriorated from 82nd position amongst 190 economies to 84th position in 2019. The Covid-19 saga has clearly made matters far worse for businesses to survive in South Africa, hence requiring greater board agility to weather and beat the socio-economic tsunami we are now facing.

Considering the impact Covid-19 has had upon most businesses, boards of directors have again been reminded of the critical importance of having an appropriate and responsive back-up plan in order to sustain the massive business disruptions caused by unexpected risks. Unsurprisingly, a number of organisations have been caught short and this begs the question regarding the board’s full understanding of its own business resilience in such turbulent times.

According to a recent series of surveys conducted by Stats SA (April 2020), nine out of ten (90%) businesses surveyed (2,182 businesses) reported reduced turnover; thirty-six percent (36%) indicated they were retrenching employees in the short term as a measure to cope with Covid-19 and twentyfive percent (25%) indicated they were decreasing their working hours. Approximately one out of ten businesses (10%) indicated that they had ceased business permanently and the industries with the highest percentage of organisations permanently closing their doors include construction (14%); community, social and personal services (12%); and agriculture, hunting, forestry and fishing (12%). Thirty percent (30%) indicated they could survive less than a month without any turnover, whilst 55% of the surveyed organisations indicated that they could survive between 1 and 3 months. Only seven percent (7%) indicated that they could survive for a period longer than three (3) months.With the hindsight of a number of recent wide-scale business disruptions caused by either natural or human activated disasters such as 9-11, and given the experiences gained from these past events, most medium and large sized businesses should have been able to not only foresee a risk such as Covid-19, but they should also have been able to rapidly absorb the shock and bounce back in a very short space of time.

The reality is that most South African organisations have not been able to resume a ‘business as usual’ approach and this has been further complicated by massive government intervention which may indeed be doing more harm than good.

By closing down the sale of various nonessential products or services, or restricting trade in one way or another, it fundamentally unsettles the business supply chain and creates other unintended problems that could cause terrible long-term social and economic damage. In addition to these matters, since Covid-19 does not appear to be going away anytime soon, organisations are realising that their business operating environment will rapidly need to become ‘contactless’. In this regard, the challenges of dealing with Covid-19 go well beyond the wearing of face-masks and the routine of measuring people’s temperatures. Covid-19 regulations are forcing organisations, amongst other entities, to accommodate increased virtual interactions with their employees, customers and suppliers. This entails re-modelling previously physical ‘touch’ and ‘space’ zones to provide for spatial distancing between people, as well as the tracking and monitoring of their daily movements in certain circumstances. Expectedly, this has great bearing upon the entire organisation and the outcomes (impact) will be evident in the organisation’s governance framework.Considering these ‘new’ business challenges, one may question just how knowledgeable and prepared boards are to deal with the Covid-19 impacts that affect many of their strategic and operational activities. Do boards have the ingenuity and means to understand the primary and secondary risk implications, not least also the impact Covid-19 will have upon the organisation’s resilience? A robust governance framework will facilitate a common understanding amongst board members of the governance, risk and compliance (GRC) challenges facing the organisation and will highlight those business areas which require immediate and/or critical attention. Rudimentary governance instruments implemented to act as a substitute for a governance framework will not be useful in assisting the board to prioritise the allocation of scarce resources to achieve their strategic objectives and ultimately ensure organisational sustainability.

It’s true, these are most uncertain and unprecedented times we now live in, and more than ever before, boards will increasingly be required to truly understand their businesses and operations if they are to prove their strategic worth.

The implementation of a Corporate Governance Framework® will enhance the speed and quality of decision-making by boards by ensuring a more holistic understanding of the interdependencies within the business, including a proper perspective of the organisation’s GRC challenges. Covid-19 has certainly changed the rules of business and boards will need to ensure that their organisations can adapt accordingly.

 

18 April 2020

COVID-19: ADDRESSING DEBILITATING RISKS REQUIRES A ROBUST GOVERNANCE FRAMEWORK

By Terrance M. Booysen and peer reviewed by Jene’ Palmer CA(SA) (CGF Lead Independent Consultant)

The times we are currently living in are unprecedented. Covid-19 has once again highlighted the reasons why governance -- good governance -- is a critical function in a democratic country.

The President of South Africa made what most people believe to be a good strategic call on the national Corona virus lock-down, including the implementation of the relevant regulations intended to protect the citizens of South Africa from contracting the disease. So far, it would appear that this strategy is working and that South Africa is using the time to prepare the national health system to cope with an imminent exponential influx of patients.

In arriving at the decisions to lockdown the country -- and then later to extend this lockdown -- President Ramaphosa no doubt consulted (and continues to consult) widely with his team of advisors to ensure that the extent of the problem and its likely impact is thoroughly understood and continues to be monitored so that action plans can be adapted as required to address the changing circumstances.

Covid-19 has caught many an organisation and its leadership by surprise. Many businesses had to invoke their business continuity plans (BCPs) to ensure that at the very least their workforce could work remotely. Those organisations which were prepared were able to make the ‘switch’ within hours and at the most within two days. Others took much longer to get up and running with some finding that their plans were either outdated or were not properly tested nor constructed, resulting in additional costs and possibly reputational damage. For the most part however, the majority of businesses in South Africa are suddenly faced by a complete loss of revenue while still having to maintain the same cost structure. It has become evident that many business strategies did not provide for alternative routes to market or consider scenarios where products/solutions would have to be adapted to suit an arguably permanently changed business landscape. These are only a few of the Covid-19 consequences which are being faced by businesses.

Whilst the above scenarios may be resonating with some boards of directors and their executive teams, no doubt many readers would respond by saying that Covid-19 could not have been predicted; and this may be true in respect of the disease itself. However, CGF believes that those organisations which had implemented a Corporate Governance Framework® prior to the national lockdown would have been better prepared to manage their way through these types of ‘unknown’ risks.

Since the lockdown, CGF has hosted a series of virtual breakfast meetings, with practical discussions and demonstrations showing how a digitised Corporate Governance Framework® assists boards of directors in ensuring that every area of their business (including business continuity management and strategic planning) is being regularly assessed with regards to their governance, risk and compliance (GRC) maturity levels. The objective is to drive informed and timeous decision-making at a board and at a management level to safeguard the organisation’s interests, success and sustainability.

A brief overview of the conclusions of these virtual breakfast meetings is outlined below:

1. A governance framework
- The Corporate Governance Framework® drives a common view and understanding of the organisation’s governance structures and processes with a view to improving the timing and quality of decision-making.

- In addition -- in its simplest of form -- it gives a high level view (on a simple red, amber, green (‘RAG’ methodology basis) of the extent to which all the components of governance are being efficiently and effectively monitored, managed and controlled.

2. Timing
- The timing of decisions is critical. Acting proactively, reactively or sluggishly usually distinguishes those organisations that succeed from those that fail. Never has this been more true than in today’s lockdown environment. Many businesses are currently faced with restructuring decisions; the trick will be to know when to start executing these decisions to ensure business continuity. The Corporate Governance Framework® will assist in identifying those areas of the business which require more immediate decision-making.

3. Reliable information
- Acting upon non-verified information, or unreliable sources of information is in itself a recipe for disaster. Equally dangerous, is acting when certain key information is weak, or missing. It’s critical for leaders to understand the necessary and relevant information at the right time and place. The Corporate Governance Framework® through its governance assessments can assist the board and management in addressing one of its biggest challenges: acknowledging what is not known and / or understood, and then trying to appropriately fill these knowledge deficiencies.

4. Evidence
- The burden of proof cannot be over-emphasised. Hard facts and evidence need to be presented and commonly understood. The Corporate Governance Framework® requires evidence to support any GRC assessments and helps to ensure that decision-makers are better equipped to vary their decisions and instructions in line with the organisation’s risk appetite and risk tolerance levels. Having your evidence readily available shortens the time for decision-making, especially during a crisis.

5. Co-ordinated approach and communication
- The Corporate Governance Framework® helps eliminate ‘siloed-thinking’ and enables a greater cohesion between functions, departments, divisions and geographic regions. A better understanding of the ‘big picture’ and how every area of the business is inter-related, helps to instil an innovative culture and is particularly valuable when the business is faced with the need to drive a sudden change in strategy or achieve improved efficiencies and altered cost structures.

- Bridging the communication gap between management and the board also holds immeasurable benefits for the organisation in ensuring that decision-making is authorised, transparent, supported and coordinated both during ‘normal’ trading circumstances and times of crisis.

6. Roles, responsibilities and competencies
- Every board will agree that everyone in the organisation must understand their role and responsibilities that need to be executed to successfully and sustainably achieve the organisation’s mandate.

- Although many businesses implement a job-grading system and would claim that their job descriptions are well documented and implemented, the governance assessments (performed through the Corporate Governance Framework®) often identify gaps between the existing skills and qualifications base and the desired skills and qualifications base required to meet the organisation’s strategy and implement its operating plans in accordance with the organisation’s policies, procedures, performance agreements and ultimately best practice. Having a good (prior) understanding of the organisation’s strengths and weaknesses in this regard will facilitate the implementation of risk mitigating initiatives.

7. Transparency and ethics
- Inconsistent, ill-conceived and uncoordinated decision-making undermines trust in the organisation and its leaders.

- Ethics lies at the heart of the Corporate Governance Framework®. Instilling a values-based approach to management helps to empower employees to make decisions which they believe are in the best interests of the organisation and it builds a culture of accountability. Against this backdrop it becomes easier for the board and management to implement change while remaining within their risk appetite and risk tolerance parameters.

- The governance framework dashboard not only helps to prioritise resource allocation, but also serves to underpin transparency and drive performance. These values become even more critical during times of crisis when stakeholders are looking for reassurance that the business will be able to manage the risks (known and unknown) and continue to be sustainable.

8. Impact of the governance framework on the organisation
- Correctly implemented, the Corporate Governance Framework® facilitates informed and timeous decision-making which makes the business more agile and resilient in respect of risks. In these current times, being able to respond quickly to changing market conditions is a strategic differentiator.

9. Benefits for the board
- A strong board comprises different personalities with varying skills and experience backgrounds. The Corporate Governance Framework® enables the chairman of the board to positively harness the strength of such diversity to create value for the organisation by adopting a disciplined approach to performance management.

- In addition, the non-executive board members have improved up-to-date access to information about the organisation, particularly as regards the organisation’s GRC status.

- The implementation of the governance framework drives accountability. As such, it becomes a good tool to measure the extent to which executives and non-executives are adhering to their fiduciary duties and acting in the best interests of the organisation.

10. Sustainability
- The behaviour and actions taken by leaders, in the best and worst of times, is what determines the final outcome of an organisation’s success and sustainability. With a thorough GRC overview, leaders are better equipped to make informed decisions, and implement meaningful actions to mitigate and or reduce the effects of any risks that may harm, or even render the organisation unsustainable.

 

 

26 January 2020

SELECTING THE WRONG DIRECTORS FOR THE SOE AND SOC BOARDS HAS BEEN DISASTROUS
 
By Terrance M. Booysen and peer reviewed by Jene’ Palmer CA(SA) (CGF Lead Independent Consultant)
 
As most South Africans eagerly awaited some reprieve from a year of constant and negative bombardment, be this over matters such as a massively contracted economy, rising unemployment, state capture, rising corruption and the threat of expropriation of property without compensation, many had hoped to return from their annual vacation rested, and hopeful to hear some positive news.  This did not happen.
 
Besides the imminent threat of being downgraded to junk-status by Moody’s Rating Agency and in spite of the National Treasury and our central bank’s optimism of expanding our GDP by 1.2% this year, both the World Bank and the International Monetary Fund have pegged our economic growth below 1%!   
 
Let’s not forget about all the promises from the Eskom board in early December 2019, saying that South Africans would not experience any load shedding during the festive period.  These promises did not last long, and way before most employees arrived back at work in January 2020, their holidays had been marred by further blackouts.   
 
Then there’s the SAA business rescue saga; the SA government finally allowed business sense to prevail when it was agreed that SAA would be placed into business rescue, subject to the strict provisions of the Companies Act and the appointment of an independent business rescue practitioner.  However, there appears to be a strong belief that the national airline must be saved, whatever the costs and in spite of the findings and recommendations (which are still to be finalised) of the practitioner.  Was the business rescue decision just another smoke-screen to tick the good governance box?  The bizarre decisions being taken by the boards of directors such as Eskom and SAA (and these are just two examples) fail to take cognisance of the bigger picture which should be about placing the organisation’s interests -- and therefore the broader interests of South Africa -- first.  It is patently obvious that directors are not performing their fiduciary duties in the manner prescribed under various legal prescripts, nor following governance codes such as King IV™.  
 
Clearly, something is wrong, in fact seriously wrong!

But the latest set of events following the ANC’s Lekgotla last weekend seems to suggest that both President Cyril Ramaphosa and the ANC’s NEC seem to have understood the critical importance of placing the correct, and most appropriate people on the boards of state-owned companies (‘SOC’) and other state-owned entities (‘SOE’).  In total, there are about 700 state-owned companies and entities.  Many of these organisations have reported dismal financial performance and have dysfunctional boards, the most notable of these include Eskom, SAA, Transnet, Denel, PRASA, NECSA, SABC and Landbank.

As we are now well on our way into the new year, with the President’s #SONA2020 and Minister Tito Mboweni’s Budget Speech being just a few weeks away, one wonders if President Ramaphosa’s vows which he expressed shortly after last weekend’s Lekgotla -- to stop haphazard cadre deployment within the SOE/SOC boards -- will have any positive bearing upon the pending Moodys announcement, including the SA Business Confidence Index, not least also on new foreign direct investment?

In order to “build a capable state”, President Ramaphosa is calling for boards to be comprised of credible individuals, who have the correct qualifications to occupy such positions.  This call, seemingly, has the backing of the NEC.  The President is quoted as saying “the ANC will become more stringent in the selection process of all public representatives including setting qualification criteria for comrades who should be put on ANC lists.”

Undoubtedly, such a move which if backed by proper oversight, bodes well if it is implemented correctly.  Its national deployment should see much improved organisational performance, and indeed improved governance of the respective organisations, as well as a much-needed branding refurbishment for South Africa.  As is the case within the private sector, the principles of applying good and proper governance frameworks which are effective and efficient, remain the same irrespective of the nature and / or the size of the organisation. 

As an organisation that specialises in corporate governance, we agree with the President’s sentiment that “a capable state starts with the people who work in it.  Officials and managers must possess the right financial and technical skills” and most importantly, these people must unequivocally lead organisations ethically, using appropriate governance measures to direct and control their organisations in a sustainable manner.  We stand firmly with the President, when he announced the state’s commitment “to end the practice of poorly qualified individuals being parachuted into positions of authority through political patronage.” 

The past practices of appointing incompetent individuals to serve as directors in many of the state-owned companies and entities has over the last two decades, not only resulted in dysfunctional boards, but in many instances, it has also resulted in a toxic relationship between the board and the shareholder (Minister/s), as well as within the board membership itself.  Against this backdrop, it is not surprising to see premature board retirements, which are often cited under the auspices of ‘ill-health’ or ‘career advancements’. 

Hope springs -- once again -- for the promise of a “new dawn” for South Africa.

 

 

8 October 2019

NEW APPOINTMENT: STEPHEN SIMMONDS ADDS FURTHER GOVERNANCE GRAVITAS TO THE CGF STABLE

Stephen (‘Steve’) Simmonds has been a familiar face and friend of CGF for a number of years, and our association started in early 2015 when he and some of his work colleagues from Metrix Software Solutions attended governance training hosted by CGF. And so a few years later, we are delighted to welcome Steve as the newest member to join our team of Lead Independent Consultants.

Steve has an impressive background. He is originally from the United Kingdom where he started his career and tertiary training at the National Gas Turbine Establishment, this being the central site for developing and testing gas turbines and jet engines such as those used on the Concorde, Harrier and Tornado in collaboration with the world-famous Royal Aircraft Establishment in Farnborough.

After emigrating to South Africa in 1975, he was employed in the engineering and quality assurance profession for almost two decades. Hereafter, Steve entered the management consulting profession, where he assisted numerous organisations with the implementation of ISO Management Systems in the Quality, Environmental, Health & Safety, Food Safety and Automotive disciplines.

Steve then joined Metrix Software Solutions in 2008 and was responsible for managing the implementation of Governance, Risk and Compliance (‘GRC’) software projects at clients, including management systems design and development. As a subject matter expert, he also guided software project implementation teams to ensure the content of the GRC software was accurate and fit for purpose according to client requirements.

Steve is also highly knowledgeable in the disciplines of Business Continuity Management (BCM), information security, risk management, governance and ethics -- amongst other governance elements -- all of which form part of the renowned digital Corporate Governance Framework® which is used to assess, measure and validate an organisation’s real-time GRC status.

As an authority in Systems Integration (‘SI’), Steve is well positioned to assist our clients map and integrate their numerous, and often complex GRC instruments, into the organisation’s governance framework whist at the same time ensuring the respective business processes and procedures are effective and efficient. Indeed, Steve’s deep business experience of SI bodes well to ensure duplicative operations are highlighted and rectified in order to optimise business efficiencies. To pursue his passion for integrated governance systems, Steve left Metrix Software Solutions in July 2017 and returned to the consulting profession as an Integrated Management Systems specialist, prior to being appointed as a Lead Consultant at CGF in October 2019.

Steve forms part of CGF’s extended team of GRC professionals, who are seasoned business leaders and who have had the opportunity to work closely with various boards. Together, our experienced consultants are able to assist CGF’s clients to extract significant value from a properly implemented and structured Corporate Governance Framework®, which has equal applicability to public, private and non-profit organisations. Our team can assist the organisation in attesting to its compliance with the various levels of combined assurance as well as in augmenting the requisite lines of defence within the organisation’s governance framework.

Steve is a Certified Business Continuity Management Practitioner through the BCI UK, Management Systems Lead Auditor, Qualified Learning Assessor, Coach, Guide, Moderator, Assessment Designer and Developer, a former National President and Director of the South African Society for Quality and former Director of the South African Quality Institute. Professionally he is a member of the Institute of Consultants SA.

 

 

17 July 2019

NEW APPOINTMENT: CGF’s GOVERNANCE SERVICES STRENGTHENED WITH APPOINTMENT OF TRAVERS CAPE (CA(SA), MBA)

CGF is delighted to welcome Travers Cape as a Lead Independent Consultant to our company.  Travers has acquired a wealth of experience in senior financial management positions and fulfilled various strategic roles within multinational and local businesses.  
 
Being adept at analysing facts, figures and similar detail, Travers will support our clients in the application and verification of their combined assurance processes, including the associated functions that are linked in their annual integrated reports.   
 
The integrated report is a fundamental governance instrument used for keeping an organisation’s stakeholders properly informed of its many enterprise activities, including the organisation’s commitment to the protection of the environment, good corporate citizenship and value creation.   
 
The Integrated Report is one of only a few organisational documents which is required to be made publicly available to stakeholders at large.  As such, it is widely used by stakeholders to assess the performance and future sustainability of an organisation.  It is therefore imperative that this report be transparent and accurate in its disclosure of information.  Regrettably, there are too many instances where this critical governance feedback mechanism is compiled from a solely marketing perspective and is often “disconnected” from the actual strategic, governance and risk management realities experienced by the business.  The fact of the matter is that only the financial statement section of the Integrated Report is actually subjected to external audit; the quality and adequacy of the rest of the information contained in the report is dependent on the board’s willingness to transparently present all the matters which are relevant and which will enable stakeholders to hold the board accountable for their actions (or lack thereof).   
 
In the listed environment, the Integrated Report may be scrutinized by the company’s corporate sponsor for compliance with the disclosure requirements recommended by the King Report on Governance for South Africa 2016.  However, this review does not extend to the verification and validation of any ESG information disclosed in this report.
 
The Tongaat Hullett governance debacle serves as the latest reminder of the effects and consequences of poor governance. Stakeholders play a pivotal role in the success and even in determining the legitimacy of modern business organisations.  They are therefore entitled to know exactly how these organisations affect their lives, both at a personal and environmental level.  As such, stakeholders are increasingly demanding more, relevant and meaningful information that can withstand external scrutiny.
 
To ensure a sustainable relationship with its material stakeholders, organisations have a moral obligation to ensure that their reporting (both internal and external) is accurate and complete so that it can facilitate informed decision-making.

It is imperative that:
 
- key stakeholders have an accurate understanding of the overall governance activities within an organisation, including the ethical principles of its leadership;

- timely, transparent and complete reporting is provided to the public at large, which is independently verified and made available via easily accessible platforms such as the organisation’s website; and

- the Integrated Report clearly demonstrates how the organisation’s activities are integrated so as to deliver value to the stakeholders, including outlining the ESG risks and opportunities facing the business.  
 
With numerous corporate governance failures occurring in South Africa over the past few years, boards must pay more attention to the contents of the Integrated Report.  The organisation’s lines of defense must be secure and the various levels of assurance must have been properly implemented and tested so that the board can confidently approve the information contained in this important stakeholder communication mechanism.  
 
CGF’s team of experienced governance, risk and compliance (‘GRC’) professionals will assist clients in mapping and reporting all of the organisation’s key governance elements found within its Corporate Governance Framework®.  A properly defined and implemented governance framework will have a profound impact on the organisation’s governance activities and reporting processes.  Expectedly, the work emanating from this team of GRC professionals changes the traditional perspective and behaviour of the board, as well as internal and external audit.

 

5 June 2019

GETTING BOARD APPOINTMENTS WRONG WITH DEVASTATING CONSEQUENCES FOR THE ORGANISATION

By Terrance M. Booysen and peer reviewed by Jene’ Palmer CA(SA) (CGF Lead Independent Consultant)
 
The recent resignations of the CEOs of Eskom and South African Airways have again focussed the spotlight on board performance and effectiveness.  Inevitably, the critical question arises:  why are these CEOs really leaving?   
 
In considering the answer to this question one must include a review of the board’s composition and the extent to which the overall ‘health’ of the board may have influenced any decision to leave or not leave the organisation. 

Board composition

Typically, on incorporation of an organisation, the appointment of the first directors comprises the shareholder’s ‘inner circle’ of family, friends or other associates who have the risk appetite and experience to assist the shareholder in building their vision for a prosperous and sustainable organisation.  At this early stage of the organisation’s development, the board’s composition is not necessarily based on the skills and competencies actually required to implement a longer term strategy for the organisation.  This is a classic dilemma faced by a number of organisations which is further reinforced when the founding member (director) of the organisation ardently believes that they cannot outlive their time and usefulness in the organisation which they started.  Often, the founding director refuse to make way for younger or more energetic thinking that is required to grow the organisation further.   
 
It is quite rare for start-up organisations who establish boards to formalise the board appointment, let alone compile a board skills matrix that identifies the skills, knowledge, experience and capabilities required of the board members to ensure they are able to successfully steer the organisation through both its current and future challenges.  In these cases, narrow-mindedness, including a lack of new, innovative and strategic thinking, often contributes to stifled business growth.                   

Board mapping

Before delving into the issue of the skills by an organisation’s board over time, it is imperative to assess whether a candidate director is conflicted, not only in respect of their financial interests, but also their competing interests.   
 
The principle task that underpins board mapping is understanding which other board positions the candidate director may have previously occupied (or continues to occupy) and which may result in competing interests or conflicts that would affect the individual’s appointment and performance on the organisation’s board.   
 
An exercise of this nature should theoretically easily report all the board positions currently (and historically) held by the candidate director.  However, the reality is that many regulatory systems which are used to record director appointments and removals are mired by bureaucracy, or worse, are outdated and therefore early warning alerts are not always available to unsuspecting boards.

In addition to a direct conflict of interest which may arise from being appointed as a director for a competitor, boards must also be alert to situations where a candidate director may have previously served in an executive capacity only.  In these scenarios, regulatory systems cannot be relied upon to detect these potential conflictive circumstances.   
 
Personal relationships to which the candidate director is directly linked are also just as important to check in the board mapping process.  This exercise should be performed regularly to ensure that the director does not become conflicted after their appointment to the organisation’s board of directors.  Typically, the board mapping exercise will also record the director’s spouse and other immediate family members’ business interests, especially where they are appointed as board members, trustees, executive managers or similar leadership positions where they hold significant power.            

“…SAA needs a new CEO with an unrivalled understanding of the industry.  It is imperative that the SAA Board moves forward with the appointment of a fearless, non political, independent CEO with a strong track record in the aviation sector.  The last thing we need is a political appointee with no airline experience.  When Rome is burning, one needs the best firefighters one can get.”
Source: Article - SAA needs new CEO with an aviation background - SAAPA (03 June 2019

Board skills matrix

In order to best understand the board’s capabilities, and its ability to deliver on its mandate, it is essential for the board to develop a board skills matrix which identifies crucial criteria that ultimately speaks to the board’s ability to properly fulfil its functions.  Expectedly, a newly formed organisation may not have the luxury of drafting a board skills matrix, however, for boards that have undergone rotational directorship changes, the skills matrix becomes a vital enabler to accurately understand what leadership skills will be required as the organisation continues to transition itself for improved performance and operation.   
 
The board skills matrix clearly includes the information gleaned from the board mapping process, and selecting future directors onto the board is a finely tuned and tailored process that is meticulously crafted to suit the organisation’s unique circumstances.  Whilst the organisation must ensure the appointments of new directors falls in line with the organisation’s constitutional documents, including its procedures, policies and processes, it must also ensure that an incoming director’s experience and skills are aligned with the organisation’s evolving strategy.       

Panacea for performance        

For many organisations who may have mapped the career paths of their existing and new board members, whether it be in a simple matrix or complex charts that span the wall of HR offices, there are two realities one must face.   
 
Firstly, notwithstanding all the effort, time and resource spent on these exercises -- important as they are -- there is no guarantee that these painstaking efforts will guarantee an individual’s performance, and that the board and ultimately the organisation will always be effective.  Indeed, it is through the adoption and implementation of appropriate letters of appointment, performance contracts and various assessments (including board reviews) that the true value of the board selection process and individual director performance will be determined.  
 
Secondly, the value of board mapping and matrixes can be completely thwarted if ‘hijacked’ or ‘captured’ by any person that has undue influence over the process.  So for example, where the chairman of the board or a principal shareholder was to insist on appointing their ‘own’ director to the board for whatever reason -- albeit just adding one director to an already smoothly functioning board selection and approval process; if the director is ‘unfit’ for the position or does not match the gaps reflected in the board matrix, then disaster is inevitable.
 
In South Africa, far too many directors who do not have the requisite qualifications, neither the skills nor experience to serve in these positions, have been appointed to the boards of state-owned companies and other similar entities. Such appointments blatantly disregard the interests of the organisation and its leadership requirements.   
 
The appointment of incompetent individuals to serve as directors has over the last two decades not only resulted in dysfunctional boards, it has also in many instances resulted in a toxic relationship between the board and the shareholder, as well as within the board membership itself.  Against this backdrop, it is not surprising to see premature board retirements, which are often cited under the auspices of ill-health or career advancements.   
 
Clearly in these volatile circumstances, the task of compiling a board skills matrix is far more difficult, if not a total waste of time if the process is undermined.  However, in terms of President Cyril Ramaphosa’s “new dawn” philosophy, this situation is set to change with his commitment of ensuring a proper process is followed, where competent and credible leaders are appointed to lead South Africa and its various institutions.  In this regard, board mapping and matrix processes can play a pivotal role in facilitating improved governance and leadership across all South African businesses.

 

 

30 April 2019

LEVERAGING THE ORGANISATION’S MEMORANDUM OF INCORPORATION TO IMPROVE ITS RISK MANAGEMENT AND SUSTAINABILITY

By Lucien Caron (CGF Lead Independent Consultant) and peer reviewed by Terrance M. Booysen
 
An experienced board member will fully appreciate the various mechanisms contained within the organisation’s Memorandum of Incorporation (‘MOI’) that can be altered to best suit the environment within which the company operates.  More often than not, the MOI is trivialized as simply a ‘founding document’ of the company and once approved, it is filed and gathers dust.  However, over-looking the importance of the MOI -- which contains information about the core elements of the organisation’s governance -- amounts to an injustice to the nature and intent of this document, not least also the company and its stakeholders.   
 
The MOI is not only the first point of reference when interpreting the manner in which the company ‘hard-wires’ its governance prescripts within its DNA; it also allows key stakeholders to understand the broader set of parameters regarding the manner in which the company manages its risk appetite and tolerance levels.  Indeed, the application of the alterable provisions as set out in the Companies Act (‘the Act’), will significantly determine the extent to which good governance is embedded within the company.
 
The Act provides that there are certain unalterable provisions, alterable provisions and default provisions which apply to a MOI.  Whilst a company is unable to alter the substance or effect of an unalterable provision unless the provision in its MOI is more restrictive than the unalterable provision in the Act, the company may alter an alterable provision of the Act in its MOI to suit its specific requirements.  Bearing this in mind and the fact that the MOI is essentially a contract between the company, the board and the shareholders, it makes sense to ensure that the MOI provides clear guidelines on important matters such as board composition, succession planning and the appointment of executive directors and prescribed officers.  In this way, the ambiguity and personal biases often associated with the appointment of these critical positions can be minimized (or even avoided).  By establishing and incorporating minimum requirements in respect of individual and collective skills and experience as well as independence, the MOI can be a useful governance tool in driving ethical behaviour and accountability particularly amongst the board members, management and other prescribed officers.  In fact, the MOI can set out pre-determined terms of office for directors or include provisions to remove a director in extraordinary circumstances (provided such provisions are not contrary to law).
 
The Act also provides for a private company, limited liability company and non-profit company to elect to voluntarily comply with the extended accountability and transparency requirements which are compulsory for public or state-owned companies.  In terms of these provisions, the company is required to have its annual financial statements audited and appoint a company secretary and an audit committee.  By electing to comply with these requirements, a company can more readily demonstrate to its stakeholders its commitment to responsible risk management and accurate and fair reporting.  In this way, the credibility of the organisation can be enhanced and leveraged to drive sustainable business.
 
Regrettably, the benefits of a well-considered MOI are often realized too late.  In these situations, the company, its directors and/or its shareholders are being exposed to litigation and are ‘scrambling’ to prove that they have proper authority and the right or obligation to act, or not act as the case may be at the time.  It is therefore important that the MOI is periodically reviewed to ensure ongoing compliance and continued appropriateness for the business and its stakeholders.  Contentious matters such as meeting quorums, proxies and voting procedures must be agreed and clearly understood to ensure that decision-making can withstand the scrutiny of an informed stakeholder.
 
Furthermore, the voice of public opinion acts swiftly.  As such, the company, its directors and its shareholders should leverage the MOI to underpin the organisation’s position on important policy matters such as ethics, good corporate citizenship and social responsibility.    One of the most significant implications of not carefully considering the provisions of the MOI would be that under the Act, in order to be classified as a private company, the MOI must restrict the transfer of all ‘securities’, and not only shares (ordinary or preference). The definition of securities has been expanded to include shares, as well as hybrid and debt instruments. Therefore, any company which has debt instruments (for example loans) in issue that are freely tradeable must accept that they will no longer be considered private companies. They will now be deemed to be public companies and required to comply with the applicable provisions of the Act.
 
The fact that the Act provides for alterable provisions to be incorporated into the MOI presents a unique opportunity for organisations to incorporate good governance into their statutory documents. However, certain organisations do not have the flexibility of amending their MOIs or other founding documents due to their unique structures and shareholding. This is particularly so of some state owned entities and public entities. To this end, the alterable provisions of the Act provide an opportunity for these organisations to embed good governance measures by incorporating the principles of the alterable provisions of the Act into their second tier governance instruments, namely their delegations of authority, policies, processes and procedures.
 
With the increasing corporate governance focus being placed on non-profit organisations, public entities and stateowned companies, good governance is no longer a “nice to have”; it’s an absolute necessity from a stakeholder, government and public perspective.  Moreover, given the dire state so many organisations find themselves in, directors and prescribed officers who do not regularly assess the manner in which risks may be contained or mitigated through the use of these alterable provisions -- be this within their MOIs or their second tier governance instruments -- may find themselves being accused of failing in their fiduciary duties.  
 
In this regard it is incumbent on directors and prescribed officers to use the unique opportunity that the Act provides via its alterable provisions, to establish a Corporate Governance Framework® that is both compliant and acts as a strategic business enabler. A well-implemented Corporate Governance Framework® will facilitate risk management and sustainable decision-making across the organisation by identifying those matters for which the board will be held accountable and those matters for which management will be held responsible.

 

2 March 2019

AMENDMENTS TO THE COMPETITION ACT MAY FURTHER CURTAIL FOREIGN INVESTMENT APPETITE

By Terrance M. Booysen and peer reviewed by Lesley Morphet (Partner: Hogan Lovells)
 
The South African Competition Amendment Act 18 of 2018 (‘the Amendment Act’) which was tabled in Parliament in July 2018, and signed into law by President Ramaphosa last month, has been the subject of much debate and comment, especially insofar as it aims to implement far-reaching changes to the current Competition Act 89 of 1998 (‘the Competition Act’).  Although the Amendment Act has been signed into law, it is yet to be brought into operation on a date to be declared by the President.
 
The changes to the Competition Act introduced by the Amendment Act include strengthening and clarifying the provisions which relate to abuse of dominance and prohibited practices by dominant firms; giving the Competition Commissioner and the Minister the right to appeal against a merger decision of the Competition Tribunal; and giving the President of South Africa the power to identify a list of national security interests and establish a committee to assess whether or not an acquisition by a foreign firm will be adverse to national security.
 
These changes are part of the Amendment Act’s broader stated aim of addressing persistent structural constraints on the South African economy, such as high levels of economic concentration, and strongly promoting transformation and economic growth in South Africa and working towards achieving a greater spread of ownership by historically disadvantaged individuals. 

“[Local] competition policy, therefore, allows for economic intervention that arguably leans more extreme than in other jurisdictions. For instance, nowadays, frequent mention is made by policy makers of “ownership structures” and “participation in markets” as a focus for competition interventionism. The recent proposed amendments to the Competition Act will likely exacerbate the scope for interventionism along these lines.”
TG van Onselen  (2018)  
 
The Competition Act itself states in its preamble that “apartheid and other discriminatory laws and practices of the past resulted in excessive concentrations of ownership and control within the national economy, inadequate restraints against anticompetitive trade practices, and unjust restrictions on full and free participation in the economy by all South Africans”, and further that the economy must be open to greater ownership by a greater number of South Africans.
 
Does the Amendment Act curtail what it aims to achieve?
 
The aims of the Amendment Act are noble, and it cannot be disputed that transformation and economic growth are desperately required in the South African economy.  Indeed, as stated by President Cyril Ramaphosa at the World Economic Forum Annual meeting in Davos in January 2019, “We have placed the task of inclusive growth and job creation at the centre of our national agenda…We recognise that we cannot create work on any meaningful scale unless we grow the economy at a far greater rate – and for that we need much more investment in the productive sectors of the economy, in infrastructure and in skills development.”  That being said, it may be an unintended consequence of the Amendment Act that the bureaucratic and administrative cost of doing business in South Africa is simply too high, and the changes imposed by the Amendment Act will not in fact grow the economy at the rate and on the scale as envisaged, but will give foreign investors yet another excuse to seek out more appealing jurisdictions for their investments.
 
Heightened regulation of the free market economy by the government, as proposed by the Competition Act, and further encouraged by the Amendment Act, may add to foreign investors’ concerns around doing business in South Africa, as compared to other, less highly regulated countries.  Take for example the prohibition against charging an excessive price for a particular commodity or service, which is addressed differently in various countries.  The likes of the United Kingdom and Germany are similar to South Africa, insofar as they specifically prohibit organisations from levying what they deem to be excessive prices.  In other countries, such as the United States of America (‘US’), Canada and Australia, a general offence of abuse of dominance is acknowledged, but there is no specific reference in the law to the levying of excessive prices as an offence.  This is because there is a reticence to allow regulators to become too directly involved in a free market economy, especially through action being taken against excessive pricing.  Indeed, in the US, it was found by the Supreme Court that “the mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free market system”.  In other words, it should be for the market to regulate itself, with those suppliers charging excessive prices ultimately being faced with a decrease in demand.  
 
Unlike in Germany and the United Kingdom, however, South Africa imposes further legislative constraints on local market players, in addition to the constraints on free market forces which are imposed by the Competition Act and Amendment Act.  These include legislation that deal with employment equity, broad-based black economic empowerment, preferential procurement, including various mandatory levies such as those for skills development which go beyond the company’s own training and development budgets which is calculated at one percent (1%) of the organisation’s monthly wage bill.  Considering these factors, amongst a host of other business challenges in a less than exciting economy, many would-be business investors and entrepreneurs, especially those considering opening their businesses in South Africa, may be discouraged by the bleak prospectus of success.  Quite ironically, the Competition Act purportedly seeks to remove these restrictions to encourage “full and free participation in the economy”.    

"The Bill constitutes a major overhaul of the Competition Act of 1998 and sweeping new powers are given to the Competition Authorities to address the perceived high concentration levels and lack of transformation in the South African economy.”
Werskmans (2018)
 
The real motivation for the heighted state of government interference and regulation of the market therefore needs to be questioned.  Is penalising what are elsewhere considered to be normal business practices indeed beneficial to the South African economy in the long term?

The Amendment Act is likely to come into operation soon
 
In spite of the concerns raised from several quarters and the intense debate around the Amendment Act, at the time of writing this article, the Amendment Act had passed through both South African Houses of Parliament and been signed into law by the President, awaiting only the proclamation of the date on which it will commence operation (there is talk in this regard that it will be brought into operation in stages).   The Competition Commission has already issued draft guidelines in relation to buyer power, price discrimination and the definition of small and medium businesses, and it would seem that South African businesses and potential foreign investors need to brace themselves once again for another piece of legislation which seeks to address the symptoms, rather than the cause of a rapidly failing economy, and which may in fact work against the very aims which it seeks to achieve.  
 
With the Amendment Act likely to come into force soon (at least in part), one should consider whether or not these changes will improve some of the following worrying key economic statistics:
 
1. a dismally poor performing economy where South Africa’s growth rate over the last decade has barely surpassed 1,5% per annum;

2. unemployment has dramatically increased to figures hovering at 27,5% (not including the figures of the ‘despondently unemployed’);

3. South Africa’s Total Public Debt -- as a percentage of nominal GDP -- has ballooned from a low point of 26.5% in 2008 to 53% towards the end of 2017, where our total debt is now circa R3 trillion;

4. South Africa’s nett Foreign Direct Investment (FDI) -- as percentage of GDP – fell from 22,7% (2010) to -29% (2017); and

5. company income taxes were 6,6% lower in December 2018 than a year ago, and economists predict a grim 2019 Budget with an estimated budget deficit of between 4-4,5%.
 
Indeed, the “new dawn” espoused by President Ramaphosa would be a welcomed event, especially considering that South Africa is the only OECD country that experienced a “technical recession” last year, not least also remembering that our economy is currently at its lowest growth path since 1945.   
 
With the imminent changes of the Amendment Act, including the uncertainty of the ANC’s Expropriation Without Compensation (EWC) policy -- and its associated Expropriation Bill (2019) which was published in December last year for public comment -- the “new dawn” actually feels quite ominous, and truthfully this does not inspire any form of confidence, let alone business confidence and optimisation.

 

13 November 2018

REGULAR BOARD EVALUATION IS MORE THAN SIMPLY A RECOMMENDATION

By Terrance M. Booysen (Director: CGF) and Ramani Naidoo (Author: Corporate Governance - An essential guide for South African companies)
 
Management guru, Peter Drucker, is often quoted as saying, “If you can’t measure it, you can’t manage [or improve] it”.  Constructive feedback is integral to a process of development, growth and improvement, not least in an organisational setting, and especially in the case of boards of directors.  In their leadership roles, directors are expected to fulfill their statutory, fiduciary and ethical duties towards an organisation, and their performance in this role should be evaluated so that their effectiveness can be assessed and tested against best practice and appropriate benchmarks.  Where lacking, actions for improvement should be put in place -- whether on an individual or collective basis -- for the benefit of the board as well as for the organisation and its stakeholders.
 
Good in theory; required in practice?
 
In South Africa, and many other countries internationally, there is no statutory requirement that board evaluations be conducted, so boards may be forgiven for treating an evaluation as a box to be ticked on an annual or biannual basis, if at all.
 
However, in addition to the intuitive benefits of evaluating the performance of the board on a regular basis, the requirement to do so is in fact becoming more of a critical governance imperative for organisational sustainability.
 
The King IV Code on Corporate Governance for South Africa, 2016™ (‘King IV™’), which is regarded internationally as a gold standard for good corporate governance, states that “the [board] should ensure that the evaluation of its committees, its chair and its individual members, supports continued improvement in its performance and effectiveness”.   
 
The reporting requirements in Principle 9, Recommended Practice 75 of King IV™ require that the integrated report includes “a description of the performance evaluations undertaken during the reporting period, including their scope, whether they were formal or informal, and whether they were externally facilitated or not; an overview of the evaluation results and remedial actions taken; and whether the [board] is satisfied that the evaluation process is improving its performance and effectiveness”.
 
King IV™ follows an “apply and explain” approach to governance compliance, meaning that its principles should be applied by all organisations wishing to practice good corporate governance.  Organisations should then go further and explain to their stakeholders how the application of the principles has contributed to the enhancement of governance in that organisation.  Proof of the completion of a board evaluation, whether conducted internally by the Chairman of the board and the company secretary, or externally by a duly appointed service provider, is one way in which an organisation can demonstrate its application of good governance principles to its stakeholders.  Showing that the recommendations arising from the board evaluation are being actioned certainly adds weight to the claims made by the board; that it is indeed strong in its leadership, vision, experience and independence.  
 
In addition to the “apply and explain” imperatives of King IV™, the principles of the earlier King Code on Governance for South Africa, 2009 (King III) -- including the requirement that board evaluations be conducted -- have found their way into common law through court precedent, which begs the question why all organisations are not implementing board evaluations as a matter of course?
 
In countries other than South Africa, corporate governance codes will usually require listed organisations to conduct board evaluations, with a recommendation that all types of organisations do so.  Generally, if board evaluations are not conducted, sufficient explanation must be provided as to why not.
 
Add to these governance imperatives and guidelines the demands made by an organisation’s informed stakeholders that the board must be held accountable for its actions, as well as that the organisation itself must be accountable for the composition, skills, independence and diversity of its board, and the process of evaluating the manner and degree to which the board lives up to these demands, becomes essential.  

“Boards continually need to monitor and improve their performance.  This can be achieved through evaluation, which provides a powerful and valuable feedback mechanism for improving effectiveness, maximising strengths and highlighting areas for further development. The evaluation process should be objective and rigorous.”
 
Financial Reporting Council (United Kingdom) (2018)
 
Why board evaluations matter
 
Organisations may still remain unconvinced that they need to conduct a board evaluation, since the implementation of the provisions of King and other corporate governance codes are generally not mandatory.  In addition, some organisations may feel that stakeholders can be convinced that the board is indeed functioning as it should, since the organisation is generating profits and potentially creating value in the short term.
 
However, there are other matters which should be considered, and which impact the organisation’s value creation in the medium and longer term.  Before disregarding the necessity of a board evaluation altogether; the benefits to the board itself, the directors individually and collectively, including the organisation’s stakeholders and the organisation as a whole must be carefully considered.  
 
Board evaluations provide concrete evidence of whether or not the board members are in fact ensuring that the strategic direction of the organisation is being followed and whether or not they are fulfilling their fiduciary duties in the best interests of the organisation and its stakeholders. 

Board evaluations act as a beneficial feedback mechanism for improving the effectiveness of the board, and will assist the organisation to formulate and maintain a board matrix, which will track the strengths and weaknesses of its members, highlighting skills or knowledge gaps, and areas for further development, improvement and training, as well as future director rotation and appointments.  Team dynamics will be analysed and can be adjusted or improved, and through this process, a sense of mutual trust and appreciation will be developed between board members, including executive management who interact with them at board and sub-board committee levels.  Primarily, the process provides an ideal opportunity for directors to gain clarity on the performance standards required of them, as well as being reminded of their legal and fiduciary duties and responsibilities.   
 
On an organisational level, there are many benefits related to conducting board evaluations, including the fact that they may assist in identifying problem areas within the board and its sub-board committees or between individual members of the board and the committees before they become a crisis.  Board evaluations done correctly also assist to improve relationships between the board and executive management, by highlighting areas which may be problematic; clarifying what is expected from board members in terms of their performance; and ensuring high-level policy frameworks exist to guide the organisation.

“Board assessment is both a critical opening step and concluding phase of the boardbuilding framework.  Done well, it provides fantastic opportunity for boards to monitor their progress and renew their commitment to doing good work.  Done badly… it can turn into a mechanical exercise that tests the board’s patience and creates little or no value.”
 
Source: Building better boards, by B Behan Ramani
 
Board evaluations must be done right
 
In order to obtain the optimum benefit from conducting a board evaluation, it must be carried out diligently, intelligently and thoroughly.  Undoubtedly, a level of ‘maturity’ is required amongst the members of the board and its sub-board committees if the evaluation is to be effective.  The outcome of such evaluations may often result in some tough truths being revealed about the functioning and effectiveness of the board and its members.  If done ineffectively, board evaluations may cause substantial harm to the board and its members, and possibly to the organisation as a whole.   
 
The fact that a regular internal and external board evaluation is part of the organisation’s culture and embedded within its Corporate Governance Framework®, indicates its commitment to sound governance and demonstrates its continued accountability to its stakeholders.  Indeed, if a monetary value, or return on investment could be calculated to demonstrate the benefits of organisations conducting a meaningful board evaluation, it would be clear that in the pursuit of long-term sustainability and the legitimacy of an organisation, the process is in fact essential and its value incalculable.

 

 

19 April 2018

XBRL® FACILITATES STANDARDISED BUSINESS AND FINANCIAL REPORTING GLOBALLY

By Terrance M. Booysen (Director: CGF) and peer reviewed by Hennie Viljoen (CIPC: XBRL ProgrammeManager)

Standards affect almost every aspect of daily living. They set a certain benchmark level of quality orattainment, and they may be used as a measure, norm or model in comparative evaluations. Standards may also regulate social and societal interactions and they are most often used to manage and guide operations to ensure safety, quality and functionality. In essence standards are as important as they are influential; and the wider the range of their adoption, the easier it is to achieve -- albeit initially -- a common level of quality and comparison. From a business perspective, every aspect of an organisation will be affected and influenced by certain standards, which will apply to a greater or lesser extent, and which may be internally or externally imposed, measured and monitored. Standards will apply to, amongst other things, business operations, human resource behaviour and management, as well as the collection, collation and reporting of certain information.

"Standards must be observed, but they are only the starting points for further improvements. Standardization should be optimistic. There is always room for improvement and a better future. "Shigeru Nakamura

Standards for financial reporting

The management and standardisation of financial and accounting information and reporting has long been regulated worldwide through the likes of the International Financial Reporting Standards (‘IFRS’). These standards were developed by the International Accounting Standards Board (IASB) in 2001 and have become the basis for a global accounting ‘language’, or set of principles, in terms of which all organisations collect, collate and report financial data. The mission of IFRS is to “develop…[s]tandards that bring
transparency, accountability and efficiency to financial markets around the world. [Its] work serves the public interest by fostering trust, growth and long-term financial stability in the global economy.”

Standards for non-financial reporting

In a similar vein, and in the same interests of transparency, accountability and efficiency, non-financial reporting should be standardised, and the capture and sharing of both financial and non-financial data -- in fields other than accounting -- has been recognised. The accuracy and reliability of information used internally by an organisation’s management, and externally by its stakeholders, is critical for fast and effective analysis and decision making. Increasingly, there is greater focus -- especially within the regulatory environment -- on more efficient and timely informationsharing and reporting, and organisations are required to streamline the process of reporting, as well as the analysis of the information contained in their reports.

Governance Codes, such as the UK Corporate Governance Code (April 2016) and the King IV Code on Corporate Governance for South Africa, 2016™ (King IV™), require governing bodies (boards of directors) to present a fair, balanced and understandable assessment of the organisation's position, performance and prospects to all of their stakeholders. In addition, governing bodies must ensure the integrity of the information that is shared.

The standards around the reporting of information, and the data that informs that information, are coming under the spotlight on a regular basis, especially in the context of current exponential technological advances and the Fourth Industrial Revolution, the rise of the Internet of Things (IoT), and the consequent generation of vast amounts of data.

“Standardisation has arguably been the pivotal mechanism for the widespread adoption of many pioneering technologies.” www.xbrl.org

Enter eXtensible Business Reporting Language (‘XBRL®’)

In assisting organisational governing bodies to meet legislative, regulatory and good governance reporting requirements, and in facilitating more effective and efficient standardised reporting, the concept of eXtensible Business Reporting Language (‘XBRL®’) has been developed to improve the quality, transparency and flexibility of internal and external business reporting worldwide.

XBRL® is a global standard for the capture and exchange of business and financial data. It transcends the language of IT systems and provides organisations with a common taxonomy -- a dictionary of terms which is designed to enable different computer programmes to share and process data where each item of data is classified in accordance with mutual understanding. As such, XBRL® enables the standardisation and automation of the processes used to prepare, analyse, publish and communicate reports.

Every aspect of an organisation’s non-financial reporting processes is standardised and automated through XBRL®, including the gathering, assembly and consolidation of data, as well as the extraction and analysis of business information. Since XBRL® is platform-independent, the standard will work on any operating system.

“In a nutshell, XBRL provides a language in which reporting terms can be authoritatively defined. Those terms can then be used to uniquely represent the contents of financial statements or other kinds of compliance, performance and business reports. XBRL lets reporting move between organisations rapidly, accurately and digitally.” www.xbrl.org

The adoption of XBRL® is gaining momentum on a global basis and it is currently used in more than 50 countries worldwide. In South Africa, the Companies and Intellectual Property Commission of South Africa (‘CIPC’) has mandated the use of XBRL® from 01 July 2018 for the submission of Annual Financial Statements (‘AFSs’) by all public organisations; qualifying private organisations (which previously submitted AFSs in PDF format); state-owned organisations; non-profit entities and qualifying Close Corporations.

CIPC’s aim is to eventually implement Standard Business Reporting (SBR) in South Africa, in terms of which regulators will be able to share data, eliminating the need for organisations to report different formats of financial statements to multiple regulators. Besides the governance interests regulators have in the XBRL® standard, investors and other interested stakeholders will also have the means to analyse consolidated statements per industry on a standardised basis, and they will therefore have much broader and deeper insights into businesses across various sectors.

Organisational benefits of XBRL®

While the requirement to use XBRL® in reporting may seem onerous to those organisations not currently implementing the standard, the long-term benefits are numerous. These include the fact that over time, an organisation’s record keeping systems and workload will be drastically reduced, especially since information will only need to be entered once into a system, but will be available for multiple purposes. A variety of data will be automatically identified and processed, and results of information analysis will be consolidated and far more accurate. In this way, organisations will be able to specifically and timeously communicate pertinent information in a standardised format to the stakeholders who require it, and benchmarking and comparison exercises will become simpler and more appealing to investors. Instead of using resources on collecting data and recording it into a system, efforts can be better focused on the analysis of that information to facilitate more accurate forecasting and insightful decision making.

Once an organisation acknowledges the benefits of XBRL® and complies with the requirement of CIPC to submit its AFSs in XBRL® format, it will also acknowledge the benefits of, and necessity for, reporting all other non-financial information in the same standardised format. It will acknowledge that, when considering XBRL® in the context of good governance, that all the strategic and operational components will necessarily feature in the organisation’s Corporate Governance Framework® and its reports.

Over time, an organisation should also be able to present interested stakeholders -- including internal stakeholders and those external to the organisation, such as regulators, shareholders and investors -- with a consolidated view of its financial and non-financial information through its Corporate Governance Framework®. The information extracted from the organisation’s governance framework will be commonly understood and analysed in the context of XBRL®. This will address the requirement of the governing body to ensure that there is a shared understanding of the governance structures of the organisation and that standardised, relevant and appropriate information is available to facilitate the management of risk and decision making, and ultimately to grow and sustain organisations of value.

 

 

23 February 2018

SOUTH AFRICA: INTERNAL AUDITORS KEPT ON TOES WITH AMENDED INTERNATIONAL PROFESSIONAL PRACTICES FRAMEWORK

By Terrance M. Booysen (CEO: CGF Research Institute) and reviewed by Dr Claudelle von Eck (CEO: Institute of Internal Auditors, South Africa) New standards, guidelines, codes and laws are being regularly implemented to update and improve the
international regulatory environment in which businesses operate. In many instances, these ‘governance instruments’ are implemented in response to the myriad leadership challenges which are being experienced on a global basis. In spite of the measures being adopted to improve the governance position of organisations, there are still numerous examples in the private and public sector of organisations being caught out in corruption scandals, inaccurate reporting, financial misstatements and similar indiscretions which cause a great deal of instability within business and society, often resulting in the demise of the organisation.

“Changes in today’s business environment and the associated risks are only accelerating. Internal auditing requires commitment and a framework of clearly articulated principles, leading-practice standards, and timely guidance that not only acknowledge but also anticipate these changes.” Institute of Internal Auditors of South Africa (2017)

With disgraced organisations such as KPMG, Mckinsey, SAP, Software AG, Trillian, Eskom and most recently Steinhoff; there is no doubt that boards of directors are in the main, being placed under increasing pressure to thoroughly understand the organisation’s financial and nonfinancial related risks. Moreover, directors must be equipped with the correct knowledge and necessary information to be able to understand the business risks and be able to interrogate and oversee the measures taken to mitigate these risks which have the potential to harm the business. With this in mind, it is hardly surprising that boards will require a more proactive approach toward managing the risks associated with their business, albeit the existing and future potential risks.

Trying to achieve this feat, especially for boards that are dysfunctional or those that operate at a distance from its executive management, is nearly impossible. It is becoming more evident that the role of the Chief Audit Executive (CAE), including members of the internal audit team, will become more critical in making this task easier for boards to achieve.

Strengthening the board’s risk profile and decision-making

Mature boards are realising the value of including the experience of CAEs and internal audit within their risk assessment and mitigation processes. In these organisations the internal audit profession is being leveraged to maximise their risk-based knowledge, experience and skills to benefit the board’s risk-based decision making for the overall sustainability of the organisation.

Given that organisations and their board of directors are expected to comply with due care and the highest of ethical and professional standards, they are duty bound to ensure that the organisation and executive leadership complies with all applicable legislation and regulation, including internal policies, rules, practices and procedures. Indeed, the ambit of this compliance also extends to the additional governance demands placed upon the organisation by its key stakeholders, not least also those of their suppliers. Interestingly, internal auditors -- who are often described as the organisation’s critical friend when dealing with the organisation’s risk management -- have recently witnessed a renewed focus of their own International
Professional Practices Framework (‘IPPF’), published by the Institute of Internal Auditors (‘IIA’).

Stronger emphasis on independence and ethical standards

Amongst other, the IPPF standards seek to enhance the duties of compliance, including the professional care which is applicable to all internal auditors worldwide. The IPPF, and the standards which it promotes, was updated with effect from 01 January 2017, and raises amongst other criteria, the ethical obligations of internal auditors. The IPPF standards require internal auditors to meet the responsibilities expected of them vis-à-vis their internal audit activities, such that these responsibilities are executed in a uniform manner and in the best interests of the organisations which have employed them, either as employees or as insourced contractors.

Core principles set out in the IPPF, as well as its code of ethics, require mandatory conformance from internal auditors. Furthermore, they entail fundamental and evolved principles and expect the values of integrity, competence, confidentiality and objectivity to be exercised by internal auditors, as well as considerations of proactivity in the interests of being future focused and insightful. An area of focus in the IPPF is the requirement of independence, and it is this quality, in particular, which emphasizes a tone similar to many of the recent regulatory developments that focus on ethical businesses and the challenges their leaders face.

“With South Africa being in a perfect storm of political uncertainty, an adverse economic climate, social unrest, credit ratings downgrades and increasing inequality, it is more urgent than ever that the leaders in organisations ensure that good governance principles are adhered to, chief among those is building an ethical culture. This of course means that internal auditors should be more vigilant and ensure that their audit plans are crafted to put the spotlight on the important issues that lead to well governed organisations.” Corporate Governance Index 2017 Institute of Internal Auditors, South Africa

MAFR and NOCLAR

Indeed, where external auditors are concerned, independence has been reiterated in the recent requirement of Mandatory Audit Firm Rotation (‘MAFR’) which requires that an audit firm cannot serve a public interest entity for more than ten (10) consecutive financial years. After such time, the audit firm will only be eligible for reappointment after at least five (5) financial years has lapsed. While auditors are performing the tasks which their daily work requires of them, complying with local and international rules and standards, as well as applicable legislation; they are also required to proactively report irregularities within their professions to the appropriate authorities.

In addition to the Companies Act, 2008 and the Auditing Profession Act, 2005, which set out irregularity reporting requirements, recent ethical requirements and guidance for responding to Non-Compliance with Laws and Regulations (‘NOCLAR’) by members of the accounting profession have also been published. These ethical requirements establish a comprehensive response framework that guide chartered accountants in terms of the factors to consider and the steps to be taken when they become aware of NOCLAR or suspected NOCLAR. The purpose of the NOCLAR guidelines is to promote the principles of integrity and professional behaviour and to alert clients (or employing organisations) of any non-compliance in order for it to be properly and timeously addressed. Clearly, it is in this regard that NOCLAR also has direct relevance and implied consequences for auditors who carry the accounting qualification.

Complete governance and ethical oversight

Since the board holds ultimate accountability to stakeholders for the ethical and effective leadership of an organisation, it needs to have a full and thorough grasp of all of the applicable new standards, guidelines, codes and laws which are published within the local and international regulatory environment and, even more importantly, must know at any given time how their organisation, as well as their service-providers (such as their internal and external auditors) are responding to and complying with them. Directors can be called on by key stakeholders at any point in time to give an account of the manner in which their organisations are being governed. As such, organisations need to be transparent in their business and transparent in their reporting.

But how is this transparency achieved in the complex, fast-paced and globalised business environment, where operational and strategic risks compound the financial, non-financial and regulatory risks which organisations face? Simply put, directors need to be in possession of an overarching view of all the governance components within their organisations, including the extent to which these components are being managed, monitored and controlled. A well-considered and tailored Corporate Governance Framework® will provide this view by giving directors better oversight of -- and insight into -- the organisations that they lead.

Through an integrated risk and opportunity management system such as the Corporate Governance Framework® -- which facilitates transparency and information sharing -- directors will be able to properly identify areas within the organisation that require attention. From here, various risks can be prioritized and then followed by the necessary corrective actions to mitigate the risks and / or even exploit the opportunities arising from the risks, as the case may be.

For example, by using the Corporate Governance Framework®, the board will be able to quickly and accurately determine the extent to which internal auditors have fulfilled their operational and ethical mandates as required by relevant policies, procedures, rules, laws, standards and guidelines, and will be able to keep assessing whether the risk appetite and tolerance levels -- which are set by the board -- are being complied with by the organisation. Any irregularity in reporting requirements will be flagged, and the fact that there is a requirement to report such irregularities will be clear. A Corporate Governance Framework® will give directors, including their internal auditors, a high-level view of the extent to which enterprise-wide risk is addressed, as well as the manner in which organisational policies with respect to internal and external auditing have been complied with.

Combined assurance

In terms of Principle 15 of the King IV Code on Corporate Governance for South Africa, 2016™ (‘King IV™’), “The governing body should ensure that assurance services and functions enable an effective control environment and that these support the integrity of information for internal decision-making and of the organisation’s external reports.” This requires a combined assurance approach to the management of the effectiveness and integrity of internal controls and information used for reporting and decision-making.

“Effective coordination and alignment of a range of assurance providers is essential for a board or supervisory committee to have adequate oversight of the organisation’s governance.” The Institute of Internal Auditors Research Foundation (IIARF)

A Corporate Governance Framework® forms part of the first, third and fifth lines of defence in a combined assurance model. The governance framework can be used to confirm to the board, including internal audit members (amongst other key users), the level of governance assurance associated with each important component of the organisation’s business. Armed with this information, the board will be better positioned to take decisive action to address high, medium or low risk areas of the business.

Such action may include, but is not limited to forensic audits, extended internal audits, and revised operating procedures and policies. Notably, the level of transparency required by the organisation’s key stakeholders is underpinned by the use of a Corporate Governance Framework®. The board of directors, backed by their internal auditors who are also responsible for complying with the IPPF standards, may find additional solace with the insights provided by such a governance framework.

Accordingly, both parties should be in a much better position to provide more accurate, relevant and realistic reports on the governance performance of their organisation, for which they are accountable. Indeed, these proactive measures taken by the board and the internal auditors, will go a long way to addressing some of the core IPPF requirements, namely the importance of the objectivity, independence and accountability of internal auditors. As organisations improve their governance measures, stakeholders can expect to see reduced levels of corporate collapses, fewer ethical failures, including reduced inaccurate reporting and financial instability which are currently so rife in business.

 

21 January 2018

NEW APPOINTMENT: CGF STRENGTHENS ITS HUMAN CAPITAL PORTFOLIO TO BOLSTER ITS GOVERNANCE SERVICES

CGF is delighted to welcome a renowned South African Human Capital specialist, Hannes Janse van Rensburg as the newest member of its team of Lead Consultants. Hannes has a multi-disciplined business background that covers the full spectrum of Human Capital services, Adult Education at tertiary level as well business consulting. Given this invaluable experience which he has acquired over the last four decades, Hannes brings a unique skill set to our team. Hannes holds the following degrees; MBA, MEd (Adult Education - focusing on cognitive development) and was one of the pioneers to be registered with SAQA as a Master Human Resource Professional, through the SABPP (SA Board for People Practices). In addition he holds a diversified portfolio of certificates ranging from labour law, employee relations, health & safety to coaching, including Neuro-Linguistic Programming (NLP).

Post his undergraduate studies, Hannes joined the mining industry where he worked for circa three decades for various national and international organisations, predominantly in the field of human resources. During this period he executed multiple value adding interventions. These included the development, implementation and maintenance of comprehensive Human Resource Management (‘HRM’) strategies for a large mining house. Moreover, Hannes also succeeded in developing, implementing and managing a comprehensive Education, Training and Development (‘ETD’) strategy for a mining company which employed approximately 24,000 employees. This strategy included the establishment of state-of-the art training centers which catered for mining engineering, metallurgy, various engineering disciplines as well as supervisory, management and leadership development.

Hannes did some ground-breaking work in the mining industry, by integrating the HR, Safety and Health and Remuneration functions. During this phase of his career he also facilitated the development, implementation, evaluation and re-alignment of HR within the strategic business plans of the organisation, which was considered revolutionary at the time. He served as trustee of the employee provident fund as well as a board member of the MQA (Mining Seta), representing the platinum industry.

Hannes also formed close business relations with Dr.Edward de Bono, (the “father” of lateral thinking) and the de Bono Foundation. During his tenure as Group ETD Manager for Lonrho Platinum, he trained 1,500 illiterate mine employees in enhancing their cognitive thinking skills (namely their ability to enhance their decision making, problem solving, conflict handling) with great success. Employees were trained to work in teams using the de Bono lateral thinking toolset and post training research was conducted at various levels, including team production performance. Trained teams delivered a 22% productivity increase over a period of approximately six months’ post training. This formal academic research project culminated in Hannes receiving a MEd in Adult Education from Wits University in 2001. The success of his research project at Lonrho resulted in him receiving international acclaim. Hannes then embarked on an international lecture tour with Dr de Bono and its Foundation members, where he co-presented the results of the effective application of the de Bono tools in educating adults in the development of cognitive thinking skills. Hannes also co-represented with Dr de Bono at the World Conference on Thinking in Edmonton Canada, as well as the World Conference on lateral thinking in Malta.

Due to his passion for assisting businesses at all levels of complexity, Hannes formed a successful joint venture with a national human resources consulting company. As MD for the North West province and a significant shareholder, he and his team of consultants were able to consult to multi-industry-based corporate clients. These services included outsourced HRM strategic services, labour law, skills and equity, as well as learning and development services. He also facilitated the alignment of HR and business strategic imperatives. As a direct result of his commitment to best HR practices, Hannes developed a new simplistic and cost effective Job Grading system, which can be directly correlated to other systems such as Paterson, Hay and Castilian. The importance of quality HR systems in a company is essential, and it forms a critical component of an organisation’s group wellness and corporate governance structures. Hannes developed a comprehensive HR audit system which provides a practical action plan to rectify quality and compliance deviations.

The development of the youth in South Africa is a further passion Hannes holds close to his heart, and he believes youth development remains a critical task for creating a sustainable future for South Africa. For the past three years Hannes has been a shareholder and Campus Head of a Higher Education College and Training center. The academy focuses on the development of accounting, business as well as international standards of IT knowledge and skills transfer.

Another area high on Hannes’ agenda is the development of young, aspirant managers and executives. As the future business leaders of South Africa, they need to be equipped to deal with much more than the technical parts of their daily duties. To this end, Hannes has been providing an integral coaching and mentoring service to a blue chip, JSE-listed company and its subsidiaries over the past five years. He strives to assist mentees to move from “excellence” to “significance.”

 

10 July 2017

IMPORTANT STRATEGIC QUESTIONS FOR RECESSIONARY TIMES

By Paul Aucamp and Jene’ Palmer

Is your business equipped to survive the pressures of a rapidly changing business world, which is being exacerbated by the growing uncertainty presented by South Africa’s re-entry into another recession? To ensure the sustainability of the organisation, this critical question needs to be asked of South African boards of directors and senior executives alike.

In today’s difficult economic times, the focus of shareholders has sharpened, raising a key question for the board: how can the organisation satisfy its shareholder’s financial expectations if it does not fundamentally rethink its business? Recessionary times typically prompt a renewed focus on cost reductions which often meets with varying degrees of success. The reality, however, is that shareholders (and indeed all stakeholders) are increasingly realising that “more of the same” strategies is just not going to result in sustainable positive change.

Essentially, new strategic thinking starts with the “fundamental truths” of the business. Surely, a different outcome cannot be expected if the underlying premises on which the business is based are not clinically scrutinised? Instead of only focusing on what costs can be reduced, important strategic questions should be asked when organisations don’t perform financially. These include:

What business are we in? Are we still in the right business?

Is our business model still appropriate? Do we have an integrated value proposition or a portfolio of disparate businesses?

How can we more effectively compete in a market that is contracting? Do we need to reposition the organisation to attract higher margin business?

Who will be our new competitors?

How have we differentiated ourselves as a business in order to compete nationally / internationally?

Do we have the right skills and experience to drive the organisation forward?

Extracting more value from business operations is at the heart of all these questions, and it is imperative to recognise that business improvement and cost reduction initiatives can only take a company so far. Indeed, experience has demonstrated that performance improvement initiatives are often limited by structural constraints, which are the result of antiquated business models.

The creation of a global, connected, ‘always-on’ world, driven by the rapid and constant evolution of technology, has created a business environment in which consumers are far more enlightened than in previous times. The swift progression of the Fourth Industrial Revolution is being characterised by a fusion of technologies resulting in a convergence of the physical, digital and biological spheres. The possibilities for and impact on business processes, the labour market, distribution channels, supply chains and legislation have not yet even begun to be fathomed. Not only do scientific advancements in artificial intelligence, nanotechnology, biometrics, the Internet of Things -- to name but a few examples -- present opportunities for improving efficiencies and productivity, they are also presenting fundamentally different ways of doing business. Consumer expectations are changing and product development and delivery mechanisms will need to keep pace. A strong emphasis on innovation and collaboration is required and organisational structures will no doubt need to adapt to this new business environment.

In a world where consumers have unlimited choices of tailored and enhanced products and services on unlimited virtual shelf spaces, differentiating a business has become increasingly difficult. The same approach that proved successful in the world of standardised products and limited choices is no longer viable, and clinging to these outmoded strategies leads to a downward spiral in profitability and ultimately sustainability. If you cannot adequately satisfy the needs of the consumer, it is highly likely that they will take their business elsewhere.

Companies should not measure their success or sustainability by the number of years they have existed, but instead by their ability to adapt to market dynamics and continuously create stakeholder value.

“As early as 1848, the revolutionary socialists Karl Marx and Friedrich Engels wrote in the Communist Manifesto that the "constant revolutionizing of production, uninterrupted disturbance of all social conditions, everlasting uncertainty and agitation" distinguished the current time from earlier periods (Marx/Engels, 1969). Underestimating this uncertainty can be hazardous. At worst, it leads to strategies that are unable to protect the company against threats. At best, it leads to strategies that ignore the potential opportunities inherent in uncertainty.”

Source: The challenges of strategic management in the twenty-first century

A turbulent economy, fluctuating exchange rates, political, social and legislative pressures can cripple cash flow, making corrective action difficult when things go wrong. In addition, legacy business structures, systems and management strategies often result in poor information gathering and a reactive approach to change. To remain relevant in the era of the Fourth Industrial Revolution, information represents power. Some organisations are already gaining a distinct competitive advantage by sharing, tracking and using consumer consumption and personal information to inform product development and marketing initiatives amongst other opportunities.

The speed of innovation is also impacting on workforce requirements. Not only is automation and digitisation displacing jobs, but there is an increasing requirement for highly skilled labour to work on converged technology platforms.

An amalgamation of the demand and supply side of the value chain is forcing business to question who their new competitors will be in this disruptive technological world. Whereas historically, collaboration may have been perceived to be a sign of weakness, the new order dictates that boards and investors seek opportunities to work together in order to unlock value.

Given the multiple challenges facing organisations today, and considering the fact that business variables change rapidly and constantly, a robust strategy alone is not sufficient to ensure success. Every member ofthe organisation needs to be motivated, persuaded and managed into sharing the same vision - this requires strong and consistent strategic leadership. As such, board composition and the skills and experience of the senior management team must also be re-evaluated to ensure that the right leaders are in place to lead the organisation to sustainable growth.

Whether an organisation is gearing itself for growth, or battling for survival; strategic leadership is essential in developing the agility and sound decision-making capability which is required to build and maintain a competitive edge.

 

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

 

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 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.

 

 

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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.

 

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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.