Transcript Understanding Governance

Leadership Seminar
Brief introduction: Governance, Risk & Compliance from
a business perspective
presented to
07 October 2010
Leriba Lodge
CGF Research Institute (Pty) Ltd
Reg. No. 2004/000744/07
+ 27 11 476 8264 / 1 / 0
+ 27 82 373 2249
[email protected]
www.cgf.co.za
www.corporate-governance.co.za
Preamble
• The role of ethics in public life is changing in all 4 sectors of democratic society
 public sector
 private sector
 non governmental sector
 large social institutions & government
“Good governance is essentially about effective leadership.
Leaders need to rise to these challenges if there is to be any chance of effective responses. Leaders
need to define strategy, provide direction and establish the ethics and values that will influence and
guide practices and behaviour
with regard to sustainability performance”.
King III
What is corporate governance?
• Corporate governance can be described as:
 “the system by which companies are directed &
controlled”
• Good corporate governance is about:
 'intellectual honesty’ – effective leadership
 not just sticking to rules & regulations
Judge Mervyn King
. . . shareholder expectations vs. management . . .
. . . some believe it’s about relinquishing control . . .
International agencies are advocating more effective
corporate governance (OECD, World Bank, IMF, EU, CACG)
Shifting dimensions
Shareholder focus
Stakeholder focus
Private sector focus
Public sector focus
“One size fits all”
“One value set fits all”
Source: Bob Garret
(OECD) Organisation for Economic Co-operation & Development
(CACG) Commonwealth Association of Corporate Governance
. . . it should not be a case of over regulation & over
prescription . . .
. . . but balancing the related concepts . . .
Good corporate citizenship
(ethical company)
Shareholder protection
(Before)
serving their interests
Stakeholder protection
(After)
Sustainability
Triple bottom line
(longevity)
(performance
& reporting)
. . . some differences at a glance
King II
King III
Comply or explain
Apply or explain
Separate reporting of 3BL
None
None
No written assessment
Not deemed
Report to & appointed by the board
None
Integrated reporting of 3BL
Shareholder remuneration policy
Recommendations on remuneration
Internal audit - risk based
Sub-committees deemed directors
Audit committee
Lead independent director
None
None (passive)
None (save relationships)
IT governance
Use of the words “must” & “should”
Alternative Dispute Resolution
None
Interwoven & not strongly emphasised
Assessment of internal controls
Ethics stand alone chapter
Interwoven & not strongly emphasised
None (only King I)
(Theme-imperative for 21st century)
Mandatory for companies listed on the JSE
Risk governance & management
Stakeholder relationships
Responsible corporate citizen
Applicable to all companies
Source: Mervyn King
. . . it’s not about curbing entrepreneurship, but rather curbing
rogue directors & management . . .
The sobering thought of running a company from a fiduciary officer’s perspective
Directors: Standards of conduct
•
As a director or as a sub-committee member when gathering information or
preparing to act as such, you have:
FIRST FIDUCIARY RESPONSIBILITY
1. Duty to exercise the degree of care, skill & diligence:
 exercised by a reasonably diligent individual
 reasonably be expected of an individual
 the knowledge, skill & supervision of that director
 objectivity must prevail & consider all the facts at hand
 decisions must be rational
The sobering thought of running a company from a fiduciary officer’s perspective
Directors: Standards of conduct
•
As a director or as a sub-committee member when gathering information or preparing
to act as such, you have:
SECOND FIDUCIARY RESPONSIBILITY
•
Duty to “act honestly & in good faith & in a manner the director reasonably believes to
be in the best interests of & for the benefit of the company”
Similar to the US, our laws are moving company officers
toward more litigious liability in our personal capacities
Personal liability
• Increasingly, company officers will find it more & more difficult to hide behind their
companies when they do something wrong
• Personal liability
 Name: Bernard Madoff
 DOB: April 29, 1938 (age 71)
 Previous occupation: Former stock broker, financial
adviser & chairman of NASDAQ
Federal inmate #
61727-054
 Charges: Securities fraud, investment advisor fraud,
mail fraud, wire fraud, money laundering, false
statements, perjury, false filings with the SEC, theft
from employee benefit plan
 Penalty: 150 years imprisonment & forfeiture of $170
billion
 Scheduled date of release: 11-14-2139 (age 201)
Understanding the “G” with GRC . . .
1. “At its most basic level, corporate governance is the interaction of a
company’s management, its board directors, and its shareholders to direct
and control the firm, and to ensure that all financial stakeholders
(shareholders and creditors) receive their fair share of the company’s
earnings and assets.”
Extract: Governance and Risk: George Dallas (Standard & Poor’s)
2. “Governance is the result of those processes implemented by the
organisation which contributes towards providing assurance to stakeholders
that organisational capabilities & resources (time, effort, assets &
money) are applied in such a manner that objectives are achieved
effectively & efficiently in an agreed ethical environment, with careful
consideration of the social, economical & environmental implications.”
Dr CL Pieterse 2006
Understanding the “R” with GRC . . .
1. “Risk management . . .
• is a continuous process, which should be linked to shareholder value
and embedded in the organisation. Assurance should be provided as
to the effectiveness of its operation and the validity of the findings of
risk management reporting . . .
• should be reviewed and updated regularly . . .
• covers all risks - operational, physical, human resources,
technology, business continuity, credit, etcetera . . .”
Extract: The Company Director’s Handbook
2. “As business is the undertaking of risk for reward, the identification
of risk in a business is essential. Risks take various forms; namely,
strategic, operational, financial, non-financial and compliance.”
Extract: The Corporate Citizen
Understanding the “C” with GRC . . .
1. Compliance means complying with laws and regulations, policy, practice
codes, standards & business contracts relevant to the business . . .
Extract: The Corporate Citizen (Adapted)
2. Compliance generally implies the organization's adherence to:
• internal rules (e.g. restrictions, guidelines, standards & policies)
• external regulations (e.g. King II, ECT Act, SOX)
3. The board must have adequate reports (quantitative / qualitative) that
informs the company’s compliance with regard to all laws and
regulations relevant to the business of the company
4. The Audit Committee provides assurance in terms of inter alia; the
company’s financial reporting as well as compliance with the current
regulatory environment; legal & statutory
Combining the GRC to make business sense
(value creation)
G
R
interaction of a company’s
management
a continuous process
embedded in the
organisation
all financial stakeholders
assurance should be
provided
effectiveness of its operation
receive their fair share of the
company’s earnings and
assets
contributes towards
providing assurance
objectives are achieved
effectively & efficiently in
an agreed ethical
environment
careful consideration of the
social, economical &
environmental
implications
complying with laws &
regulations, policy,
practice codes, standards
& contracts
linked to shareholder value
direct and control the firm
result of those processes
implemented
C
+
validity
reviewed & updated regularly
all risks - operational,
physical, human
resources, technology,
business continuity,
credit, etcetera
adequate reports
+
relevant to the business of
the company
provides assurance
compliance with the current
regulatory environment;
legal & statutory
identification of risk in a
business is essential,
namely strategic,
operational, financial,
non-financial &
compliance
Conformance = compliance with conventions, rules, or laws
Key SADC downgrades - 2009
• Zimbabwe (8 icons)
• Congo DRC (7 icons)
Before you take the plunge, ensure that all the belts & braces
are in the correct place . . .
Thank you
Terry Booysen
CGF Research Institute (Pty) Ltd
+ 27 82 373 2249
+ 27 11 476 8264 / 1 0
[email protected]
www.cgf.co.za
www.corporate-governance.co.za