Transcript None - IMFO
www.pwc.co.za Ethical Leadership IMFO Inaugural Women in Local Government Finance in Partnership with PwC 07 February 2013 Shirley Machaba – PwC National Internal Audit leader, Chairperson -PwC SA board, Africa board member and IIA SA President Contents Introduction Ethical Leadership Role of Internal Audit Conclusion Questions PwC 07 February 2013 2 Introduction King III launch and Companies Act • King III released 1 September 2009 • King II report updated for - Changes to the Companies Act - Changes in international governance trends • Remains principles based • Cautions against general legislative corporate governance reform to address current credit crisis • Effective from 1 March 2010 • Available on the IoD’s website www.iodsa.co.za • Companies Act – effective 1 May 2011 PwC 07 February 2013 3 Big Tickets from King III • Integrated Reporting - Assurance over the final report • Sustainability - Content assurance - The role of Internal Audit? • Combined assurance - Integrating assurance • Strategically focussed Internal Audit - A Transformed Approach • Informing the Audit Committee - Creating better relationships PwC • Internal Financial Control - Design and implementation - Testing and maintenance - Internal audit’s assessment statement • Governance of Risk - Correlation of Risk Appetite and Risk Tolerance - Resilience - Fraud risk • IT Governance - Knowing this space 07 February 2013 4 Balance scorecard of an effective audit committee The company yesterday • The primacy of the shareholders • Wealthy families • Single focus and bottom line • Financial reporting – rear view mirror • Prepare as if only user is the investment analyst PwC 07 February 2013 5 Balance scorecard of an effective audit committee The company today • New capitalists • Stakeholders – inclusive – CSRO’s • Moat of shareholders • Not in a vacuum – a triple context • What are the specifics? PwC 07 February 2013 6 Balance scorecard of an effective audit committee The changed world • Global financial crises • Climate change crisis • Ecological overshoot • Evolutionary transparency • Greater expectations from stakeholders • Population growth • Flat borderless electronic world • Declining polluted natural assets • General awareness that our planet is in crisis • 1.2 planets now and another 2 billion by 2045 • Cannot carry on business as usual PwC 07 February 2013 7 Balance scorecard of an effective audit committee The changed world cont... Have to learn to make more with less If world changed reporting must too PwC 07 February 2013 8 Ethical Leadership and Corporate Citizenship Council should provide effective leadership based on ethical foundation The Council/ethical leadership should: • Do business ethically and build sustainable businesses • Take account of municipality’s impact on stakeholders • Ensure that all deliberations, decisions and actions are based on four values underpinning good governance: - Responsibility, Accountability, Fairness, Transparency Responsible leadership, the Council responsibilities and ethical foundation PwC 07 February 2013 9 Ethical Leadership and Corporate Citizenship Council should: • Consider impact on municipality’s operations on society and environment • Ensure collaborative efforts with stakeholders promote ethical conduct and good corporate citizenship • Ensure measureable programmes are implemented • Ensure policies are developed Council should ensure responsible corporate citizenship PwC 07 February 2013 10 Ethical Leadership and Corporate Citizenship • Adherence to ethical standards is measured • Internal and external ethics performance is aligned around the same ethical standards • Ethical risk and opportunities are incorporated in risk management process • A code of conduct and ethics related policies are implemented • The municipality’s ethics performance should be assessed, monitored and disclosed Ethics, risk and opportunity profile PwC 07 February 2013 11 Leadership • What is leadership challenge of 21st century? • Intergrating sustainability, strategy and decision making • Intergrating performance and reporting • This requires qualitative governance • It is in this context that board committees can play a role Corporate Governance - King III PwC Slide 12 Inseparable • Good governance including values and ethics • Strategy • Sustainability • Governance, strategy and sustainability have • become inseparable • Responsible investment – stewardship codes • Integrated reporting PwC 07 February 2013 13 Chapter 9 Integrated reporting • Integrated report should be prepared annually • Organisations to dedicate time and resources • Financial and non-financial information • Integrated reporting should be balanced between positive aspects and challenges facing the business • Integrated report should also provide forward-looking information • Integrated report should contain a board statement on the effectiveness of the organisation’s internal financial controls • Board may delegate responsibility for, and review of the sustainability information to either the risk committee, sustainability committee or audit committee Corporate Governance - King III PwC Slide 14 Integrated reporting cont... An integrated report is not simply an extract from the traditional annual report or a combination of the annual financial statements and the sustainability report. Such an approach would run the risk of simply providing data that does not empower stakeholders to gain a complete and informed understanding of the longterm viability of an organisation and its ability to create and sustain value. (IRCSA) PwC 07 February 2013 15 Sources of Ethical Norms • Religious values • Philosophical values • Cultural values • Legal values • Professional values SAICA, IRBA, IIA – Codes of Professional Conduct Integrity, Objectivity, Confidentiality, Professional Competence & Due Care PwC 07 February 2013 16 Chapter 8 What should the scorecard tell us? • Corporate Scandals – where was the board • Executive greed • Passive stakeholders • Over regulation and many rules to comply with • Claims against Directors – increasing • Audit failures? (or out of court settlements? ) • Increasing demands on Directors in the new Act Regulators are very busy King III PwC Slide 17 What should we correct? • Poor ethics • Lack of independent thought • Lack of leadership • Lack of courage • No measureable strategic objectives • Lack of timely information • No accountability • No responsibility • No fairness • No transparency PwC 07 February 2013 18 Social and Ethics Committee including Sustainability – Background • The new Company Act requirement • The introduction of the committee emphasises companies significant social impact on societies they operate in • They thus have to be responsible corporate citizens – King III • Companies Act no 71 of 2008 became effective 1 May 2011 • Sought to modernise and “simplify” company law • Section 72(4) and Regulation 43(2) requires a Social and Ethics Committee for applicable companies • Reasons – Stakeholder governance model in SA (not just about shareholders – King III) PwC 07 February 2013 19 Social and Ethics Committee – Composition • Comprise not less than 3 directors or prescribed officers • At least one director not involved in operations of company and not involved in previous 3 financial years • Prescribed officer – Reg 38- not a director, but a person who exercise general executive control • Regularly participates to a material degree in exercise of general executive control PwC 07 February 2013 20 Duties of Social & Ethics Committees – (Reg 43) • SOC, listed company or other company • With PIS greater than 500 for any 2 of past 5 years • Unless subsidiary or exempted by Tribunal • Appoint within 12 months from effective date (30/04/12) • Monitor activities re-legislation/legal/codes • Draw matters within its mandate to the attention of the board • Report to shareholders/stakeholders at AGM on matters within its mandate –AGM dynamics PwC 07 February 2013 21 Chapter 8 Duties of Social & Ethics committee (cont) • Monitor organisation’s activities re Social and economic development • Good corporate citizenship includes promotion of equality, reduction of corruption, contribution to development of communities, records of sponsorships, donations and charitable givings • Environmental health and public safety including impact of its products and services • Consumer relationship • Labour and employment • Current practices on S & E committee King III PwC Slide 22 Social and Ethics Committee – Roadmap • Social and Ethics Charter (ToR) • Composition • Work plan • Agendas • Create S&E framework (Stakeholders, Acts, Codes, Reporting (Board and AGM) • Identify information needs • Identify information/assurance providers • Agree coordination within governance framework and structure (liaison with committees etc) PwC 21 September 2012 23 Social and Ethics Committee – Roadmap cont... Execute and Report • Consider Ethics assurance and Whistle-blower info (from Audit Committee) • Consider Compliance Function effectiveness (CISA standards) • Use compliance monitoring reports • Work within Combined Assurance framework (Risk and Control assurance is coordinated) • Advise board • Report in integrated report • Report at AGM PwC 07 February 2013 24 Managing the interface – various board committees • It is useful to have at least one common member – for example between Audit, Risk and Social & Ethics due to “perceived overlaps • Similar issues may be discussed but the different focus must be understood • Can also have joint sessions/briefings and circulation of minutes/summaries to other committees • Board should be the ultimate integration point PwC 07 February 2013 25 The role of Internal Audit in Integrated Reporting including ethics • Update the IA/AC charter, mission, statement, clarifying IA’s scope • Understand and assess the alignment of the organisation’s sustainability, ethics strategy to business strategy • Determine if management has properly identified sustainability and ethical risks • Review the stakeholder engagement process, assess the adequacy thereof and identify areas for improvement • Assess the adequacy of measures taken to help ensure regulatory compliance with sustainability and ethical standards, guidelines, framework • Provide assurance on sustainability and ethical disclosures PwC 07 February 2013 26 Managing the interface The role of Internal Audit in Integrated Reporting including ethics cont... • Report on sustainability progress, performance and issues in a language familiar to board and audit committee • Perform sustainability and ethics readiness audits • Assess the adequacy and effectiveness of business practice and identify enhancement opportunities • Provide consultative services to management by identifying key trends and opportunities to create or protect value/revenue - Green building - Alignment of brand positioning with marketing strategy - Anticipate the next big issue • Identify leading regulatory changes and verify processes that are in place to monitor and effectively communicate changes PwC 07 February 2013 27 Conclusion Conclusion • Tell your stakeholders what you do, do what you tell them and write it down in an integrated report • Decades of stupidity – 2000 – 2010 • Decades of change – 2010 – 2020 • Leadership – moving away from ticking the box Companies cannot solve 21st century problems with the same mindset their boards used when they created them • We cannot solve 21st century corporate challenges with 20th century decision making or reporting • Developing the ideal assurance strategy is a journey for many • The critical success factor is to ensure a proper understanding of the fundamental role of all stakeholders in ethical leadership and responsible corporate citizenship PwC 07 February 2013 28 “Those at the top can emphasise the importance of business ethics by walking the talk, implementing policies that encourage ethical behaviour and monitoring organisation effectiveness…” Source: Institute of Internal Auditors: Tone at the Top – December 2012/January 2013 PwC 07 February 2013 29 Questions This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. 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