Corporate governance-200712

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Corporate governance-200712

  1. 1. An Introduction toCorporate Governance Below Board Level 2012/07/20 © Compliance Cubed 2012 1
  2. 2. WHAT IS GOVERNANCE ?Refers to the way in which something is governed…………. meaning “Directed and Controlled”Example – a country - powers shared are between the legislative assembly the executive government the judiciaryto meet objectives such as protecting it’s people, andacting in the country’s best interestsWeak governance in a country will result in a struggleto attract foreign investment 2012/07/20 © Compliance Cubed 2012 2
  3. 3. CORPORATE GOVERNANCE …Definition : “Good corporate governance isessentially about effective leadershipcharacterised by the ethical values ofresponsibility, accountability, fairness and transparency” 2012/07/20 © Compliance Cubed 2012 3
  4. 4. THE MAIN DECISION ………….. 2012/07/20 © Compliance Cubed 2012 4
  5. 5. WHAT IS CORPORATE GOVERNANCE NOT ?Corporate Governance is : NOT the day-to-day management of the business operations NOT concerned with formulating business strategy, although the board is expected to take strategic decisionsManagement = running the companyGovernance = seeing that it is run properly 2012/07/20 © Compliance Cubed 2012 5
  6. 6. WHY IS CORPORATE GOVERNANCE IMPORTANT ?Effective corporate governance makes goodbusiness sense !1. Investment2. Sustainable growth3. Business risk4. Human talent 2012/07/20 © Compliance Cubed 2012 6
  7. 7. WHO ARE THE ROLE PLAYERS AND STAKEHOLDERS ?ShareholdersBoard of Directors ***ManagementEmployeesFinancial lenders and creditorsCustomersGeneral public 2012/07/20 © Compliance Cubed 2012 7
  8. 8. CHALLENGE OF GOOD CORPORATE GOVERNANCETo find a way to govern the company in which the interests of the Shareholders Directors Other stakeholders are all be sufficiently satisfied.This can be achieved by ensuring a balance of power 2012/07/20 © Compliance Cubed 2012 8
  9. 9. WHO ARE THE BOARD OF DIRECTORS ?Board of Directors consists of : Chairman Executive directors Non-executive directors Independent non-executive directors Chief Executive Officer 2012/07/20 © Compliance Cubed 2012 9
  10. 10. CHOOSING THE RIGHT DIRECTORSMust have : Strategic focus Financial savvy Understanding of the fiduciary role and responsibilities Effective communication skills They must all deserve one of these !! Judgement and leadership ability General management experience Knowledge of the company and industry Basic understanding of the macro-economic, legal and regulatory environment Team orientation 2012/07/20 © Compliance Cubed 2012 10
  11. 11. WHO ARE THE SHAREHOLDERS ?**** Individual, company and institutional investors 2012/07/20 © Compliance Cubed 2012 11
  12. 12. CORPORATE GOVERNANCE ENSURES :Regulation of the exercise of powerDevelopment of practices which make and keepthe company accountable to it’s stakeholdersCreation and monitoring of appropriate checksand balancesIdentification of risks which are then eithermanaged, mitigated or eliminatedCompliance with law and regulations 2012/07/20 © Compliance Cubed 2012 12
  13. 13. AT HEART OF DEBATE ABOUT CORPORATE GOVERNANCEConflicts of Interest …….. (or potential ones)Can arise between Shareholders and Board ofDirectors (or individual directors) Shareholder interests – lie in the long-term Directors interests – lie in short-term “Principal – Agent” problem 2012/07/20 © Compliance Cubed 2012 13
  14. 14. CONCEPTS IN CORPORATE GOVERNANCEThese concepts apply to corporate governance in allcountries where international investors invest theirmoney :1. Openness, honesty and transparency2. Independence3. Accountability4. Responsibility5. Reputation and reputational risk6. Social responsibility 2012/07/20 © Compliance Cubed 2012 14
  15. 15. BHOPAL – UNION CARBIDE 2012/07/20 © Compliance Cubed 2012 15
  16. 16. THE 3 CORPORATE SINS1. Sloth2. Greed3. Fear3 2012/07/20 © Compliance Cubed 2012 16
  17. 17. AREAS WHERE CONFLICTS OF INTEREST MIGHT BECOME APPARENT1. Financial reporting and auditing2. Directors’ Remuneration3. Company – Stakeholder relations4. Risk-taking5. Effective communication (between directors & shareholders) 2012/07/20 © Compliance Cubed 2012 17
  18. 18. FINANCIAL REPORTING AND AUDITING 2012/07/20 © Compliance Cubed 2012 18
  19. 19. DIRECTORS’ REMUNERATION 2012/07/20 © Compliance Cubed 2012 19
  20. 20. COMPANY – STAKEHOLDER RELATIONS 2012/07/20 © Compliance Cubed 2012 20
  21. 21. RISK-TAKING 2012/07/20 © Compliance Cubed 2012 21
  22. 22. EFFECTIVE COMMUNICATION 2012/07/20 © Compliance Cubed 2012 22
  23. 23. CONTEXT IN WHICH COMPANIES ARE GOVERNEDCorporate governance is to be considered against the background of a countrys broader legal contextLegislationRegulationsListings requirementsCodes of best practice 2012/07/20 © Compliance Cubed 2012 23
  24. 24. APPLICABLE LEGISLATION IN SA Various laws within SA govern the way that companies deal with it’s stakeholders.Common LawLegal precedentExisting laws 2012/07/20 © Compliance Cubed 2012 24
  25. 25. HISTORY AND DEVELOPMENT : South AfricaMASTERBOND 2012/07/20 © Compliance Cubed 2012 25
  26. 26. HISTORY AND DEVELOPMENT : InternationalSPLAT !!! 2012/07/20 © Compliance Cubed 2012 26
  27. 27. VOLUNTARY OR STATUTORY COMPLIANCE ? Judge Mervyn King (Chairman of the King Committee)Voluntary ……… King III 2009 (RSA)“Apply or explain”Statutory …… Sarbanes-Oxley Act 2002 (USA)“Comply or else !!” 2012/07/20 © Compliance Cubed 2012 27
  28. 28. FORMAT OF KING III King III had broadened scope of corporate governance in South Africa.“The philosophy of the Report revolvesaround leadership, sustainability and corporate citizenship” Mervyn King King III is principles-based with no “one-size-fits-all” approach 2012/07/20 © Compliance Cubed 2012 28
  29. 29. THE COMPANY SECRETARYDescribed as one of the mostunderestimated of all governanceroles.Secretary comes from Latin word“secretarius” meaning a person towhom a secret is entrusted.Must zealously guard their independence, andadvise the board on any action proposed if it is unlawful or contrary to the Memorandum Of Incorporation 2012/07/20 © Compliance Cubed 2012 29
  30. 30. CONTENT OF KING IIIThe Report and the Code are collectivelyknown as “King III” 9 Chapters 75 Governance Principles 298 recommended practices 579 points in form of detailed advice 2012/07/20 © Compliance Cubed 2012 30
  31. 31. CHAPTER 1 ETHICAL LEADERSHIP AND CORPORATE CITIZENSHIP“Responsible corporate citizenship implies an ethical relationship between the company and the society in which it operates.” 2012/07/20 © Compliance Cubed 2012 31
  32. 32. CHAPTER 2 BOARDS & DIRECTORS “Companies should be headed by a board thatshould direct, govern and be in effective control of the company”. 2012/07/20 © Compliance Cubed 2012 32
  33. 33. CHAPTER 3 AUDIT COMMITTEES“An independent audit committee fulfils a vital role in corporate governance. The audit committee is vital to, among other things, ensuring the integrity of integrated reporting and internal financial controls and identify and manage financial risks.” 2012/07/20 © Compliance Cubed 2012 33
  34. 34. CHAPTER 4 THE GOVERNANCE OF RISK“The board should exercise leadership to prevent risk management from becoming a series of activities that are detached from the realities of the company’s business.” 2012/07/20 © Compliance Cubed 2012 34
  35. 35. RISK MANAGEMENTThe Board is responsible for the total processof risk …Management is responsible to the Board forrisk management processes in respect of Designing Implementing Monitoring 2012/07/20 © Compliance Cubed 2012 35
  36. 36. CHAPTER 5 THE GOVERNANCE OF INFORMATION TECHNOLOGY “IT cuts across all aspects, components andprocesses in business and is therefore not only an operational enabler for a company, but an important strategic asset which can be leveraged to create opportunities and to gain competitive advantage.” 2012/07/20 © Compliance Cubed 2012 36
  37. 37. CHAPTER 6 COMPLIANCE WITH LAWS, RULES, CODES AND STANDARDS“The board is responsible for the company’s compliance with applicable laws and with those non-binding rules, codes and standards with which the company has elected to comply.” 2012/07/20 © Compliance Cubed 2012 37
  38. 38. CHAPTER 7 INTERNAL AUDIT“The King III risk-based approach directs internal audit to address strategic, operational, financial and sustainability issues in its quest to deliver value to the organisation.” 2012/07/20 © Compliance Cubed 2012 38
  39. 39. CHAPTER 8GOVERNING STAKEHOLDER RELATIONSHIPS“Stakeholder relationships provide a platform forthe board to take into account the concerns and objectives of the company’s stakeholders in its decision making, which is fundamental to the process of integrated reporting” 2012/07/20 © Compliance Cubed 2012 39
  40. 40. CHAPTER 9INTEGRATED REPORTING AND DISCLOSURE “Reporting should be integrated across all areasof performance, reflecting the choices made in the strategic decisions adopted by the board, and should include reporting in the triple context of economic, social and environmental issues.” 2012/07/20 © Compliance Cubed 2012 40
  41. 41. CORE ETHICAL PRINCIPLESDesign and maintain a Code of Ethics basedon Fairness Transparency Honesty Non-discrimination Accountability and responsibility Respect for human dignity, human rights and social justice 2012/07/20 © Compliance Cubed 2012 41
  42. 42. APPLICATION OF CODE OF ETHICSAcceptable/unacceptable practiceGuide policyEncourage ethical behaviourGuide difficult decision-makingIdentify ethical infringementsPromote awarenessResolve conflictsSpecify company’s social responsibilityRelations with stakeholdersEnhance ethical reputation of company 2012/07/20 © Compliance Cubed 2012 42
  43. 43. PRACTICAL IMPLEMENTATION Ensure the right people are in charge Have a long term development plan Aim to implement simple and robust solutions Appreciate that issues of governance are fundamentally linked to issues ofo strategy developmento risk managemento ethicso corporate citizenship and sustainability3 2012/07/20 © Compliance Cubed 2012 43
  44. 44. PRACTICAL IMPLEMENTATION … continued Do not reinvent the wheel – draw on experience of other companies Apply the 80/20 Rule Ensure that governance programmes have the active backing of the board and top management Market the corporate governance and sustainability concepts Be flexible Take bold steps – learn to live with the frustrations !3 2012/07/20 © Compliance Cubed 2012 44
  45. 45. MANAGERS & EMPLOYEESRole within the organisation :• Be equipped with the knowledge values and skills to interpret the importance of sound Corporate Governance• Contribute to the business through an increased awareness of it’s importance and link to corporate citizenship• Develop responsible business practices that lead to environmental, economical and social sustainability• Lead by example ! 2012/07/20 © Compliance Cubed 2012 45
  46. 46. MANAGERS & EMPLOYEESContribution :• Find out what the leaders of the company are thinking• Ask for what you need - CG Policy, Code of Ethics• Understand what the rules are and implement them within your teams - then monitor and report• Collaborate with others• Ask for feedback from the Board 2012/07/20 © Compliance Cubed 2012 46
  47. 47. WHISTLEBLOWING…… is when an employee providesinformation about his/her company whichhe/she reasonably provides evidence of : A violation of a law or regulation A miscarriage of justice Financial mismanagement A danger to public health and safetyWhistle-blowers are protected by the SAProtected Disclosures Act 2000 2012/07/20 © Compliance Cubed 2012 47
  48. 48. 2012/07/20 © Compliance Cubed 2012 48
  49. 49. BIBLIOGRAPHYCorporate Governance in Southern Africa (Course material for the CIS International Qualifying Board Exam)Corporate Governance – An Essential Guidefor South African Companies (2nd edition) By Ramani NaidooExecutive Guide to King III (PWC)www.cartoonstock.com 2012/07/20 © Compliance Cubed 2012 49
  50. 50. QUESTIONS …… 2012/07/20 © Compliance Cubed 2012 50
  51. 51. Thank you ! 2012/07/20 © Compliance Cubed 2012 51

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