Articles & Editorials from the CGF desk
Procurement fraud: The bitter truth (27 Jan '12)
Article issued by CGF Research Institute and Werksmans (Incorporating Jan S. de Villiers)
In many countries, government and large businesses is dependant upon suppliers and contractors to provide various services and products, as a critical support to their operations. Having a reliable and robust procurement system is therefore not only paramount for the organisation’s good governance measures and smooth functioning of their internal operations, but indeed it is also the very ‘food-chain’ upon which many external businesses may depend upon for their own survival.
Needless to say, staying in a larger business’ or government’s procurement supply chain can become -- certainly for most smaller companies -- a matter of either making ends meet, or not, as the case may be. Clearly then, one assumes that those who remain in the corporate’s supply chain, are those who are legitimately providing good services and or products? Moreover that the delivery and pricing of these services and products are above board, where the rules of engagement are fairly and transparently applied amongst all those who operate in the corporate’s supply chain.
What would happen if the supplier was in cahoots with an insider of the corporate, and both parties could benefit by the same supplier who frequently wins the bids, by manipulating the procurement system and or its information? The response is quite obvious; the same supplier is then unfairly enriched, whilst someone on the inside -- who tweaked the system or undermined the information -- scores another secretive kickback from the devious supplier. Of course, the other suppliers are left in the cold.
Whilst there are varying opinions to the annual growth rate of an organisation’s procurement spend, according to the Association of Certified Fraud Examiners (ACFE), a typical organisation may lose up to 6% of its annual revenue to occupational fraud, and much of this is directly related to procurement fraud. As the statistics relating to procurement fraud in South Africa are somewhat vague, there is little consolation for our local companies and their stakeholders especially when one considers that ACFE reported that corporate America had lost a whopping $600bn in 20041 due to fraud.
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Isn't this just more red-tape? (07 Dec '11)
Article by iS Partners and CGF Research Institute (Pty) Ltd
The recent phone hacking and banking scandals in Europe have again illustrated the importance of corporate governance; showcasing the manner in which organisations can incur irreparable damage to their reputation when they do not pay correct attention to their governance practices.
However, there are other aspects to consider when formulating an organisation’s Corporate Governance Framework® and its desired practices, and these components must be incorporated within the core of an organisation’s strategy to ensure they are consistently applied, monitored and measured.
Corporate governance constitutes amongst other, policies, procedures and guidelines; each of which fulfil the relevant measures to ensure that the appropriate people within an organisation are equipped to understand their respective roles and responsibilities. One of the principle objectives is to ensure the organisation is directed and controlled in such a manner that it meets with the general approval of the organisation’s shareholders, as well as its stakeholders, whilst staying abreast of the law and accepted business practices. Corporate governance is also about discipline. Applied correctly, those employees who are in leadership positions -- all be they at various levels -- will be in a far better position to regulate their decision making with the mandate to do so. One of the aims of applying good governance within an organisation is to ensure a safe and organised operation which empowers employees to make carefully considered decisions, thereby eliminating, amongst other, poor business practices which cause unnecessary or harmful damage to the organisation and its stakeholders.
Whilst this is not an exhaustive list, here are six reasons to understand why sound governance and its practices are important in your organisation . . .
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Staying ahead of change; Building and protecting future value (09 Nov '11)
Article by CGF Research Institute
Throughout the history of mankind, much has been said and written about change. Notably the Greek philosopher, Herakleitos (C.535BC - 475BC) of Ephesus, is known to have been the earliest person to have pondered the implications of change; and others who followed his thinking, eventually coined the more modernised quote to suggest that, “the only constant in life, is change.”
Centuries later, Abraham Lincoln, who served as the President of the United States of America from 1861 until his ssassination in 1865, certainly understood change. Lincoln said that he had grown to become a smarter person through change, and this was evident as he promoted economic and financial modernisation and ended slavery.
Since these early-day pioneers -- and advocates of change -- the technological and socio-economic advances made by man have increased in epic proportions, and there is still no end in sight as we forge ahead. Our modern world continues to place more and greater demands for, and upon this word called change. One must assume that this is done in order to remain relevant within an intricately woven, and fiercely competitive global economy. The fact that we are constantly driving for change, and that it has become so important to us, suggests that we also place incredible value to such change.
Even Gordon Moore, the co-founder of Intel® realised the need for staying ahead of technological change, and he did this to build future value for his organisation. His predictions in 1965 stated clearly that the number of transistors on a semiconductor chip would double about every two years. Indeed Moore’s technological (and economic) predictions for Intel® were exceeded. Moore and his partners -- Robert Noyce and Andrew Grove -- foresaw value in their microchip which they had developed, knowing the massive effect this device would have upon billions of people around the world, both then and in the future. As is often the case, most people would have, for example, missed the Intel® opportunity; and probably for many reasons. One reason may have been that the ordinary (or unsuspecting) person would not have had the vision to realise the future value of this small device, and would not have acted upon their gut feeling to build such a product, let alone protect their valuable idea.
Of course, times have changed and it is no longer true that value is only attached to an object such as the case with the Intel® microchip, or any other well-known or recognised products such Carl Benz's automobile with its famous encircled three-point star, or a BlackBerry®, or Apple® products for that matter. Nowadays, value is also attached to something which may be less tangible, such as a string of words. For example the slogan “Yebo gogo” has become iconic in South Africa and is attached to Vodacom’s full suite of products and services, which is protected with copyright. These products and services are the creative ideas of their founders, each who took personal and financial risks to invent and formulate their respective products and services to improve entire business markets, or segments thereof. Understandably, their efforts need to be protected; and the way in which these visionaries have protected their investment and distinguished their products and services, has been done through trademarks, registered and awaiting registration, and copyrights, denoted by the ™, ® and © symbols.
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Time to insure your position as the net broadens for ‘prescribed officers’ (31 Oct '11)
Advertorial by CGF Research Institute
What is now crystal clear for directors and prescribed officers -- particularly since the launch of the Companies Act 2008 (‘the Act’) which became effective on 01 May 2011 -- is the fact that the personal liability as attached to directors and prescribed officers of any type of business operation, is unparallel to years gone by. Most often there is big money attached to these posts and being directors and prescribed officers is serious business. It's certainly not meant for sissies and its impacts, particularly when things go wrong, can be devastating.
Following the introduction of the Act, employees -- other than directors -- may well want to establish with their HR departments whether or not their job-related functions fall within the ambit of a prescribed officer. 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, 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. 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.”
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Accurate minute taking can save your reputation, even your pocket (28 Oct '11)
Article by CGF and Goldman Judin Inc
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.
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The net broadens for ‘prescribed officers’ of a company (19 Sept ’11)
Article by CGF Research Institute
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.”
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A Growth Path to be travelled where there is convergence . . . (29 Aug '11)
Article by CGF Research Institute
There is no doubt that South Africa has enjoyed a center stage over the past few decades; from having been damned by the world for its previous apartheid policies and then followed with praise and admiration post 1994, when our country demonstrated its first free and fair democratic elections. For some, the ‘show’ may now be over as the country’s citizens continue their lives, many of whom are unemployed with very little hope of ever finding ‘decent’* work that will sustain them and their families through their own lifetime. Since our dawn of democracy -- which promised the larger segments of South Africans a better social and economic life -- the gap between the rich and the poor has indeed become wider and a large majority of citizens still remain excluded from the mainstream economy. And while a few elite, as well as businesses in general have benefitted from various government related programmes and policies, the reality of our socio and economic situation belies the fact that -- according to the OECD -- “South Africa’s income distribution is amongst the worst in the world”. Indeed this dire situation is damning, and certainly a major reason why South Africa needs to urgently address the disparities between the ‘first’ and ‘second’ economies**, which are not closing fast enough. Undoubtedly, this situation has fuelled the country’s high levels of unrest, crime, unemployment and poverty.
At first, one is inclined to simply point a finger in the direction of government and lay blame on their lack of leadership, lack of governance, lack of policies and so forth. However, one must be cautious of the ‘blame game’ and accept, given South Africa’s young democracy and our past one-sided socio-economic policies (which favoured the white population), that much help and partnership is required by government to rectify the county’s woes. Given the length of time to undo the extensive damage in our previous regime, one certainly needs to ask the pressing question as to the extent in which the nation (as a whole) has truly stood together to build a prosperous society and where there is trust amongst government and its constituencies? No doubt, many will claim their allegiance to this change and their support of the government’s numerous attempts to remedy the facts cited by the OECD about South Africa’s worsening social-economic problems. Leaving this situation without a proper, and urgent sustainable rectification, our country will most certainly attract an unwanted world center stage, which may not be too different from that of Libya, Serbia, Zimbabwe and others who had similar patterns to those now in our own back yard.
In reality, might it be possible that many corporates, business leaders and social elites have purposefully stood back, watching the ANC-led government repeatedly blunder in its efforts to rectify decades worth of damage, as they quietly reap yet more rewards through this disarray? Critics argue that government has taken too hard a line in its attempt to reverse the employment policies of the past, evidenced in what has now become clear that broad based black economic empowerment policies have failed, and only benefited a few. Similarly, national initiatives such the Accelerated and Shared Growth Initiative for South Africa (ASGISA was an outgrowth of GEAR) and the Industrial Policy Action Plans (IPAP 1 & 2) may be categorised as government’s noble initiatives, however they too may be doomed if there is no genuine partnership between government, businesses and civil society.
More recently, yet another initiative has been launched -- the New Growth Path (NGP) -- which has a number of elements similar to those found in ASGISA. Again, this initiative has hardly begun and it has already drawn sharp criticism from businesses who believe they have not been adequately consulted by government. Indeed, if this sentiment is correct, it would suggest that the NGP may suffer the same ill effects of its predecessor initiatives and not have the desired effect to narrow the many extremes that plague our country, notwithstanding that the NGP speaks of acquiring the creative and collective efforts of all sections of South African society, underpinned by “leadership and strong” governance. In addition to businesses feeling alienated through the lack of consultation, there is also a general consensus that the government has unrealistic expectations of itself, believing it alone has the capacity to administer large scale structural changes in the economy. This argument is further bolstered by the poor results found within our public schooling and skills development sectors, failing public service delivery, not least other areas of concern.
* The Decent Work Agenda is defined by the International Labour Organisation (ILO)
** The concept of the ‘second economy’ is used to describe economic marginalization in South Africa, and the poverty and social alienation that characterise it.
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Trying to survive increasingly difficult questions? (17 Aug '11)
Article by iS Partners & CGF Research Institute
Johannesburg
In a competitive market, businesses are struggling to find a competitive edge and a unique selling position for their products and services, whilst at the same time trying to deal with a web of complex laws, and increasing pressure to ensure that the company is compliant with sound governance practices. More than ever before, companies are acutely aware that their survival depends not only on running an efficient business, but that in order to thrive, they must also be relevant and mindful of operational efficiencies in order to improve financial performance and drive shareholder value. Understandably, as companies struggle to survive, the Board, management and stakeholders have begun to ask more complex questions of its business and the value to the supply chain.
To begin with, unlocking working capital and improving the company’s financial ratios remain fundamental objectives in any business. Indeed, knowing the impact that one aspect of the company has on another, is of increasing concern. Similarly this argument also applies to the impacts upon the company’s internal and external supply chains. Rather worrying is the fact that many companies still tend to adopt a ‘silo mentality’ and ignore the operational aspects and the knowledge contained in areas other than their own departments. Such practices have potentially grave implications as the communication channels become bottlenecked, or are shut down. And in spite of the adage of “good risk management attracts better returns”, one is reminded that poorly applied knowledge and the lack of interoperability between people, departments and the supply chain often tends to have a negative domino effect. Arguably, for these reasons and perhaps many more, the King Report on Corporate Governance 2009 (King III) now makes risk management the responsibility of the Board and therefore matters such as poor communication, mismanaged knowledge or unreliable data can negatively affect not only the company’s logistics, but indeed also its ability to perform optimally.
Understanding the fact that companies and their directors have begun to feel the increasing pressure of running a business, not least the associated increased person liabilities attached to executive and senior management, it is hardly surprising that companies are asking more complex questions regarding the company’s ‘health’; be this financially and now more recently, since the advent of King III, the non-financial components of the business. Often the answers to many of these questions are not guided by existing best practices; but rather in the marriage between business knowledge and the organisation’s ability to mine its data effectively.
Whilst companies may have data warehouses and operational data stores, the reality of these companies being able to retrieve accurate information in order to answer the company’s ‘health’ questions -- in most cases -- can only be discovered by an analyst who has the necessary business knowledge and technical ability to effectively mine the data and then represent this information to the company. Often, companies are challenged when attempting to retrieve these types of answers from their various hardware and / or software systems due to the fact that:
these systems often lack the judgement, qualitative techniques and intelligence to understand the data, or
the nature of information being entered into these systems is unreliable, irrelevant or worse, false which then results in inaccurate information being retrieved, and
there may be an excessive reliance on the information being retrieved, leading to the management losing their intuitive feeling about the business and its risks.
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Living out good corporate social values (16 Aug '11)
Media release from the Cancer Association of South Africa (CANSA), in association with CGF Research Institute (Pty) Ltd
“When asking companies what they actually do on a practical level when one of their employees or their employee’s loved ones get diagnosed with a dread disease like cancer, I was surprised to find that most often they can’t answer and have no idea of how many survivors they have amongst their employees”, says Karin Metz, Volunteer Chairperson of CANSA Corporate Relay For Life and Executive Director BNI.
Most are quick to point out that they have the necessary Corporate Social Investment programme in place, backed by strong HR and corporate governance policies. Yet, many corporates may not have stopped to think or assess whether their programmes really make a difference on ground level. That is until they or one of their loved ones hear the unfortunate words, “you’ve got cancer”.
Admittedly, many companies have a much stronger focus on supporting employees diagnosed with the human immunodeficiency virus (HIV) Aids in their wellness programmes than on cancer, even though more people are diagnosed daily with cancer than with HIV Aids. According to the National Cancer Institute of America, certain cancer types are also more likely to occur in people who are infected with the human immunodeficiency virus (HIV).
One in three people today are affected in one way or another by cancer. Simply put, if you haven’t had cancer yourself you probably are close to someone who has. You may even have lost someone you love. Cancer has no respect for age, race, religion or sex.
Supporting employees and their loved ones
According to CANSA for each person diagnosed, cancer is a unique experience. No two people will travel the same journey during and after cancer treatment. How people cope when diagnosed, during or after treatment (or even when in remission), is different for each individual. One common thread in all people with cancer is the need for a good support system, and this will include the support of the employee’s employer.
"Cancer is not a death sentence, but rather it is a life sentence - it pushes one to live!" (Marcia Smith)
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One planet, one chance… (02 Aug '11)
Article issued by CGF Research Institute & Kijani Green Energy
“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.
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Directors beware: There’s a new meaning to business rescue (27 Jun '11)
Article issued by CGF Research Institute
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.
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Managing Human Capital Matters (20 Jun '11)
Article issued by CGF Research Institute & Be Well Program
In some organisations, lip service is given to the fact that employees are their biggest and most important asset. Human capital, talent management and employee engagement are words used to describe this virtuous intent. But when it comes to the bottom line, only financial indicators are reported and there is usually scant regard for the employees who were responsible for the profits in the first place.
Most often, organisations attach value to that which is measured, and therefore will only manage the areas which are being measured. And by default, that which is measured becomes the organisation’s top priorities. Over time, this single-sided deficient practice of managing the so called ‘biggest asset’ becomes polluted, and then in a short space of time, it presents the biggest risk. Hence organisations ‘sugarcoat’ employee health care management practices with wellness days, health risk reports and campaigns that create temporary joy, and waste a lot of money and do nothing to sustain or promote optimal human functioning.
Moreover, some organisations may find their management are ‘negatively geared’; such where their management practices are dominated by a constant focus on problem behaviour patterns which highlight employee insufficiencies, instead of empowering employees and investing in their well-being. This antiquated management behaviour focuses on what is wrong, or out of line, and management who follow this practice are constantly focused on fixing problems. Understandably, if the only tool management has is a hammer, one may tend to “see every problem as a nail and every nail as a problem”.
Familiarity and practice influence our perceptions of leadership, and we tend to understand the world in ways that conform to our available means. When employee health care problems such as absenteeism or high medical aid expenses exceed our means, management strategies and leadership competencies begin to show their flaws and their ineffective ability to deal with these types of problems. And whilst an organisation may choose to ignore these mounting employee related challenges -- and consider them merely as tedious or ‘soft’ issues -- there is no doubt that the more informed stakeholder of the organisation will begin to question the true value attached not only to the financial performances, but indeed also to the manner in which the organisation protects its employees, as well as the environment in which they operate. In this regard, the tenants of sound governance -- as espoused in the recent King III Report on Governance 2009 (‘King III’) -- requires publically traded organisations to advise its stakeholders of the manner in which it governs its triple bottom line, and comprises the three essential components of people, planet and profit (PPP).
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Disregard of company policies can cripple (30 May '11)
Article issued by CGF Research Institute
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
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The Challenges of Green (23 May '11)
Article issued by CGF Research Institute & Kijani Green Energy
Back in 1624, John Donne coined the phrase that “no man is an island, entire of itself.” And whilst Donne may have captured this phrase from a spiritual perspective, its principles of ‘connectedness’ may indeed also be likened to the modern-day view of business sustainability and the integrated reporting now espoused within the King Report on Governance for South Africa 2009 (‘King III’). Indeed, King III emphasises the need that sound environmental governance is central to the sustainability of business and cites that “environmental issues should form part of business performance and [its] risk management strategies.”
Notwithstanding the recommendations found within King III, organisations and their directors are generally not taking enough action to fully commit themselves to good environmental practices. And while there is much hype surrounding the need for integrated reporting, one can’t help wondering whether leaders are sufficiently armed with energy-efficient information that can be effectively applied within the business while not crippling the bottom line. Of course, the flip side of this question also needs to be addressed. Is an organisation and its directors implementing the required ‘green changes’ because they;
- believe it makes good business and ecological sense, or
- are compelled to do so as a result of the respective legislation, or
- are being driven by the demands of their stakeholders and supply chain or, most cynically,
- responding to the marketing claims of a competitor in order not to appear left behind.
Gauging the extent of South African legislation -- such as the National Environmental Management Act 2008 (NEMA), the Air Quality Act 2004, the National Energy Act 2008 and the National Environmental Management: Waste Act, 2008 -- one would think that our country and its businesses would be ahead of the pack vis-à-vis its carbon reduction strategy. Regrettably, South Africa is still one of the largest carbon emitters in the world. Despite the many debates to reduce our carbon footprint, we produce around an eighth of the total emissions of the European Union, most of that on the back of Eskom which is reported to be one of the highest carbon-intensive electricity utilities in the world.
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Counting each drop ... (26 Apr '11)
Article issued by CGF Research Institute
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.
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Frustrating the transaction (28 Mar '11)
Article issued by CGF Research Institute, Goldman Judin Inc. & Richard Connellan
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.
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Until death us do part? (01 Mar '11)
Article issued by CGF Research Institute and Goldman Judin Inc.
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.
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Those were the days . . . of directorships (31 Jan '11)
Article issued by CGF Research Institute and Goldman Judin Inc.
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.
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The Sustainability Challenge? (An exclusive article for CEO Magazine & SA Titans for Transformation) (01 Dec '10)
Article issued by CGF Research Institute & PricewaterhouseCoopers
South Africa prides itself in having one of the world’s most progressive Constitutions. On paper it promises a lot, yet in reality these promises are not being delivered to the same extent. This calls into question the sustainability of the document, which is meant to protect our basic rights. What will happen if the essence of the Constitution gets lost, or it is not observed by all those who rely on its principles? From the sustainability perspective, the question is; will our Constitution survive to benefit our children and their children?
Our leaders -- found within government, businesses and communities -- are tasked with building the nation and enabling the rights enshrined in the Constitution. Leaders are required to have foresight and to ask themselves difficult questions relating to the direction in which they are leading this country, its businesses and its people. They need to consider what culture they are creating and what practices are being perpetuated that may lead to an environment which is not able to support future development and growth.
In essence the new buzz word -- ‘sustainability’ -- which is used in some organisations, is understood to be the manner in which they show their respect for the future, with demonstrable sustainable business practices. Although our past has been largely defined by unsustainable practices -- being both at business and societal levels -- this does not mean that this type of behaviour should be perpetuated into our future. Ultimately, it is the current leaders of our country who will decide whether we embrace sustainability or not.
In its purest form, “sustainability” is the capability to endure and withstand. In the business sense, sustainability refers to long-term [business] success, making a positive contribution and irradiating negative impacts toward economic and social development and maintaining a healthy environment and a stable society.
“Sustainable development” -- as defined in March 1987 by Brundtland Commission of the United Nations -- is “meeting the needs of the present generation without compromising the ability of future generation’s to meet their own needs”.
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Business will be called to account - IPAP2 (29 Nov '10)
Article by CGF Research Institute (Pty) Ltd
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).
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The Anatomy of Risk (24 Nov '10)
Article by CGF Research Institute and PricewaterhouseCoopers
Undoubtedly there is a risk in almost every facet of life; at the time when we were born, or when we decide to take a casual stroll in a serene park, or indeed when we make a decision to partner a new business venture or associate.
Although a person may not be conscious of the underlying risks that may await them when they, for example, decide to embark upon an enjoyable park outing, there could well be many potential or real risks awaiting our unsuspecting victim. Of course in most cases the victim will not have consciously calculated such risks, and managing them becomes that much more difficult.
Conversely, in a business environment, business leaders are expected -- as a matter of their fiduciary duties -- to act (severally and jointly) quite differently compared to the person in our previous setting. In fact, one can argue that in a business environment, business leaders need to have a certain foresight that enables them to predict, manage and mitigate against the likelihood of something negatively affecting the business, its operations and profits.
It is precisely for this reason, most particularly where shareholders have entrusted the company’s management to serve and protect the assets of the company, that leaders are held accountable when things go wrong. Clearly this calls for leadership experience, good business judgement as well as the necessary toolset to aide management decisions in an ever-increasing and complex business environment.
Increasingly, and most certainly after disastrous events such as 9/11 and the collapse of the world’s economy (which was sparked by the breakdown of Lehman Brothers); business leaders are being questioned regarding their ability to manage risk. Outside of these questions, the legal systems worldwide are generally also beginning to hold business leaders personally accountable for their part in unscrupulous or reckless business activities, particularly when their actions result in unacceptable financial losses or worse so, the loss of life which is inflicted on innocent bystanders.
Whilst one would like to believe that business leaders prudently manage the businesses wherein we have invested our hard earned cash, the truth in many instances is that this may not necessarily be the case. As with many of the recent and spectacular corporate collapses, forensic audits have revealed a lack of proper controls, poor (or in some instances, no) risk management policies and reports, as well excessive uncalculated business decision taking, to name but a few reasons for the demise of so many organisations. One just needs to ponder the reasons why so many of the past corporate giants, which include Enron, Worldcom, AIG, Bear Stearns, Atari, Netscape, America Online and Apple, either no longer exist or have been significantly overtaken by their competitors? Indeed the same can also be asked of some South African companies such as LeisureNet, Macmed, Saambou and CorpCapital?
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MDGs slipping away: Have our leaders under-performed? (28 Sep '10)
Article by CGF Research Institute (Pty) Ltd & PricewaterhouseCoopers
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?
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Directors and managers should know-but do they want to? (17 September '10)
Article issued by CGF Research Institute and Deloitte
There is no doubt that the liabilities attached to directors and managers have steadily increased on a worldwide basis. This phenomenon has caused directors, most particularly in first world countries such as the United States, to think twice about not only their positions on boards, but indeed the many consequences attached to their actions as fiduciaries. Recent evidence shows that concerned directors are retiring themselves from their very onerous positions. According to the Booz & Company Annual Survey 2008; the departure of CEOs rose on a global basis from 13,8% (2007) to 14,4% (2008). While 50% of these surveyed CEOs from 2500 of the largest public companies were due for retirement, 35% of the departures were forced out of their positions due to dismissals related to poor financial performances, irreconcilable differences or ethical lapses of judgment.
Closer to home, South Africa has seen a flood of new legislation and there has been, over the last decade, an average of 6 new acts passed each month. Notwithstanding the overwhelming number of new laws being passed -- including the introduction of King III -- directors and managers are seemingly choosing to shrug off the consequences of the legal implications or not taking these matters seriously.
This situation appears to be getting worse -- notwithstanding all the legal frameworks -- and there is generally speaking very few cases where non-performing executive leaders have been taken to task, besides those of a few high profile cases such as Khaya Ngqula of SAA and Arthur Brown of Fidentia.
More worrying is the fact that many organisations in South Africa are forcibly placing directors on their boards for the purpose of rectifying either their BEE scorecard, and/or their equity and gender numbers. Not only are many of the boards’ members becoming much younger (with often less experience), but alarmingly these directors are quite frankly not up to scratch when compared with their more experienced director counterparts. Never before has it been more vital to have experienced members on a board, particularly due to the increased exposure directors (and managers) now face with the substantially increased director duties and liabilities introduced in the new Companies Act 2008. More significantly, directors are required to not only look after the affairs of the company, but indeed also hold themselves accountable to each other. Incompetent directors and those who are self serving, clearly will expose themselves, their colleagues and ultimately the companies they are meant to serve.
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When IT Governance becomes a tangible asset (25 August ’10)
Article issued by CGF Research Institute and Deloitte
As the global economy continues to grow, one is reminded of Moore’s Law which back dates to 1965 when Gordon E. Moore, a co-founder of Intel, stated that business would experience an unprecedented rate of change as technology continued to permeate the space of business. Gordon Moore described the density of components or transistors that would occupy circuit boards and complex chips. He predicted that the number of transistors found on a chip would double every two years and that through this process, the cost of such technology would decrease, whilst computing power would double every 18 months. Similarly, the former head of Lucent’s Optical Networking Group, Gerald Butters, observed that the data being fed from optic fibre is doubling every nine months, suggesting that the cost of transmitting data over optical networks would decrease by half every nine months. There are a number of other more recent technology-based laws and predictions that suggest massive increased flows of information; and futurists believe that the exponential improvement of Moore’s Law will eventually lead to what is referred to as technological singularity, where future progress in technology will occur almost instantly.
Of course there is the question – in fact many questions as to the state of preparedness by business leaders for such rapid change? While many businesses may still not attach real value to IT (information technology), neither reflect the importance of IT within their business strategy, the reality of course is that most businesses would become defunct without their most basic technological devices and systems such as their PCs, servers and the internet. Past critics who believed that business drove IT have quickly been silenced; simply put – you have no business when the lights go off, let alone your PCs and servers crashing. Gone are the days when old fashioned business relied solely upon a handshake between two business people. Today, countless transactions are conducted across billions of miles and most often between total strangers, who singularly depend upon robust, reliable and very sophisticated technological devices, networks and systems. The value of such technology today (and into the future) is priceless and protecting the IT systems that underpins a world economy, is critical.
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Poor governance impacts future generations (03 August '10)
Article issued by CGF Research Institute
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?
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Safeguarding against workplace violence (26 Jul '10)
Article issued by CGF Research Institute
South Africa has become renowned worldwide for its high levels of crime; and the nature and outcome of the crime is notoriously violent. In past reports, South Africa has been compared to countries such as Columbia and Serbia, and our country has been classified as the world’s second most violent country in the world which is not at war, but ironically at war with itself.
Statistics on crime are dubious, and the citizens of South Africa cannot rely on the reportedly reducing levels of crime which the authorities state is the case, through their attempts to provide assurance that the scourge is under control. The ruling party of government has not provided convincing evidence that it has managed to curb, what evidently appears to be a problem out of control - especially in light of the fact that certain elements of our society blatantly appear to receive favour over and above ordinary citizens when it comes to law and order. Of course, past utterances from senior police authorities stating that “people who do not like or agree with the government’s actions in dealing with crime can leave the country”, don’t bode well for the many victim’s, or future victims of crime in our country. Neither do such statements instill the necessary confidence in our country’s local or foreign investors.
Whilst this article does not attempt to provide any in-depth reasons for South Africa’s unacceptable high levels of crime -- which have undeniably increased since our democratic walk to freedom in 1994 -- it would appear that as long as the divide between the have’s and have-nots continues to widen, that the crime dilemma will continue to increase at a greater rate than our ability to contain it. Moreover, the fact that so many South Africans have been exposed to the affects of crime -- including our bizarre acclimatisation thereof -- strongly suggests that it has become ingrained within the fabric of our society. Indeed, the affects of crime and our ability to try and circumvent its vicious impacts, has resulted in various countermeasures being taken by the citizens of South Africa to protect themselves in various shapes, forms or methods (irrespective of these being legal or illegal as the case may be.) Understandably, the degree to which such protective measures may be taken to protect oneself, depends almost entirely upon the social standing and financial means available to the individual. And while affluent people may improve their immediate surroundings, for example their personal residence or their motor vehicles, in essence they remain exposed to crime in the workplace. Arguably, this is where employees become their most vulnerable.
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Nepotism: The good, bad and ugly (24 June '10)
Article issued by CGF Research Institute and Werksmans (Incorporating Jan S. de Villiers)
Undoubtedly favouritism of any sort generally evokes negative feelings; and this is mostly when it happens in the workplace where people can clearly see, or they experience its negative affects. Perhaps one of the reasons why favouritism is so controversial -- otherwise known as nepotism or cronyism in the workplace environment -- is because it tends to defy logical thinking and is replaced by selfish, emotional behaviour. Both can wreak havoc in a business and amongst its employees.
Typically, blatant favouritism and the favourable treatment of family members in the workplace (as opposed to the appointment of more competent people) is what one would refer to as nepotism, while the appointment of friends is called cronyism. Either way, these practices often lead to far greater problems within companies because fairness and transparency tend to be ignored. Moreover, the people who are appointed on this basis are often incorrectly rewarded and allowed privileges to which they are not entitled, with no logical basis of merit and competence.
Clearly the subject of nepotism needs to be understood in the context of the business environment in which it may be practised. Rather interestingly, nepotism -- when practised well -- can in fact be positive. Nepotism is usually understood as a counter-productive and discriminatory practice which goes against the values of equality, merit, independence and competition and it is simply stamped as being unethical. However, there are grounds for arguing that nepotism practised in the correct environment and context, could in fact be regarded in a more positive light, particularly in small businesses and where there is no public funding, nor an expectation to employ an individual with the requirement of certain qualifications or experience. Naturally the test must be able to withstand the scrutiny of the following criteria; the process and occurrence of such appointments must be transparent, there should be no sign of any forms of abuse and there should be no conflict of interest (not least of course that the person being appointed should offer some degree of skill and experience). Such appointments are often based upon a ‘trust factor’ and when executed well, the benefits may lead to further employment of other people as the company grows.
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Grappling with risk – a boardroom challenge (17 June '10)
Article issued by CGF Research Institute
For centuries mankind has had to deal with various risks. In prehistoric times these risks may have been characterised to be a caveman defending himself against a fearsome beast, or even safeguarding his cave and its inhabitants from an uncontrolled fire. It was only in times much later where humans -- with more applied intelligence -- began to understand their vulnerability against these risks, and were able to apply some form of defence in perhaps a more daring manner to survive the very risk that previously, and most certainly in prehistoric times, would have ended disastrously. Perhaps it is from these early beginnings that the ancient Italians drew their meaning from the word risicare, which literally means to dare. It is widely known that the early Romans and Greeks did not believe in uncertainty. Instead, they believed everything in life was predestined and this was in spite of having access to the most advanced mathematical skills of their time, some of which are still variously applied to risk management by modern-day actuaries and treasurers.
In the book, Against the Gods, its late author Peter L. Bernstein argues that the “notion of bringing risk under control is one of the control ideas that distinguishes modern times from the distant past.” Today of course, the discussion surrounding risk permeates all sectors of society and as a topic; it is not a new concept for the people who lead business and set their strategic path for success. Similar to the book’s theme, business leaders are challenged in an ever-increasing and complex environment to understand the risks to which their businesses are exposed on a daily basis, and then knowing how to deal with them.
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Popi: Caught between a rock and hard place (26 May '10)
Editorial issued by CGF Research Institute and Deloitte
In spite of the progress seen through the development of numerous governance codes and recommendations found within the likes of the King III Report for South Africa (2009), many companies still grapple with its recommendations, not least its implementation across public and private businesses. While King III remains an aspirational code which companies of all sizes are expected to apply, lack of its implementation within a company will not lead to legal action. However there may be nasty repercussions found within the supply chain, driven mostly by corporate businesses that practice self regulation and who are beginning to ‘impose’ its adoption for unsuspecting smaller businesses. That said, the same principles of King III’s ‘apply or explain’ approach however will not apply with the looming Protection of Personal Information Bill of 2009 (POPI) which was introduced to Parliament on 25 August 2009.
“Generally speaking, companies and other organisations have made liberal use of the personal information of their customers and they have done very little to protect their customer’s information. This has, for among other reasons, lead to the pending implementation of the new Act and will apply to all customer-centric driven companies reliant on customer’s personal information”, says Terry Booysen, CEO of the governance research company, CGF Research Institute (Pty) Ltd.
Once promulgated, the Act will give effect to the right of privacy, imposing strict measures upon public and private organisations to ensure that the personal information of an individual is truly safeguarded. Through this Act -- which mirrors many other international human rights treaties and data protection laws such as those found in Germany, Sweden, Australia and France -- eight Information Protection Principles will become applicable to companies and other organisations in South Africa who collect and or deal with information regarding the personal information of individuals.
“The implementation of this Act will have massive implications on all entities in South Africa. It is very difficult to envisage any entity that does not process some personal information of employees, customers, suppliers, service providers, investors or owners. That said, the impact will no doubt be most serious on entities who deal in significant volumes of personal information, such as entities in the financial sector and health industry,” continues Dean Chivers, a Legal Director at Deloitte and subject matter expert of POPI.
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MDGs: Another count-down ... (28 Apr '10)
Article by CGF Research Institute (Pty) Ltd
There’s something about a count-down that draws our attention, no matter what kind of count-down it happens to be. There is bound to be some form of excitement or pressure attached to the second hand as it approaches the top of the hour. This is evidenced for example when a child counts down the remaining days to a birthday and is eager to open presents. Similarly, as South Africa approaches the opening of the 2010 FIFA World CupTM, other more “mundane matters” appear to move to the back-burner. Of course, not all count-downs represent excitement. In fact, the opposite may indeed be true when considering the mammoth tasks which lie ahead in respect of the Millennium Development Goals (MDGs) which still require all hands on deck.
The MDGs are drawn from the actions and targets contained in the Millennium Declaration that was adopted by 189 nations as a global partnership, in response to addressing some of the greatest challenges facing poorer countries. Whilst it is understood that the poorer countries need to take responsibility for their plight -- South Africa included -- it is agreed that financial assistance will also be required from the developed nations to fast track the challenges that lie ahead.
There are eight goals which are expected to be achieved by 2015, the top six being; the Eradication of Extreme Poverty & Hunger, achieving Universal Primary Education, Promotion of Gender Equality & the Empowerment of Women, Reduced Child Mortality, Improved Maternal Health & the Combating of HIV Aids, malaria and other diseases.
Understanding that South Africa has just completed its preparations for the 2010 FIFA World CupTM which has cost billions of Rands, one wonders whether our country will have, not only the money, but indeed the political will and energy to achieve our MDG goals by 2015?
Moreover, one needs to question whether the majority of South Africans are even aware of the MDGs and the challenges we face as a nation should these objectives not be met on time, or met at all? Whilst the soccer mania continues to grip our attention, it is crucial that South Africa and its leaders do not loose sight of a far greater imperative which is found within our MDG responsibilities, and underpins the future sustainability of our country.
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Directors and managers become easy targets (26 Apr '10)
Advertorial by CGF Research Institute (Pty) Ltd
As the laws continue to flood the business arena in South Africa -- evidenced by approximately six new acts every month over the last ten years -- it is surprising just how many directors and senior managers remain oblivious to their increasing risks that are attached to their role as a company officer. Indeed, these company officers -- also known as fiduciaries -- have both common law and statutory obligations to protect and serve the best interests of their companies, amongst other onerous duties. The Companies Act and the liabilities attached to company officers of all sized companies is quite clear, in fact any person who runs a business and does so recklessly or with the intent of defrauding creditors will be severely dealt with in terms of the strict provisions of the law. In such cases, if found guilty, the culprits will be held liable for all the debt, or other liabilities of the company. More importantly, it is critical that directors and managers take greater accountability to ensure that their employees are also cognisant of the increasing focus being placed upon organisations to not only be seen as a good corporate citizen, but that it is in fact applying such behaviour throughout its operation.
Officer's liabilities
The new Companies Act 2008 clearly sets out, in sections 76 and 77, what company officers should know about their common law and statutory duties and the associated liabilities, including the conduct expected of them.
Clearly, directors and senior managers will require assistance to steer their companies through increasingly complex legislation, in order to remain in business or stay out of trouble. In the larger companies, this form of assistance may be found within the offices of the company’s Company Secretariat, however the reality is either the company officers are not aware of their own lack of knowledge in these areas, or in many cases the directors and senior managers simply do not devote time to undergo the required training as they race through their pressurised 16-hour work days. This causes them to become extremely vulnerable and indeed breach their most basic officer duties. As expected, in smaller companies the risks of penalties for non-compliance and their lack of understanding of these duties is even higher and many smaller companies and their officers either have no knowledge of their attached fiduciary duties, or they see these matters as trivial and therefore ignore the provisions of the various laws applicable to them.
Help is at hand
In an effort to provide company officers an overall understanding of what is expected of them, CGF Research Institute (Pty) Ltd -- a well known and established company who specialise in governance, risk and compliance reporting -- has compiled a Fast Tracking Company Officers Manual which addresses high-level fiduciary related issues in an accessible manner, and without the cumbersome legalese.
This affordable Fast Tracking Company Officers Manual provides a simplified account of those matters covered in the Companies Act 71 of 2008 while integrating aspects of King III related recommendations and relevant principles of Common Law. The manual may be used as an indispensable day-to-day reference book. It is essential for all companies and organisations in a business supply chain to be brought up to speed as these changes affect them directly.
As such, the material contained within the Fast Tracking Company Officers Manual is an invaluable source of information to all company officers. It provides some guidance for the officers of any company or organisation in their fiduciary duties and responsibilities. Moreover it facilitates the ongoing professional development of a company’s leadership and workforce. In this way it is a tool in ensuring that company officers continue to develop the knowledge and skills expected of them. This is a key contributing factor to the success, sustainability and longevity of a business.
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CGF Research Institute puts company officers on the fast track to success (13 Apr '10)
Advertorial by CGF Research Institute (Pty) Ltd
In today’s competitive business environment, leaders of organisations are tasked to equip themselves with the necessary skills and knowledge in order to remain at the forefront of their activities. Directors and managers -- the company’s officers -- need to receive essential training on their fiduciary duties, responsibilities and powers, as well as their potential liabilities.
Worldwide, numerous debates (both inside and outside of boardrooms) grapple with questions pertaining to the hurdles of good governance. In addition, company officers face many key and complex issues - more than ever before. South Africa has seen a huge increase in governance measures over the last decade. In these times of intensified corporate scrutiny and governance reforms, public and private organisations need to trust that their directors, executive and senior managers have a comprehensive understanding of the immense responsibility attached to their leadership functions.
There is a great deal of information that company officers need to familiarise themselves with, particularly in terms of the recent, substantial changes in the Companies Act 2008, including the introduction of King III. It is therefore critical for every South African business to have an in-depth understanding of both of the Companies Act and King III – one being driven by law and the other by business recommendations which are applicable to all business entities.
This information needs to be thoroughly understood by all the company’s officers, and then applied effectively throughout the organisation. As governance measures intensify, more company officers may find their positions under threat as the company’s stakeholders take stronger action for increased performance and improved governance practices across all the company’s business operations. Officers of companies need to inform themselves of their statutory and common law duties, which are linked to fulfilling their obligations. This involves gaining a comprehensive understanding of the roles and duties borne by company officers. Furthermore, company officers need to have a thorough understanding of that which is required of them, as these requirements may go well beyond their job description.
Accordingly, CGF Research Institute (Pty) Ltd provides an essential service for company officers who are charged with keeping abreast of new developments in the area of corporate governance. The latest product offering is the Fast Tracking Company Officers Manual, which addresses high-level fiduciary related issues in an accessible manner, and without the cumbersome legalese.
The Fast Tracking Company Officers Manual provides a simplified account of those matters covered in the Companies Act 71 of 2008 while integrating aspects of King III related recommendations and relevant principles of Common Law. The manual may be used as an indispensable day-to-day reference book. Many (Pty) Ltds and ccs are oblivious to the latest changes that have been imposed by the recent Companies Act, not least King III. It is essential for all companies in a business supply chain to be brought up to speed as these changes affect them directly.
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Kidnapped: Protecting your key assets (15 Mar '10)
Article issued by CGF Research Institute
There is no doubt that there is a direct correlation between the manner in which technology has changed our world; and the manner in which the acts of crime are perpetrated by the many modern-day thugs who use anything from high tech surveillance equipment, recording devices and cell phones to execute their crime. Sure, we will continue to have the common-day petty criminals who in most cases, have to steal a cell phone, or stealthfully lift a wallet in order to survive. These criminals are not our source for major concern, whilst they are frankly speaking ‘light weight opportunists’ as compared to those who are linked with international syndicates. Most particularly, those criminals who specialise in high-net worth kidnapping of key executives for ransom have become a nightmare for employers, especially for those employees who travel to kidnapping hotspot countries.
Make no mistake, the perpetrators involved in this type of kidnapping know what they are doing, and they also know the high stakes involved. The planning of a kidnap for ransom will in all cases involve many hours -- even weeks or months -- to meticulously survey and calculate with military precision, every detail of the target kidnap victim. Of course the more valuable the ‘prize’, the greater the reward. In this vein, corporate executives have become ‘fair game’ to professional kidnappers, who understand not only the intimate detail of their target, but also their worth to organisations either materially, financially or their strategic importance to the success of the organisation by which they are employed.
Although executive or high-net worth kidnapping is known to be a common occurrence in countries such as Iraq, Mexico, Pakistan, Venezuela, Brazil and the Philippines, countries such as South Africa, the DRC and Tanzania are quickly becoming the new danger zones. There are many reasons for this phenomenon, however the most common reasons which increase the risk of a corporate executive being kidnapped may be linked to countries which have a history of political and social instability, the presence of extremist groups, high crime rates, large disparities between the affluent and the poor, topped by governments which are notorious for either inefficient or corrupt practices. Clearly, an executive sporting a Breitling wrist watch and driving a Bentley for example, is a statement made all on its own -- particularly in countries known to be kidnapping hotspots -- and this type of attention will most certainly increase the chances of an attack
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Careful about that "great buy" – it may cost you dearly (22 Feb'10)
Article issued by CGF Research Institute and Deloitte
There is no doubt that the use of intellectual property in the global marketplace is a major facet of business today and its collective worth runs into figures which are uncountable. So what exactly is intellectual property and why is it increasingly gaining recognition, particularly for company asset registers and balance sheets?
Best described, intellectual property -- or simply IP -- refers to the creations of the mind. IP provides a powerful tool and valuable means if used correctly within business; however you must either own the IP or have permission to use it. These creations can be found for example, within inventions, literary and artistic works, symbols, names, images and designs which are used in commerce and they are in deed what actually cause the commerce ‘wheels to spin’, generating lots of money.
The World Intellectual Property Organisation (WIPO) divides IP into two categories, namely Industrial Property which includes inventions, patents, trademarks and industrial designs; whilst Copyright covers amongst other, literary and artistic works, architectural designs including the rights attached to performing artists and producers in their performances and programmes.
Indeed, as people have realised the importance attached to the inherent value of IP, so many have scrambled to apply themselves and their talents with the hope that their creations will provide them some form of recognition, be this monetary or not. Of course not all individuals share the same values of good ethics and hard work and they will steal the creations from the true owner, claiming these to be their own.
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Professional Active Escrow: A key component of risk management (01 Feb '10)
Editorial by CGF Research Institute (Pty) Ltd and Escrow Europe (Pty) Ltd
Any company which is reliant on intellectual property (IP) belonging to third parties exposes itself to potential risk that needs to be appropriately managed. Particularly where this use of IP (such as proprietary software and systems) is related to critical business processes, functions and services. Moreover, keeping a business healthy requires prudent risk management processes and procedures which must be vigorously implemented and followed. These risk management ‘ingredients’ are, amongst other, the basic foundations for a sustainable, well governed business. That said, many companies -- particularly those who offer products and services -- unwittingly expose their company to unnecessary risk because they have limited or no control over the IP, which is owned by third parties, and is necessary for the ongoing generation of their revenues.
“Even though you may be a diligent and hands-on executive, you might be overlooking a critical aspect of your company's business and its supply chain by unintentionally exposing the company to a high level of operational risk”, says Terry Booysen, the CEO of the well known governance research organisation, CGF Research Institute.
Clearly, while many executives may only see technology and or it’s software as just another component of their business, the reality today is that IT and software indeed have become the entire backbone upon which business operates across the world. Of course with the increased accountability placed upon the board and its executive management to manage all its company’s risks -- be these operational, legal or procedural -- company officers can no longer afford to dismiss the importance of managing the risk in the event where a third party software supplier can no longer supply its services for which the company has a critical dependency. Such an exposure, particularly in light of the imminent new Companies Act 2008 and King III scheduled this year, will quickly attract personal liability for those companies and their officers who show scant regard for this potential risk.
In the past decades, this exposure has been exacerbated by the effects that globalisation and the dissipation of boundaries across industries have had on the pursuit of operational efficiencies and competitive advantage.
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Measured Business Continuity is Good Governance (22 Jan '10)
Article by CGF Research Institute (Pty) Ltd and ContinuitySA (Pty) Ltd
The King III report on corporate governance has been finalised and is due to be released in March this year and South African business leaders will be compelled to re-evaluate many areas of their businesses, most particularly their governance, risk and compliance operations. Moreover, combining this with the new Companies Act 2008 which takes effect in June 2010, company executives will need to be in a position to implement changes to satisfy these new provisions in their organisations, while also finding ways to ensure their modifications have the desired impact. And while King III’s predecessor, King II, was mandatory for listed companies on the JSE, King III has a significantly further reach as the code for good governance will now be applicable to all legal business entities, thereby enforcing more executives to apply a far more concerted effort toward its compliance.
Says Terry Booysen, CEO of CGF Research Institute, “Good intentions are not good enough any more when it comes to corporate governance. Executives can find themselves in serious trouble if they do not ensure their business conduct and operations meet the provisions of what is expected from the likes of King III, the new Companies Act, Competitions Act, class actions and many other legal and regulatory measures due this year, which are designed to improve the manner in which we conduct business locally and abroad. The old adage of “you can't manage what you can't measure” is therefore more prevalent in South African business today than ever before. “
The only way to ensure that companies meet the new governance standards is for boards to appoint directors who are equipped to deal with these additional responsibilities whilst providing them the authority to implement and oversee the changes. These leaders will need to ensure each area affected by the new laws and governance recommendations is continually up to standard.
Read more ... (Measured continuity is good governance)
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Technology Escrow: Safeguarding the continuity of your business (12 Jan '10)
Article by CGF Research Institute (Pty) Ltd and Escrow Europe (Pty) Ltd
To stay in business -- or continue offering a service -- commercial and governmental institutions are often entirely dependent on software over which they have limited or no control.
Even though you may be a diligent and hands-on executive, you might be overlooking a critical aspect of your company's business and inadvertently exposing the company to a high level of operational risk if your company’s core, mission-critical processes, functions and/or services are dependent on software which you do not own but license to use from third parties.
Clearly, you are therefore subject to conditions or events beyond your organisation’s control.
At the outset, reliance on third parties who supply your organisation its critical mission software may not appear to be a problem, but companies must take into account that such software is often subject to maintenance agreements and ongoing support by the software supplier.
In other words, be aware that your company could be affected by an unforeseen development impacting on the software supplier’s business.
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