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