Articles & Editorials from the CGF desk

Opening and closing address for MDG Review Summit & Exhibition 2012 (03-04 May ’12)

Cape Town

(CHAIRMAN’S OPENING ADDRESS)

Good morning esteemed guests, ladies and gentlemen; and a special welcome to all of those who have travelled from near and afar, in order to attend this special event – the MDG Review Summit & Exhibition of 2012. 

We extend to you our warm South African greetings, and trust that you will find this Summit to be an enlightening one; and one that provides more answers than questions and more particularly the manner in which 191 heads of states, and the private sector have collaborated to address the Millennium Development Goals, and for which we committed to achieve by 2015.

I am reminded of the adage that “with great power comes responsibility” and with great responsibility we must be willing to be held accountable when we fail to deliver in areas that affect the basic human rights and the dignity of people.  South Africa is known to have one of the most progressive Constitutions world-wide, and whilst it promises so much to its people, regrettably millions still do not feel the relief it advocates.  Similarly, this situation is found in many other parts of the world. 

For this reason -- amongst others -- the MDGs are a commitment by many countries and their leaders that promises her people a better life.  Drawing from South Africa’s Constitution -- Chapter Two -- in our Bill of Rights it states that our people -- should have, amongst other, the right to LIFE and:

• the right to equality before the law
• the right to freedom from discrimination
• the right to human dignity
• the right to freedom from slavery, servitude or forced labour
• the right to privacy
• the right to freedom of speech and expression
• the right to education
• the right to a healthy environment, and for it to be protected
• the right to property and housing
• the right to food, water, health care and social assistance

And for our children, they are promised the right of parental care and the right to a basic standard of living, the right to be protected from maltreatment and abuse, the protection from inappropriate child labour, and the right not to be detained.

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From dark ages to enlightened reporting (08 May ’12)

Article issued by CGF Research Institute

Modern day company reporting finds its roots as far back as 7500 BC, which is when we believe the first rudimentary form of accounting records and tokens may have been used to track certain business activities.  Of course, there are more accurate details of record keeping from 1000 AD onwards, when Italian merchants used more sophisticated forms of bookkeeping in response to their trade growth.  The double entry bookkeeping system found its way between the 1500 - 1700 era, as charted companies required improved records and systems when colonialism expanded.  But it wasn’t until the 1930’s when the US authorities started regulating accounting practices in response to the stock market crash and widespread fraud, that a true business reporting framework became evident.  It was only in the 1970’s when the concept of Corporate Social Reporting (CSR) was born, where companies were becoming more pressurised to consider their ‘dues’ to other stakeholders.

For centuries behind us, the privileged few who commanded empires and businesses, had the power to control information regarding their wealth and activities.  Consequently, they were able to prevent ordinary class citizens from participating in an economy in any meaningful, dare we say ‘fair’ way.  Fortunately times have changed this prehistoric and repugnant behaviour, which in almost all cases left people and the environment massively deprived -- even damaged -- through the greed of a few.

And so we have finally realised the critical importance and power of citizens acting in unison with all the role players as it relates to the supply chain of business, locally and internationally.  Through their collective performance, and the transparent relationships based on mutual trust, one is hopeful that the future of a company’s business and its strategy will greatly underpin, and preserve, long term value for all its stakeholders and ultimately the country at large.  This can only be achieved where companies fully subscribe to integrated reporting, which is -- according to the King III Code on Corporate Governance -- defined as “a holistic and integrated representation of the company’s performance in terms of both its finance and stability.”  Unlike years gone by, stakeholders are increasingly requiring in-depth information on companies in order to make informed decisions on the company’s true value, performance and sustainability, as they decide whether or not to support it.

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Fighting corruption to achieve the Millennium Development Goals (MDGS) (13 Mar '12)

Article issued by CGF Research Institute and T.F.A.C

Crime experts, economists and NGOs were recently not surprised that an estimated R30 billion was being lost annually by South African taxpayers due to graft, incompetence and negligence in the public service.  Corruption is fast becoming pervasive throughout South Africa, and current cases such as the re-opened South African Arms Deal -- estimated at a value of US$4.8 billion alone -- do not inspire any confidence to suggest that South Africa is improving its reputation in this area, in fact quite the contrary.

To illustrate this further, research by TFAC (The Fight Against Corruption), found that 600 000 new low cost houses, 60 hospitals with a 280 bed capacity each, 3 000 rural clinics and 915 new schools could be built with the R30 billion estimated to have been misappropriated from state coffers. Moreover, TFAC asserts that one cannot -- in good conscience -- say that South Africa has the political will to fight corruption with its current systems, procedures and “arrangements/agreements” in place.

Research from Transparency International’s Corruption Perception Index indicates that South Africa has fallen from a respectable 34^th place in world rankings in 2000, to 64^th place in 2011. Allied to this sharp fall, most analysts agree that our Foreign Direct Investment (FDI) is now also under severe pressure.  This is largely due to our international investors raising South Africa’s risk profiles due to the country’s conflicting messages and the half-hearted attempts to rein in the ANC Youth League’s nationalisation ‘debate’.  According to the UN Conference on Trade and Development (Unctad), South Africa lost 70% of its FDI from $5.4bn in 2009 to a mere $1.6bn in 2010.  Whilst Angola appears to be the better choice of FDI destination on the African continent -- having earned top spot in 2009 and 2010 -- South Africa has only been rated 8^th choice of FDI destination over the same period.

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'Heads-up" for Directors in the Cloud (13 Mar '12)

Article issued by CGF Research Institute

There’s much that can be said about the manner in which members of a board are ‘wired’, and it does not take much to recognise those directors who embrace technology and those who don’t.  Interestingly, as technology races well ahead of the predictions stated by Moore’s Law in 1965 -- where the number of transistors would double on an integrated circuit every 18 months -- some have embraced this change, whilst many of the old school have ‘run away’ from it in fear.  Considering its pace, technological change is a huge adrenaline rush especially for the techno-savvy youngsters, but for the majority of those people who are ‘technologically challenged’ and their comfort zones threatened, they will become increasingly scared and may even flee their positions as their confidence levels in this area steadily decline.

Turning our attention then to a typical boardroom of today, still dominated by many directors who may not have been ‘nurtured with technological and computer gadgets’; understandably the older generation director will be seriously challenged when suggesting that the organisation’s hardware, software and data should be managed by a complete stranger to the organisation, and worse so, somewhere in the world wide web! The reactions expected from these less accepting board members, who are presented with a computing service -- Cloud computing which was conseptualised by John McCarthy in the 1960s -- which implies non-ownership or control of essentially the organisation’s computing backbone, however the shape or form, is predictably obvious.  Remembering of course that this situation will be fuelled even further if any of the following circumstances prevail; for example the organisation regards IT as an ‘intangible’ asset and is averse to IT expenditure, or its market share is in decline, or it is facing aggressive new market entrants, and finally -- but not least -- the organisation is technologically challenged or deprived.  Adding further pressure upon the existing directors who are reticent about Cloud computing, could also be the new and aggressive young executives rallying for the next position on the board, who themselves are ardent supporters of this new technology format.  Again, one hardly needs to be reminded of the manner in which directors may be regarded by the techno-savvy newcomers if their thinking still rests in the adage, “don’t fix what ain’t broke” or continuing to “box things in specific departments” with the belief that silo mentalities still work in a modern and highly wired world. The results will simply be disastrous, as the two worlds of dinosaurs and virtual, electronically wired executives collide!

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More than a Secretary: The keeper of secrets (29 Feb '12)

Article issued by CGF Research Institute

The role of the company secretary has in past times been referred to as the “keeper of secrets”. This title was aptly attached to the person responsible for recording the minutes of a (business) meeting containing sensitive or legal information, and being discussed amongst a privileged few. What few people, and businesses realise is that the term secretary (derived from the medieval word secretarius), finds its origins from the 15th century when it was first used to describe a piece of furniture wherein confidential documents could be locked away for safe-keeping.

Whilst the role of a company secretary has become a highly demanding job within a company, with many personal liabilities attached to this position, many companies today still disregard the critical value and function of this role. The modern-day company secretary is certainly not to be regarded simply as a piece of inherited furniture. Today many company secretaries are highly qualified legal individuals who serve on the board, with possibly a better and broader understanding of the company’s affairs as compared to their director counterparts.  Often ‘institutional memory’ may vest in the company secretary, which is extremely valuable to the company.  Amongst their many duties, company secretaries may assist the chief executive officer in reminding them of the shareholder’s or other stakeholder’s expectations from either the company, or the chief executive officer themselves.  Progressive boards regard the company secretary as their most senior administration officer, and indeed the value ascribed to this person is just one of the reasons why the King Report on Governance for South Africa 2009 (‘King III’) describes their role as ‘pivotal’ in a company.

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Procurement fraud: The bitter truth (27 Jan '12)

Article issued by CGF Research Institute and Werksmans Attorneys

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 assassination 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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