1. An Introduction to
Corporate Governance
Below Board Level
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2. WHAT IS GOVERNANCE ?
Refers to the way in which something is governed
…………. meaning “Directed and Controlled”
Example – a country - powers shared are between
the legislative assembly
the executive government
the judiciary
to meet objectives such as protecting it’s people, and
acting in the country’s best interests
Weak governance in a country will result in a struggle
to attract foreign investment
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3. CORPORATE GOVERNANCE …
Definition :
“Good corporate governance is
essentially about effective leadership
characterised by the ethical values of
responsibility, accountability, fairness
and transparency”
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4. THE MAIN DECISION …………..
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5. WHAT IS CORPORATE
GOVERNANCE NOT ?
Corporate Governance is :
NOT the day-to-day management of the business
operations
NOT concerned with formulating business strategy,
although the board is expected to take strategic
decisions
Management = running the company
Governance = seeing that it is run properly
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6. WHY IS CORPORATE
GOVERNANCE IMPORTANT ?
Effective corporate governance makes good
business sense !
1. Investment
2. Sustainable growth
3. Business risk
4. Human talent
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7. WHO ARE THE ROLE PLAYERS
AND STAKEHOLDERS ?
Shareholders
Board of Directors ***
Management
Employees
Financial lenders and creditors
Customers
General public
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8. CHALLENGE OF GOOD
CORPORATE GOVERNANCE
To find a way to govern the company in which
the interests of the
Shareholders
Directors
Other stakeholders
are all be sufficiently satisfied.
This can be achieved by ensuring a balance of
power
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9. WHO ARE THE BOARD OF
DIRECTORS ?
Board of Directors consists of :
Chairman
Executive directors
Non-executive directors
Independent non-executive directors
Chief Executive Officer
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10. CHOOSING THE RIGHT
DIRECTORS
Must have :
Strategic focus
Financial savvy
Understanding of the fiduciary role and responsibilities
Effective communication skills
They must all deserve one of these !!
Judgement and leadership ability
General management experience
Knowledge of the company and industry
Basic understanding of the macro-economic, legal and regulatory environment
Team orientation
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11. WHO ARE THE
SHAREHOLDERS ?
**** Individual, company and institutional investors
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12. CORPORATE GOVERNANCE
ENSURES :
Regulation of the exercise of power
Development of practices which make and keep
the company accountable to it’s stakeholders
Creation and monitoring of appropriate checks
and balances
Identification of risks which are then either
managed, mitigated or eliminated
Compliance with law and regulations
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13. AT HEART OF DEBATE ABOUT
CORPORATE GOVERNANCE
Conflicts of Interest …….. (or potential ones)
Can arise between Shareholders and Board of
Directors (or individual directors)
Shareholder interests – lie in the long-term
Directors interests – lie in short-term
“Principal – Agent” problem
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14. CONCEPTS IN CORPORATE
GOVERNANCE
These concepts apply to corporate governance in all
countries where international investors invest their
money :
1. Openness, honesty and transparency
2. Independence
3. Accountability
4. Responsibility
5. Reputation and reputational risk
6. Social responsibility
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15. BHOPAL – UNION CARBIDE
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16. THE 3 CORPORATE SINS
1. Sloth
2. Greed
3. Fear
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17. AREAS WHERE CONFLICTS OF
INTEREST MIGHT BECOME
APPARENT
1. Financial reporting and auditing
2. Directors’ Remuneration
3. Company – Stakeholder relations
4. Risk-taking
5. Effective communication
(between directors & shareholders)
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18. FINANCIAL REPORTING AND
AUDITING
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19. DIRECTORS’ REMUNERATION
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20. COMPANY – STAKEHOLDER
RELATIONS
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21. RISK-TAKING
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22. EFFECTIVE COMMUNICATION
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23. CONTEXT IN WHICH
COMPANIES ARE GOVERNED
Corporate governance is to be considered
against the background of a country's
broader legal context
Legislation
Regulations
Listings requirements
Codes of best practice
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24. APPLICABLE LEGISLATION IN
SA
Various laws within SA govern the way that
companies deal with it’s stakeholders.
Common Law
Legal precedent
Existing laws
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25. HISTORY AND DEVELOPMENT :
South Africa
MASTERBOND
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26. HISTORY AND DEVELOPMENT :
International
SPLAT !!! 2012/07/20 © Compliance Cubed 2012 26

27. VOLUNTARY OR STATUTORY
COMPLIANCE ?
Judge Mervyn King
(Chairman of the King Committee)
Voluntary ……… King III 2009 (RSA)
“Apply or explain”
Statutory …… Sarbanes-Oxley Act 2002 (USA)
“Comply or else !!”
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28. FORMAT OF KING III
King III had broadened scope of corporate
governance in South Africa.
“The philosophy of the Report revolves
around leadership, sustainability and
corporate citizenship” Mervyn King
King III is principles-based with no
“one-size-fits-all” approach
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29. THE COMPANY SECRETARY
Described as one of the most
underestimated of all governance
roles.
Secretary comes from Latin word
“secretarius” meaning a person to
whom a secret is entrusted.
Must zealously guard their independence, and
advise the board on any action proposed if it
is unlawful or contrary to the
Memorandum Of Incorporation
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30. CONTENT OF KING III
The Report and the Code are collectively
known as “King III”
9 Chapters
75 Governance Principles
298 recommended practices
579 points in form of detailed advice
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31. CHAPTER 1
ETHICAL LEADERSHIP AND CORPORATE
CITIZENSHIP
“Responsible corporate citizenship implies
an ethical relationship between the
company and the society in
which it operates.”
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32. CHAPTER 2
BOARDS & DIRECTORS
“Companies should be headed by a board that
should direct, govern and be in effective control of
the company”.
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33. CHAPTER 3
AUDIT COMMITTEES
“An independent audit committee fulfils a vital role
in corporate governance.
The audit committee is vital to, among other
things, ensuring the integrity of integrated
reporting and internal financial controls and
identify and manage financial risks.”
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34. CHAPTER 4
THE GOVERNANCE OF RISK
“The board should exercise leadership to prevent
risk management from becoming a series of
activities that are detached from the realities of
the company’s business.”
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35. RISK MANAGEMENT
The Board is responsible for the total process
of risk …
Management is responsible to the Board for
risk management processes in respect of
Designing
Implementing
Monitoring
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36. CHAPTER 5
THE GOVERNANCE OF INFORMATION
TECHNOLOGY
“IT cuts across all aspects, components and
processes in business and is therefore not only an
operational enabler for a company,
but an important strategic asset which can be
leveraged to create opportunities and to gain
competitive advantage.”
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37. CHAPTER 6
COMPLIANCE WITH LAWS, RULES, CODES
AND STANDARDS
“The board is responsible for the company’s
compliance with applicable laws and with
those non-binding rules, codes and
standards with which the company has
elected to comply.”
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38. CHAPTER 7
INTERNAL AUDIT
“The King III risk-based approach directs internal
audit to address strategic, operational, financial
and sustainability issues in its quest to deliver
value to the organisation.”
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39. CHAPTER 8
GOVERNING STAKEHOLDER RELATIONSHIPS
“Stakeholder relationships provide a platform for
the board to take into account the concerns and
objectives of the company’s stakeholders in its
decision making, which is fundamental to the
process of integrated reporting”
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40. CHAPTER 9
INTEGRATED REPORTING AND DISCLOSURE
“Reporting should be integrated across all areas
of performance, reflecting the choices made in the
strategic decisions adopted by the board, and
should include reporting in the triple context of
economic, social and environmental issues.”
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41. CORE ETHICAL PRINCIPLES
Design and maintain a Code of Ethics based
on
Fairness
Transparency
Honesty
Non-discrimination
Accountability and responsibility
Respect for human dignity, human rights and
social justice
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42. APPLICATION OF CODE OF
ETHICS
Acceptable/unacceptable practice
Guide policy
Encourage ethical behaviour
Guide difficult decision-making
Identify ethical infringements
Promote awareness
Resolve conflicts
Specify company’s social responsibility
Relations with stakeholders
Enhance ethical reputation of company
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43. PRACTICAL
IMPLEMENTATION
Ensure the right people are in charge
Have a long term development plan
Aim to implement simple and robust solutions
Appreciate that issues of governance are fundamentally
linked to issues of
o strategy development
o risk management
o ethics
o corporate citizenship and sustainability
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44. PRACTICAL
IMPLEMENTATION … continued
Do not reinvent the wheel – draw on experience of other
companies
Apply the 80/20 Rule
Ensure that governance programmes have the active
backing of the board and top management
Market the corporate governance and sustainability concepts
Be flexible
Take bold steps – learn to live with the frustrations !
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45. MANAGERS & EMPLOYEES
Role within the organisation :
• Be equipped with the knowledge values and skills to interpret the
importance of sound Corporate Governance
• Contribute to the business through an increased awareness of it’s
importance and link to corporate citizenship
• Develop responsible business practices that lead to
environmental, economical and social sustainability
• Lead by example !
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46. MANAGERS & EMPLOYEES
Contribution :
• Find out what the leaders of the company are thinking
• Ask for what you need - CG Policy, Code of Ethics
• Understand what the rules are and implement them within your
teams - then monitor and report
• Collaborate with others
• Ask for feedback from the Board
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47. WHISTLEBLOWING
…… is when an employee provides
information about his/her company which
he/she reasonably provides evidence of :
A violation of a law or regulation
A miscarriage of justice
Financial mismanagement
A danger to public health and safety
Whistle-blowers are protected by the SA
Protected Disclosures Act 2000
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48. 2012/07/20 © Compliance Cubed 2012 48

49. BIBLIOGRAPHY
Corporate Governance in Southern Africa
(Course material for the CIS International Qualifying
Board Exam)
Corporate Governance – An Essential Guide
for South African Companies (2nd edition)
By Ramani Naidoo
Executive Guide to King III
(PWC)
www.cartoonstock.com
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50. QUESTIONS ……
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51. Thank you !
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