An Overview
*Contemporary corporate governance
started in 1992 with the Cadbury report
in the UK
*Cadbury was the result of several high
profile company collapses
*is concerned primarily with protecting
weak and widely dispersed shareholders
against self-interested Directors and
managers
*Shareholders those that own the
company
*Directors Guardians of the Companys
assets for the Shareholders
*Managers who use the Companys assets
*Primarily concerned with public
listed companies i.e. those listed on
a Stock Exchange
*Focused on preventing corporate
collapses such as Enron, Polly Peck
and the Maxwell companies
*What relevance does it have to Africa
where there are few public listed
companies
*Most companies are non-listed,
private family owned businesses
where the shareholders and the
managers are often the same people
*Accountability
*Fairness
*Transparency
*Independence
* Ensure that management is accountable to the
Board
* Ensure that the Board is accountable to
shareholders
*Protect Shareholders rights
*Treat all shareholders including
minorities, equitably
*Provide effective redress for
violations
Ensure timely, accurate disclosure on
all material matters, including the
financial situation, performance,
ownership and corporate governance
*Procedures and structures are in
place so as to minimise, or avoid
completely conflicts of interest
*Independent Directors and Advisers
i.e. free from the influence of others
* In 1994, The King Report in South Africa also
included within its Code of Corporate
Governance requirements on sustainability and
ethical standards
* King Report II on Corporate Governance (2002)
* King Report III on Corporate Governance (2009)
* This was due to the context of a developing
country and business ethics in Africa
*No generally accepted definition
*Most commonly used is from the
Brundtland Report for the World
Commission on Environment and
Development 1987 which defines it
as:
development that meets the needs
of the present without compromising
the ability of future generations
to meet their own needs
*Sustainability recognizes stakeholder
rights i.e. the rights of interested
parties e.g. employees, the community,
suppliers, customers etc.
*Encourage co-operation between the
company and its stakeholders in
creating wealth, jobs and economic
stability
*Established values and principles a company
uses to inform and conduct its activities
*Should permeate a companys culture and
drive its strategy, business goals, policies
and activities
*Usually found in a code of ethics
*Good Board practices
*Control Environment
*Transparent disclosure
*Well-defined shareholder rights
*Board commitment
*Clearly defined roles and authorities
*Duties and responsibilities of Directors
understood
*Board is well structured
*Appropriate composition and mix of skills
*Appropriate Board procedures
*Director Remuneration in line with
best practice
*Board self-evaluation and training
conducted
*Internal control procedures
*Risk management framework present
*Disaster recovery systems in place
*Media management techniques in use
*Business continuity procedures in
place
*Independent external auditor
conducts audits
*Independent audit committee
established
*Internal Audit Function
*Management Information systems
established
*Compliance Function established
*Financial Information disclosed
*Non-Financial Information disclosed
*Financials prepared according to
International Financial Reporting
Standards (IFRS)
*Companies Registry filings up to date
*High-Quality annual report published
*Web-based disclosure
*Minority shareholder rights formalised
*Well-organised shareholder meetings
conducted
*Policy on related party transactions
*Policy on extraordinary transactions
*Clearly defined and explicit dividend
policy
*The Board discusses corporate
governance issues and has created a
corporate governance committee
*The company has a corporate
governance champion
*A corporate governance improvement
plan has been created
*Appropriate resources are committed to
corporate governance initiatives
*Policies and procedures have been
formalised and distributed to relevant
staff
*A corporate governance code has been
developed
*A code of ethics has been developed
*The company is recognised as a
corporate governance leader
*Corporate Governance applies to all
types of organisations not just
companies in the private sector but also
in the not for profit and public sectors
*Examples are NGOs, schools, hospitals,
pension funds, state-owned enterprises
*Corporate Governance is by way of
legislation or best practice Code
*US adopted legislation in 2002 Sarbanes Oxley Act
*Most other developed and emerging
market countries have adopted best
practice Codes e.g. Combined Code in
the UK, Cromme Code in Germany and
the King III Code in South Africa
*These Codes are voluntary and are
enforced by shareholders
*Most of them operate on a comply
or explain approach
*The Media also play a part in
highlighting good or bad practices
*Better access to external finance
*Lower costs of capital interest rates
on loans
*Improved company performance
sustainability
*Higher firm valuation and share
performance
*Reduced risk of corporate crisis and
scandals
