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Corporate Governance
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
Corporate Governance
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
Corporate Governance
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
Accountability
Ensure that management is accountable to the Board Ensure that the Board is accountable to shareholders
Fairness
Transparency
Ensure timely, accurate disclosure on all material matters, including the financial situation, performance, ownership and corporate governance
Independence
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 This was due to the context of a developing country and business ethics in Africa
Sustainability
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:
Sustainability
development that meets the needs of the present without compromising the ability of future generations to meet their own needs
Stakeholders
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
Business Ethics
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
Transparent disclosure
Well-defined shareholder rights
Board commitment
Clearly defined roles and authorities Duties and responsibilities of Directors understood
Control Environment
Control Environment
Control Environment
Transparent Disclosure
Transparent Disclosure
Web-based disclosure
Board Commitment
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
Board Commitment
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
Other Entities
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
Country Perspective
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 II 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
Country Perspective
Countries in Africa have tended to adopt a hybrid approach whereby they have followed the comply and explain approach but have enshrined some of the principles in law to assist in enforceability
The reason is the weakness of the shareholder base and of the media
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