corporate governance fig 1A framework for corporate governance

Corporate governance is the framework of laws, regulations, internal policies and procedures controlling the way in which businesses operate.

These are both external to the enterprise and internally formulated rules as defined by the shareholders and/or the board from time to time. It is increasingly also determined by other stakeholders such as employees, consumer groups and communities.

It essentially focuses on ethical behaviour and best practice value systems where the board and executive management have to set the example. In recent years weak corporate governance structures in large global corporations that lead to abuse of power and financial scandals, have been in the news.

An effective corporate governance framework should also provide for criminal / civil prosecution of any individual whose conduct is illegal or unethical whilst in the employ of an enterprise. The Companies Act together with the principles of good governance per the King Report on Governance for South Africa 2009 (the “King III” report) provides a solid and extensive framework for responsible boards to implement.

Corporate disclosures

Significant increases in corporate disclosure requirements and information management have been legislated in South Africa in recent years.

Companies are expected to ensure continuous compliance with and correct disclosure of financial and other information based, amongst others, on the four principles of fairness, accountability, responsibility and transparency as embodied in King III.

A close link exists between good governance and the legal duties of company directors and officers.

King III recommends that these duties be grouped into two categories, namely

  • fiduciary duties, and
  • the duty of care, skill and diligence.

This means that corporate governance processes and functions are also designed to manage non-compliance risks that the enterprise faces.  These could relate to operational and administrative back-offices such as regulations, best-practice standards, financial misstatements, fraud, vendor management, disaster recovery, etc.

Running in the background

We believe that governance processes and activities should permeate the entire organisation from top to bottom, all the while running silently in background. These processes:

  • should be practical;
  • should evolve and develop to remain in line with changes in regulations and best practice; and
  • above all, should not get in the way of doing business.

A sound corporate governance culture is thus defined as a board initiative which drives the general awareness, attitude and behaviour of all employees, suppliers and service providers regarding governance issues and the management of risk within the enterprise.

Structures and processes

Corporate governance involves the establishment of structures and processes, with appropriate checks and balances, enabling the board to discharge its legal responsibilities, and to oversee compliance with legislation.

It is thus a system of rules, practices, processes, policies, laws, and customs by which a company is directed, controlled and administered in such a way that it balances the many interests of different stakeholders in the company.

Board responsibility

Sound corporate governance starts with the board, who should:

  • develop/ratify a framework of corporate governance principles covering a range of rules, practices, processes, policies, laws, and customs based on the King III principles of fairness, accountability, responsibility and transparency;
  • be clear on the specific duties and responsibilities the board retains for itself as distinct from the duties and responsibilities assigned to management;
  • direct management to implement and maintain this framework across all business activities of the enterprise;
  • clearly communicate the message to all stakeholders as to what the board expects of them;
  • direct management to monitor the general awareness, attitude and behaviour of employees, suppliers and service providers to the governance framework in operation;
  • exercise risk & audit oversight,
  • maintain policies relating to sustainability, corporate governance, the environment, and social and ethical issues

Call us. We can assist your board and executive management to define and implement a framework of sound corporate governance processes.

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