An Overview

Contemporary corporate governance started in 1992 with the Cadbury report in the UKCadbury was the result of several high profile company collapsesis 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 needsof the present without compromising the ability of future generationsto 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 committeeThe company has a corporate governance championA corporate governance improvement plan has been createdAppropriate resources are committed to corporate governance initiatives

Policies and procedures have been formalised and distributed to relevant staffA corporate governance code has been developedA code of ethics has been developedThe 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 CodeUS adopted legislation in 2002 - Sarbanes Oxley ActMost 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 shareholdersMost of them operate on a comply or explain approachThe Media also play a part in highlighting good or bad practices

Better access to external financeLower costs of capital interest rates on loansImproved company performance sustainabilityHigher firm valuation and share performance Reduced risk of corporate crisis and scandals