chapter 2 non-financial corporate governance principles …
TRANSCRIPT
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CHAPTER 2
NON-FINANCIAL CORPORATE GOVERNANCE PRINCIPLES��
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2.1 Introduction
In this chapter the particular corporate governance principles or characteristics of
accountability, integrity and disclosure will be discussed as well as their specific
relevance for good corporate governance.
King II identified the seven characteristics as discipline, transparency, independence,
accountability, responsibility, fairness and social responsibility. In essence, they
demonstrate the same kind of behaviour that forms part of good corporate governance
as the above characteristics of accountability, integrity and disclosure. Management’s
view of the most important aspect in business is that of the bottom line of the balance
sheet in other words the profit that the company generates. The view of this study and in
support of that of Rossouw D & Van Vuuren L (2004) is that business cannot only be
bottom line driven. In order for any business to be successful and to make a profit,
interactions with other businesses and individuals have to take place. The public and
company employees are constantly interacting on different levels of society and within
various disciplines to fulfil the demand for certain needs. It is at this point where
businesses and individuals are confronted with issues such as good and bad or wrong
and right. Accountability, integrity and disclosure can become prerequisites for any
business or organisation alike to maintain their business reputation and to sustain
financial performance. Organisations and companies should pursue these concepts, to
avoid being blamed by communities and shareholders for being short sighted and driven
by the need for profit at all cost.
According to Du Toit (2002:8) the seven primary principles or characteristics of
corporate governance as indicated by the King II Report (2002), could be stated
differently by using terms such as accountability, integrity and disclosure. Integrity
comprises a value-based system in order to manage ethical behaviour within an
organisation. Integrity should play an important part in the day-to-day operations within
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the organisation. Management should go as far as defining integrity behaviour and
cultures that are relevant to the organisation and make them part of the key
performance indicators of individuals. They should then be appraised in terms of their
compliance or non-compliance to these outcomes.
Disclosure of information can either be internally or externally. This chapter will
investigate disclosure of organisational information to internal sources. Disclosure is
defined by the COLLINS English dictionary as “to make information known”, “to allow to
be seen” or to “agree to disclose the contents of the box”. Companies and organisations
should be very concerned with what information is divulged to the public and the timing.
Disclosure of organisational information can either be to your advantage or
disadvantage. Major corporations have in the past obtained a competitive advantage
over their rivals with the information known to them. The question of what information
should be disclosed is particularly concerned with categorizing information as being
sensitive, confidential or for general public consumption. The value of disclosing internal
corporate information lies in whether the information reaches the target group for which
it was intended.
There is ever increasing pressure on companies to become more balanced, and the
more comprehensive the disclosure, the more positive the impact will be on the
reputation of the company. On a corporate level sustainable disclosure according to the
King II Report (2002:203) should include social, transformational, ethical, occupational
health and safety, and environmental policies and practices. The King II report goes
further to mention that three levels of reporting exist which can be phased in over a
period of time, namely:
��Acceptance and adoption of business principles that can be verified
��The implementation of practices with adequate evidence to support disclosure
��Performance against related adopted principles.
When considering the sustainability of disclosure within an organisation, the disclosure
should include principles such as:
��Reliability
��Clarity
��Relevance
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��Comparability
��Verifiability
��Consistency, and
��Materiality
This chapter will specifically focus on two organisational disclosure aspects, which will
include employment equity and training. Although other aspects of disclosure exist,
these two aspects form the basis of the character of the organisation as well as the
future stability and success of the organisation. Aspects such as environmental matters,
social issues, procurement and black economic empowerment could be seen as
external matters. This is a direct result of the fact that these aspects do not benefit the
organisation internally but rather the community or the consumer.
The extent to which public organisations comply to corporate governance principles e.g.
(accountability, integrity and disclosure) are some of the major questions, which are
constantly asked by the public. The reason for this being, that the general public strive to
minimize service levy costs and maximize service delivery levels. Operational,
budgetary and management problems occur from time to time, which gives the
impression to the general public that the organisation is not at all in control of matters
and therefore mistrust and negativity towards the organisation and employees are
created. Performance management evaluations are known to only measure the
performance of an individual or an organisation against pre-determined organizational
goals and objectives with specific targets or benchmarks. Performance measurement
however does not measure the fundamental characteristics of non-financial corporate
governance namely, accountability, integrity and disclosure as referred to by Du Toit
(2001:7).
The basic principles of financial corporate governance are annually measured by the
Finance Department of the CTMM. These principles of corporate governance include,
risk management, social responsibility, financial procurement processes and financial
sustainability of the organisation in terms of the income streams and levels of
expenditure. The non-financial corporate governance principles are however not part of
the financial audit and it therefore seems that non-financial corporate governance is
neglected throughout the whole organisation. This study will focus on the non-financial
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corporate governance principles as defined in the King II report (2002:3) and earlier
discussed in the chapter. The principles of accountability, integrity and disclosure are
specifically chosen for their importance regarding the efficient and effective
management of the CTMM. They will be discussed in detail in sections to follow. The
focus will be to define the various concepts and to utilize these concepts to derive
specific questions in order to compile the questionnaire. These and other related
concepts will be discussed in more detail in the paragraphs to follow.
2.2 Accountability
Accountability means “that the subordinate’s manager has the right to expect the
subordinate to perform the job, and the right to take corrective action in the event the
subordinate fails to do so” Bateman & Snell, (1999:284). King II (2002) distinguishes
between accountability and responsibility in the manner where “ one is liable to render
an account when one is accountable, and be called to account when one is
responsible”. KPMG (2002:71) mention in the toolkit for the company directors that it is
very important to note that accountability to the board remains with management and
should be the responsibility of every employee in the organisation. For a company or
individual to discharge its accountability, an organisation/individual should account for
his/her acts, omissions, risks and dependencies according to the Toolkit for the
company director, KPMG (2002:71). The concept of accountability is directly related to
other concepts of responsibility, delegation and code of conduct. People are held
accountable for that which has been entrusted to them by their job descriptions and their
subsequent fiduciary duties. This entrustment in organisations happens through
delegation and authority for which they are responsible. Typically, a code of conduct is
to ensure appropriate measures are applied, in order to ensure that behaviour is
desirable for which people can be held accountable.
In order to understand the level at which the managers and deputy managers are
accountable for their decisions and actions, figure 2.1 is included to indicate the
hierarchy of accountability within the CTMM structure. However, all employees of a local
government organisation are accountable for their actions towards the local community.
All levels of management within the CTMM are ultimately accountable for their actions to
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the Executive Mayor. The Executive Mayor Committee performs the same duties and
has similar responsibilities as the Board of Directors of a company. The Municipal
Figure 2.1: Hierarchy of Accountability within the CTMM
•
Mayor of the CTMM
CTMM Community
(Executive) Mayoral Committee Consisting of 9 (MMC’s) -Members
of the Mayoral Committee with specific portfolios
Municipal Manager On equal base with Chief Executive Officer of a Company
On equal base with Board of Directors of a Company
Chief Operating Officer
Local Economic Development
Division • Strategic
Executive Officer (1/2)
• General Manager (1)
• Managers (4) • Deputy
Managers (10) • General Staff
Transport Division • Strategic
Executive Officer (1/2)
• General Manager (1)
• Managers (4) • Deputy
Managers (11) • General Staff
Roads & Stormwater
Division • Strategic
Executive Officer (1)
• General Manager (1)
• Managers (6) • Deputy
Managers (28) • General Staff
On equal base with Shareholders
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Manager on the other hand has duties and responsibilities similar to that of a Chief
Executive Officer of a company.
The Institute of Social and Ethical Accountability (ISEA) of South Africa developed an
Accountability Framework (AccountAbility 1000 – AA1000), which was compiled in
collaboration with international partners concerned about the international standards and
guidelines of corporate accountability. This guideline document aims at improving
common understanding of what matters about accountability and quality management of
an organisation by responding to the needs and aspirations of its stakeholders, and also
through external stakeholder engagement to establish a climate of increased trust and to
create partnerships to open value-based relations.
The AA1000 defines accountability, as “to explain or justify the acts, omissions, risks
and dependencies for which one is responsible to people with legitimate interest”.
Accountability by individuals and organisations can be improved once the organisation
or individuals decide to ensure that organisational strategies are meaningful to
stakeholders and understood by them.
The credibility gap that was created by corrupt managers and mismanaged corporations
led to the establishment of proper guidelines on accountability such as the AA1000 and
the drafting of the King II (2002) report on corporate governance. Rossouw & Van
Vuuren (2004:192) confirms that the state is accountable to its citizens in the public
administration of its powers. They state that as a result of growth of modern corporations
they exert enormous social influence, but without having to account to the public for their
actions. This in particular led to the establishment of special interest groups i.e.(home
owners organisations, civic associations, youth and women’s leagues, social-economic
and environmental organisations, etc) to monitor the actions of organisations.
Ratepayer’s organisations and other interest groups play a similar role in holding local
government institutions and their officials accountable. In terms of the Local
Government: Municipal Finance Management Act, Act 56 of 2003, officials and
municipal entities are directly accountable for their financial conduct.
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The accountability concept is also linked to the concept of responsibility. In order to be
held accountable for one’s actions certain responsibility should have been entrusted
upon the individual. Delegation of responsibilities often takes place by management, but
accountability ultimately remains the responsibility of management. Performance
measurement regarding the responsibilities which one is accountable for is guided by
the code of conduct of an organisation. In the event of non-compliance, it implies that
corrective or punitive measures should be applied. The concept of responsibility will be
elaborated on in the following section.
2.2.1 Responsibility
Responsibility, according to Bateman & Snell (1999:284), means that a person is
assigned a task that he or she is supposed to carry out. Responsibility can be grouped
into two different sections namely, (1) social responsibility where the organisation is
ultimately responsible to its clients/community for the services that they deliver, or (2)
the work/job responsibility which an individual, in this case the managers, has towards
senior management and their direct subordinates. Classicists according to Robbins
(1993:491) argue that delegation goes with commensurate responsibility. Responsibility
might encompass reporting responsibility, supervisory responsibility or financial
responsibility as defined by the King II (2002) report.
To allocate authority without responsibility creates opportunity for abuse and no one
should be held responsible for what he/she has no authority over. Classicists’ further
state that responsibility cannot be delegated. They support this contention by noting that
in many situations, actions or arbitration cases the delegator was held responsible for
his or her delegates’ actions. According to Robbins (1999:493) two forms of
responsibilities exist namely, operating responsibility and ultimate responsibility.
Operating responsibility is the responsibility that managers encounter every day of their
lives where they delegate operating responsibility equal to the delegated authority.
Ultimate responsibility, however, can never be delegated.
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In this study the focus will only be on the internal responsibility, in other words the
responsibilities that a manager has to fulfil his/her job and the departmental purpose. All
appointed managers in the CTMM should be in possession of a copy of his/her job
description, which defines the specific role, and responsibilities, which he or she should
perform in the organisation. The job description also performs an important role when a
manager or his delegate did not perform their responsibilities, as they should have or as
a result of improper behaviour. The job description then becomes the guiding document
for any corrective measures or possible punitive measures. A manager can only assume
responsibility for actions, incidents or activities, which was delegated to him or her.
Responsibility as measured in the CTMM context, will mainly focus on management’s
responsibility role, which they play in the organisation, and whether they are held
responsible for decisions that they take as a result of their delegated authority.
2.2.2 Delegation
Delegation also forms part of the principle of accountability. Managers cannot perform all
the business activities themselves and often have to rely on other individuals or
subordinates with the necessary skills to perform it on their behalf. By delegating
activities managers get the job done by others but retain accountability for the tasks,
which others perform. Authority means that a person has the power and the right to
make decisions, give orders and draw upon resources and do whatever else is
necessary to fulfil his/her responsibilities as defined by Bateman & Snell (1999:284).
The common problem with responsibility is that people and managers have more
responsibility than then have authority to perform their duties. Bateman & Snell
(1999:283) states that delegation is perhaps the most fundamental feature that
managers use to get things done by someone else. Delegation further requires that
some sort of feedback take place after the task/s have been completed.
In the CTMM authority is delegated to managers according to their job descriptions and
their departmental purpose portfolios and any further responsibilities are delegated by
means of special power resolutions approved by the decision-making authority of the
CTMM. There is for this reason, currently specific delegated powers given to the
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Municipal Manager regarding the procurement process, budget reallocations, signing
and approval of agreements, financial arrangement powers, etc. On the other hand the
Municipal Manager officially delegated his financial powers to the Chief Financial Officer
(CFO) who is ultimately responsible for the financial control of the CTMM finances in
terms of the MFMA.
Whether management of the CTMM delegates to subordinates, and if so whether it is
done formally or informally, will be elaborated on in the analysis of the findings of the
questionnaire.
2.2.3 Code of Conduct
The individual in the company can be held responsible and accountable for his or her
actions when interacting with customers or the public takes place. In order to address
their possible non-compliance a code of conduct is utilised to rectify the problem. A code
of conduct is merely a set of ethical rules. The value of the code of conduct according to
Crawthorne (1993:94) lies in the fact that the code of conduct draws attention to pitfalls
that can be avoided and suggests how all employees should conduct themselves in the
interest of good governance. Rossouw & Van Vuuren (2004:182) further supports the
notion that a code of conduct should specify the standards of behaviour that all
members of the organisation adhere to. They go further to say that it is important for
management to develop the code in such a manner that it enjoys credibility and
acceptance in the organisation. Craythorne (1993:94) states that a Code of Conduct is a
document of an advisory nature and does not have any legal force, unless it is included
into the employee’s contract of service. The employee subsequently have to sign
acknowledgement and receipt of a copy of the Code of Conduct in order to prevent
future allegation that it was not received. Any Code of Conduct should be properly
drafted and should include any possible discrepancies or so-called “grey areas” where
employees can escape prosecution from misconduct. The main objectives of any Code
of Conduct should be to prevent any dishonesty, corruption, unethical behaviour, abuse
of information, conflict of interest, being bias etc and to hold people accountable in terms
of the code of conduct for these actions.
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Apart from the organizational code of conduct, which an individual should comply with,
almost every professional career has its own code of conduct, which its professionals
have to comply with. These professional codes of conduct are developed, implemented,
and monitored by organisations such as the Medical and Dental Council of South Africa,
Engineering Council of South Africa, Association of Chartered Accountants, Law
Society, etc to name but a few.
The CTMM approved its Code of Conduct on 1 November 2001 under section 69 of the
Municipal Systems Act. By approving the Code of Conduct the CTMM set standards for
social and ethical behaviour by all employees of the organisation to comply with. The
CTMM Code of Conduct addresses specific issues, which defines the organisations
external image and creates a safe, enjoyable and trustworthy organisation on the inside.
Specific issues addressed by the CTMM code of conduct to name but a few, are:
• general conduct –external and internal
• servicing the publics interest
• personal gain
• disclosure of benefits (through business association)
• unauthorised disclosure of information
• undue influences
• rewards, gifts and favours
• council property
• sexual harassment
• reporting duty of staff members and,
• breaches of contract.
The general conditions of conduct of the CTMM’s code of conduct stipulate that a staff
member of a municipality should at all times:
• loyally execute the lawful policies of the municipal council
• perform the functions of office in good faith, diligently, honestly and in a
transparent manner
• act in such a way that the spirit, purport and objects of section 50 are promoted
• act in the best interest of the municipality and in such a way that the credibility
and the integrity of the municipality are not compromised
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• act impartially and treat all people, including other staff members, equally without
favour or prejudice.
The CTMM thus has a code of conduct, which defines in detail the required actions from
its members towards society and fellow workers. The availability of the code of conduct,
the consciousness and familiarity of the contents of the code of conduct as well as the
continuous use thereof will form part of this study, and is measured by means of a
questionnaire.
2.3 Integrity
The definition of integrity according to the Collins Concise Dictionary is defined as
adherence to moral principles, honesty, and the quality of being unimpaired, soundness,
unity and wholeness. According to Rossouw & Van Vuuren (2004:6), integrity is a
concept that is closely aligned to ethics. Integrity is however a much more restricted
concept than ethics. The concept of integrity can be analysed in terms of the following
aspects:
• Fairness as a way of treating fellow workers and fairness in the treatment of
workers by the organisation or the company, fosters the belief in people that they
are being treated with integrity
• The interaction with fellow colleagues in the work environment normally indicates
whether a person has respect for others, which directly shows whether someone
is a person of integrity, or not.
• By showing empathy to another individual when he/she has gone through a
difficult time, indicates whether a person is compassionate and whether a person
possesses integrity.
• Being an honest person in the actions towards other also indicates whether a
person is a person of integrity and can be trusted. This also applies to the entire
organisation, as the consumer perceives it.
Integrity is thus often associated with concepts such as fairness, honesty and empathy.
According to Rossouw & Van Vuuren (2004:151) companies can take various steps to
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improve integrity in the company and to make sure that it becomes a company that acts
with integrity. These measures include to:
• Recruitment and selection procedures to assist the company to hire individuals of
integrity
• Identification of ethical values and standards that all staff members should adhere
to
• Include a reward system for adherence or a disciplinary action against those who
deviate from it.
Figure 2.2:Relationship between Integrity and Ethics
Source: Rossouw & Van Vuuren. (2004:6). Business Ethics. Cape Town.
Oxford University Press.
To become a person of integrity you have to go back to the fundamentals. This implies
that you would have to commit yourself to complete and utter honesty and
confidentiality. On your daily journey in life consider the following aspects to become a
person of integrity as stated by Maxwell & Dornan (1997:33):
• commit yourself to developing strong character
• do the little things that matter in life
• do what you should do before you do what you want to do (duty before pleasure).
Integrity is crucial for business and personal success. An important rule to remember
according to Maxwell & Dornan (1997:22) is to not do “what you would not feel
comfortable reading about it in the newspaper the next day”. Tests are these days used
Ethical Behavior
INTEGRITY
Unethical Behavior
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to assess a job candidate’s integrity. These test are commonly known as polygraphs and
paper-and-pencil honesty tests. According to Bateman & Snell (1999:342 typical
questions asked in a paper-and-pencil test would be whether a person has ever thought
about stealing and whether he or she believes other people steal. These types of test
according to Bateman & Snell deliver great results firstly in choosing employees with
integrity and secondly to reduce theft by employees.
Any organisation should have an integrity strategy that focuses on the continuous
communication, training and induction of new employees in the integrity strategy of the
organisation. The elements of an integrity strategy according to Bateman & Snell
(1999:162) should include:
• the guiding values are shared and clearly understood by everyone
• company leaders are personally committed to the values and willing to take action
on them
• the values are considered in decision making and reflected in all important
activities
• information systems, reporting relationships, and performance appraisals support
and reinforce the values
• people at all levels have the skills and knowledge to make ethically sound
decisions on a daily basis.
An integrity strategy should commence with a deep diagnosis of the corporate ethical
culture and the current state of ethical behaviour. Stakeholders should be consulted to
give their moral expectations of the organisation. Rossouw and Van Vuuren (2004:53)
are of the opinion that an integrity approach relies heavily on the example set through
adherence of the leaders to the core ethical values and standards of the organisation.
2.3.1 Fairness
In paragraph 2.3 it was found that fairness is a way of treating people in an acceptable
manner and people are made to believe by their parents, teachers, bosses and other
people that play an important role in their lives, that they are people with integrity. Fair
treatment according to Bendix (1996:374) can only be considered when the conclusion
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was reached that an action or behaviour could be considered fair if there was balance
between the parties, if both parties received equitable treatment, if there was conformity
with universally accepted standards and if consistency was exhibited. Fairness
therefore could be considered as the quality of being just, equitable and impartial. Ideas
of fairness are sometimes shaped by vested interest. Perceived fair treatment by fellow
colleagues and business associates is an important concept to build trust, honesty and
improve future business relations. Ferrell, Fraedrich & Ferrell (2002:65) state that
fairness is the disposition based on a desire to deal with the perceived injustices of
others. They go further to state that fairness often relates to doing the right thing with
respect to small matters to cultivate a long-term business relationship.
Fairness within the organisation could mean that emphasis is placed on aspects such as
procedural transparency and fairness in processes such as promotions, bonuses and
disciplinary actions, which make it easier for managers to communicate with their
subordinates. Procedural fairness in the case of disciplinary hearings refers to the
procedures, which should be prompt and procedurally correct. Substantive fairness in
the instance of disciplinary hearings makes reference to the punishment, that it must be
commensurate with the misconduct of the employee in other words it must be
proportionate to the offence.
In the CTMM context the focus is rather based on the principles of substantive and
procedural fairness to ensure that fair investigations, hearings, verdicts and penalties
are implemented. The intention with this study is to determine whether the CTMM
promote fairness, in particular as mentioned above and whether the CTMM not only
preaches but also applies their fair treatment for all policy.
2.3.2 Respect for others
Interaction with other individuals in a respective manner shows good character and such
an individual can be classified as an individual with integrity. The Collins Concise
Dictionary defines respect as “attitude of deference, admiration, or esteem, regard”.
Heller & Hindle (1998:231) state that to show respect to others you have to treat
everyone with the same respect that you expect yourself (“do unto others as you would
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be done by”), because your staff are allies in the job of management. A simple example
of showing respect to others is by entrusting part of a manager’s work to another
because of a belief in their capability. Heller & Hindle (1998:231) further emphasize the
importance to build mutual respect by asking subordinates for their opinions on how the
work should be done, and demonstrating to them a willingness to listen to their
suggestions.
In the CTMM context the focus regarding respect for others is based on your immediate
actions in the direct work environment. Actions that might negatively impact on another
person’s work environment should not be communicated, not attacking someone’s
personality, respecting their privacy and listening to whenever they have a contribution
to make no matter the relevance thereof, demonstrates respect. The intention with this
study is to determine whether the CTMM shows respect to its employees through its
actions and further to determine whether respect is applied by the superiors of
managers and deputy managers when considering their respective views, decisions and
actions.
2.3.3 Compassion
A compassionate individual is a person with empathy towards other individuals and can
show that they possess adequate empathy that they do not communicate the issues to
others, show character of integrity. Being able to show compassion and empathy is
important people skills in the business environment. The Concise Dictionary defines
compassion as “a feeling of distress and pity for the suffering of, or misfortune of
another”. On the other hand empathy is defined by the Concise Dictionary as “the power
of understanding and imaginatively entering into another person’s feelings”. Frederick
(1999:314) mentions that sympathy, compassion, fidelity, and friendship are traits most
commonly focused upon by feminist philosophy. To show compassion one should be
able to show empathy.
Compassion or empathy in the case of the CTMM is constantly shown towards non-
ratepayers. The arrears in service levies run into hundreds of millions of rands, which
would probably never be retrieved. On the other hand the question should be whether
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the CTMM and its managers show adequate compassion or sympathy towards their
fellow workers and the public in general. How far is the CTMM willing to let rate non-
payments escalate? One can simply not show endless compassion specifically when
the compassion impacts on other ratepayers that has to foot the bill. This study therefore
focuses on the question of, when is enough, enough. This question and others will be
put to the target audience to get their views of the CTMM’s level of compassion.
2.3.4 Honesty
An honest person attracts trust, and in instances encourages honesty in others or the
organisation. An honest person definitely is a person of integrity, which can be trusted.
Honesty in this study refers to truthfulness, integrity and trustworthiness according to
Ferrell, Fraedrich & Ferrell (2002:31). Honesty is defined by the Concise Dictionary as,
acting in an honest manner, trustworthy, not false or misleading, genuine, just and fair.
Virtues that expand on honesty are trust and truthfulness. Ferrell, Fraedrich & Ferrell
(2002:65) define truth as the “predisposition to place confidence in the behaviour of
others while taking the risk that the expected behaviour will not be performed”.
Truthfulness on the other hand is defined as the disposition to provide the facts or
correct information as known to the individual. Telling the truth involves avoiding
deception and contributes to trust in the business relationship. According to Fredericks
(1999:144) possible honesty “risks” could include aspects where the employee has
conflict of interest, security of employee records, inappropriate gifts, unauthorized
payments to foreign officials and advertising content.
Polygraph tests have extensively been used in the USA & the UK where new job
applicants were put through a polygraph test. There have been some mixed feelings and
results regarding this test and according to Shaw & Barry (1989:286) on balance the
violation of the privacy of a job applicant weighs strongly on the effectiveness of these
tests. This however constitutes a serious reason to oppose the use of the polygraph test
in the evaluation of honesty levels of new applicants.
The honesty test should be conducted as a pre-employment test according to Shaw
(1991:247) whereby the honesty test should include questions such as:
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• How strong is your conscience?
• How often do you feel guilty?
• Do you always tell the truth?
• Do you occasionally have thoughts you wouldn’t want to make public?
• Does everyone steal a little?
• Do you enjoy stories of successful crimes?
• Have you ever been so intrigued by the cleverness of a thief that you hoped the
person escaped detection?
The answers to these questions provide the organisation the answers they need in order
to develop an honesty profile of the individual with a “risk” classification between high,
moderate or low.
In this study the focus will be on whether the CTMM as an organisation expects honest
behaviour from their employees but also whether the organisation promotes and applies
honesty on a daily basis. In terms of the CTMM code of conduct, any employee that
receives gifts, financial rewards or any favours by someone that stands to gain more
from such a relationship should immediately bring it to the attention of the council. Any
failure to do so could result in corrective steps being taken against the perpetrator and
the employee, which could result in either the suspension or dismissal of the employee,
depending on the seriousness of the offence.
2.4 Disclosure
Organisations and individuals often have to disclose fraudulent and unethical conduct to
ensure that the company retains its future existence, stability and status in the
community.
All business organisations depend on communication, being internal or external
communication. This study will only focus on the internal component of communication
or the disclosure of information. According to Grobler, Wärnich, Carrell, Elbert & Hatfield
(2002:14) communication is the glue that binds various activities together, that allows
people to work together and produce the required results. Two basic communication
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channels are present in any organisation: the communication that flows from the top
downward, and the communication that flows from the bottom upwards.
The Promotion of Access to Information Act states that the right of access to any
information held by a public or private body may be limited to the extent that the
limitations are reasonable and justifiable in an open and democratic society based on
human dignity, equality and freedom as contemplated in section 36 of the Constitution.
The Promotion of Access to Information Act further has the following to say under the
preamble of the act in order to:
• foster a culture of transparency and accountability in public and private bodies
• by giving effect to the right of access to information
• actively promote a society in which the people of South Africa have effective
access to information to enable them to more fully exercise and protect all of their
rights.
The Promotion of Administrative Justice Act expresses in its preamble that the contents
of the act should be implemented in order to:
• promote an efficient administration and good governance
• create a culture of accountability, openness and transparency in the public
administration or in the exercise of a public power or the performance of a
public function, by giving effect to the right to just administrative action.
The question arises as to, when should information not be disclosed? According to Uren
(2003:38) the following apply in this instance, namely:
• a reasonable person would not expect the information to be disclosed
• the information is confidential and there is satisfaction that confidentiality has
been maintained
• one or more of the following applies:
o it would be a breach of a law to disclose the information
o the information concerns an incomplete proposal or negotiation
o the information comprises matters of supposition or is insufficiently
defined to warrant disclosure
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o the information is generated for internal management purposes of the
entity
o the information is a trade secret.
The CTMM has written into its Code of Conduct that the disclosure of benefits by a staff
member of a municipality who, or whose spouse, partner, business associate or close
family member, acquired or stands to acquire any direct benefit from a contract
concluded with the municipality, must disclose in writing full particulars of the benefit to
the council.
• This item does not apply to a benefit which a staff member, or a spouse, partner,
business associate or close family member has or acquires in common with all
other residents of the municipality.
The code of conduct of the CTMM is very clear on specifically unauthorised disclosure of
information. The CTMM code of conduct has the following rules:
• A staff member of a municipality may not without permission discloses any
privileged or confidential information obtain as a staff member of the municipality
to an unauthorised person.
• For the purpose of this item "privileged or confidential information" includes any
information-
• Determined by the municipal councillor any structure or functionary of the
municipality to be privileged or confidential;
• Discussed in closed session by the councillor a committee of the council;
• Disclosure of which would violate a person's right to privacy; or
• Declared to be privileged, confidential or secret in terms of any law.
The inclusion of these items does however not derogate from a person's right of access
to information in terms of national legislation.
2.4.1 Status of Information
An important aspect of disclosure is the status of information that needs to be disclosed.
The status of information, which corporate entities should disclose, is determined by
whom the information is intended for and what the possible benefits for disclosure could
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be. In the 21st century information is power. Information that falls into the hands of the
opposition might ensure competitive advantage to them. It is therefore crucial to know
the status of the information before it is made available for public consumption. Sensitive
information should be accompanied by a confidentiality or highly confidential status.
Accessibility to sensitive information or privacy of personal information should have
restricted access and only be accessible to individuals that have the necessary
authoritative permission. There is however a specific information session, which need to
take place, which are called public participation sessions where a specific message is
conveyed to the community. These sessions are very well structured and only a speaker
conveys the correct information.
The code of conduct of the CTMM clearly defines the circumstances under which
information can be disclosed and what information can be disclosed. The code of
conduct of the CTMM under the heading of disclosure of benefits has the following to
say:
• A staff member of a municipality who, or whose spouse, partner, business
associate or close family member, acquire any direct benefit from a contract
concluded with the municipality, must disclose in writing full particulars of the
benefit to the council
On the sensitive topic of unauthorized disclosure of information the code of conduct
states that:
• A staff member of a municipality may not without permission disclose any
privileged or confidential information obtained as a staff member of the
municipality to an unauthorized person
• Privileged or confidential information is any information determined by the
municipal council or any structure or functionary of the municipality to be
privileged or confidential
• Discussed in closed session by the council or any structure or functionary of the
municipality to be privileged or confidential
• Disclosure of which would violate a person’s right of privacy
• Declared to be privileged, confidential or secret in terms of any law
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These items however does not derogate from a person’s right to access to information in
terms of the national legislation.
2.4.2 Whistle Blowing
Various ways of disclosure of information exist. Whistle blowing is one such method of
disclosure of corporate wrong doing by management or a colleague. Rossouw & Van
Vuuren (2004:183) defines whistle blowing as “the unauthorized disclosure of
organizational wrongdoing”. In the words of Shaw (1991:272) “A whistle blower is an
employee or an officer of any institution, profit or non-profit, private or public, who
believes either that he or she has been ordered to perform some act or he/she has
obtained knowledge that the institution is engaged in activities that:
• are believed to cause unnecessary harm to third parties
• are in violation of human rights
• run counter to the defined purpose of the institution and who informs the public
of this fact.
Whistle blowing primarily has to do with the disclosure of all malpractices and
organizational wrongdoings. Organisational wrongdoings therefore consist of all illegal
and/or unethical behaviour within the workplace. Typical aspects, which could be
considered as unethical, or malpractices within the workplace and therefore qualifies for
whistle blowing, are:
• any form of maladministration
• abuse of power
• improper or unauthorized use of public funds
• miscarriage of justice
• endangering the health or safety of any individual, etc.
Why should someone blow the whistle on his or her colleague? According to Rossouw &
Van Vuuren (2004:178) the first reason could be as a result of the whistle blowers high
moral standards, the so-called “choiceless choice”. Whistle blowers might secondly use
it as a tactical move to distance themselves from immoral activity. In the third place the
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whistle blower might want to expose the inequitable distribution of rewards and finally
whistle blowing might be related to vengeance. The effectiveness of whistle blowing
within an organisation is only as effective as the system that is in place. Whistle blowers
therefore expect the organisation to address wrongdoings as soon as possible. The
whistle blower often becomes the target and is isolated in the organisation. Colleagues
become progressively less friendly and are blamed for being a troublemaker. Managers
can go so far as to try and fire the whistle blower and protect the wrongdoer. Tactics
used by management to discredit the whistle blower are, according to Rossouw & Van
Vuuren (2004:180), as follows:
• destroying the whistle blowers career
• blacklisting
• dismissal
• transfer
• personal harassment.
Should management ultimately use one of the above methods to discredit a whistle
blower, he or she might voluntarily leave the company from fear of being victimized.
In the instance of the CTMM this study aims to establish whether the CTMM has an
effective and efficient whistle blowing policy so that whistle blowers can feel protected.
The study will go further to determine whether the CTMM promote whistle blowing and if
they do, whether the whistle blower will be protected from possible victimization by the
organisation, peers and fellow colleagues.
2.4.3 Openness
Openness defines the way by which the corporate entity discloses for instance aspects
such as fraud, unethical behaviour or mismanagement. Openness is further linked to
how soon the information is disclosed, in what manner, to whom and by whom?
Openness according to Rossouw & Van Vuuren (2004:149) refers to how freely
managers make information available to their subordinates. Rossouw & Van Vuuren
distinguishes further between two kinds of information, namely:
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• Functional information that is required by employees to perform their jobs well.
Should this vital information be withheld from employees within the CTMM, it
would undermine the trust, which employees should have in management.
• Personal information about the managers themselves. Managers who are
willing to expose something of themselves to their workers are general seen as
more trustworthy, by their workers.
To withhold functional information from workers and junior management could be
perceived by workers and junior management, as they are not being trusted. Rossouw &
Van Vuuren (2003:148) states that workers might perceive it as counterproductive and
even immoral. The individual openness of managers and workers alike is directly linked
to his or her personality. So for instance would an extrovert personality manager, be
more open to sharing personal information with his or her colleagues. An introvert
personality manager on the other hand would be inclined to withhold any personal
information and in some instances even important work related information. Companies
encourage managers to get to know their own personality in order to compensate for
possible shortcomings in this regard. Personalities and openness towards functional
information severely influences the individual’s management style and impacts
negatively on the image of the organisation.
Openness and being transparent goes hand in hand. Transparency is about openness.
In terms of democratic governance systems, it is about being able to see what decisions
are being made, how they are made and if it is important for anyone to agree to. Without
information citizens are unable to monitor the affairs of their elected representatives,
which could lead them to think that politicians and managers use decision-making and
information transfer to hide their own interests and personal agendas. Transparency
strengthens:
• Public and media involvement
• The right to knowledge of protected government actions
• Performance measurement by the public
• Reduction in overspending and therefore reduction in financial budgets, etc.
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In the instance of the CTMM, openness and transparency is important to gain trust from
its communities in order to get more effective and less hesitant buy-in from the
community when budget decisions, capital investments and service delivery is
concerned. Increased information sharing by the CTMM would also reduce negative
media coverage, which is imperative to improve the already negative public image of
local government organisations.
2.4.4 Fraud
Typical information, which corporate entities should disclose to shareholders, is fraud.
Disclosure of fraud makes management aware of possible loopholes in the system or
point out to management that proper checks and balances are not in place to prevent
fraud from occurring. Fraud is riving in corporate business but most probably more
prominent in local government. The Collins Concise Dictionary defines fraud as a
“deliberate deception, trickery, cheating intended to gain an advantage, or an act or
instance of deception”. Theft on the other hand is defined as “the dishonest taking of
property belonging to another person with the intention of depriving the owner
permanently of its possession”. Fraud can jeopardize a company and organization’s
viability in a number of ways:
• It can drain the company’s/organisation’s resources to a point where it is no
longer profitable
• Investors will receive lower returns on investment and it will ultimately reduce real
investment in that company or organisation
Fraud increases the cost of running the CTMM and eventually someone has to foot the
bill and in the case of the CTMM, this is the community. Rossouw & Van Vuuren
(2004:156) are of the opinion that there are always three dimensions to a case of fraud,
namely:
• a motive for committing fraud
• an opportunity for doing so, and
• a rationalization by the person who committed the fraud.
Rossouw & Van Vuuren (2004:156) further state that a set of circumstances should be
in place in order for fraud to take place, which includes that:
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• a person must be in the position of trust or must have access to people in
positions of trust
• a person must understand the control systems of the organisation as this gives
one the ability to beat these
• a person should have access to the assets of the company.
There are ways and means to fight fraud, of which Rossouw & Van Vuuren (2004:157)
mention three avenues that can be taken to prevent fraud, namely:
• restricting the opportunities for fraud
• undermining the motivation for fraud, and
• undermining the rationalization for fraud.
Organisations should introduce essential mechanisms to detect fraud in the early stages
by utilizing actions such as:
• internal audits
• risk management procedures for dealing with company assets, and
• implement strict disciplinary action against fraud offenders.
Rossouw & Van Vuuren (2004:161) states that fraud prevention should be a shared
responsibility in any organisation. Managers have a moral obligation to inform staff
about fraud related matters. Regular communication of fraud related matters would show
that the organisation is committed to reducing fraud and that there is a high level of
awareness in the company. Secondly managers should create the opportunity for all
staff members to report suspicious behaviour, which could lead to fraud. Managers
should however promote confidentiality of any suspicious or alleged fraud case until it
can be proven and punitive actions have been taken against the individual/s.
This study aims to determine whether the CTMM acts immediately when fraud has come
into the open, and further to determine whether the CTMM take the necessary corrective
steps against such individual/s or whether the fraudulent actions are covered-up, never
to hear of them again. The CTMM is responsible for the efficient and effective
management of services and has an obligation towards the community to address any
fraudulent actions as soon as possible and to try and recover whatever amount is
possible.
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2.5 Conclusion
The theoretical detail on the various principles or characteristics namely, accountability,
integrity and disclosure will provide the necessary insight into the underlying concepts of
the three principles. The underlying concepts will guide this study in order to formulate
the questionnaire from which valuable information will be obtained to test the various
hypotheses and to reach the various research objectives. These principles will be
expanded upon to include at least three to four measures per principle, which will not
only define the principles clearly but also allow the researcher the opportunity to
measure the appropriateness of the principles and to test the level of understanding by
CTMM management.
The findings of the above three sections will form part of the summary in chapter five,
from which the researcher will draw various conclusions. In light of the aforementioned,
chapter five will also include a section consisting of recommendations based on this
chapter and chapters to follow.