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8/2/2019 Directors Alert 1

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Directors Alert: 12 issues or 2012 1

Directors Alert: 12 issues or 2012When Uncertainty Reigns


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2 Directors Alert: 12 issues or 2012

Contents

Introduction .........................................................................1

Global economy ...................................................................2

Risk Oversight ......................................................................3

Strategy, growth, and perormance ......................................4

Operational management ....................................................5

Capital, cash, and liquidity management ..............................6

Mergers and acquisitions .....................................................7

Organisational structure .......................................................8

Talent management .............................................................9

Sustainability and corporate responsibility ..........................10

Regulation and compliance ................................................11

Transparency in corporate governance ...............................12

Board success ....................................................................13Conclusion .........................................................................14

Contacts ............................................................................16


3/20


Doing business in the new

normal economyThe years since the 2008 nancial crisis have been calledthe worst global economic downturn since the GreatDepression o the 1930s. The uncertain and oten volatilebusiness environment has created signicant challengesto which organisations have oten had to respond quicklyby adapting strategies and operations. This publicationexamines some o the top challenges likely to acecompanies, and their board o directors, in 2012.

The purpose o this publication is not to providesolutions to the issues discussed. The best approachor any organisation will depend on its own particularcircumstances. Instead, our objective is to assist d irectorsin identiying issues o importance to their organisations,and to help promote boardroom discussion around thestrategies management has put orward to address thechallenges and seize the opportunities that lie ahead.

Many companies initial response to the nancial crisis wasto employ the same strategies that carried them throughprevious recessions downsizing sta, reducing operations,and postponing investments until economic conditionsreturned to normal.

Past downturns, however, were shorter and less severethan this one. Companies could hold o investing in theiroperations or the duration o the downturn without risking

long-term harm to their viability. Economic conditionsreturned to normal relatively quickly, and reinvestmentsin the business could be made at a time when revenuegrowth and protability had recovered.

Today, waiting until conditions return to normal isnt anoption ater more than three years o uncertain economicand market conditions that show little sign o abating, thisis the new normal. Although or many companies, revenuegrowth may remain weak and protability continues to

be under pressure, companies that continue to wait toreinvest in their businesses may be risking their longer-termcompetitive ability.

Managing costs, however, isnt the only challenge acingorganisations.

Perhaps more than ever, businesses need to attract, retain,motivate, and develop top talent not an easy task whenfattened corporate growth rates limit avenues or careergrowth.

Organisations need strategic plans that are ar morenimble than those o the past, so they can be adjusted andrealigned in response to sudden and constant changes inoperating conditions.

Amid continuing market volatility, risk must continue tobe monitored closely. And past experience isnt always abenet, especially or organisations whose industries andmarkets have been radically transormed since 2008.

This publication oers insights rom governance specialistsrom Deloitte member rms (Deloitte) around theglobe Asia, the Middle East, Europe, Southern Aricaand the Americas; these specialists have provided localand international perspectives on these and other topboardroom priorities within the context o todaysuncertain business environment. Each article includesquestions that directors may ask to urther explore theissues with their own boards. In addition, articles are

supported with tools and resources so directors can digdeeper to broaden their understanding o the issues andimprove their boards eectiveness in dealing with them.These additional resources can be obtained by contactingyour Deloitte partner.

Introduction


4/202 Directors Alert: 12 issues or 2012

A dramatic drop in global manuacturing activity in thesecond hal o 2011, and slowing GDP growth in the keyemerging markets o China, India, Brazil and SouthernArica, have caused economists to warn that the globaleconomy may return to a recession in 2012. On the otherhand, despite these negative indicators, several economistsbelieve a double dip recession will be avoided in 2012,particularly i policymakers succeed in nding solutions tothe European sovereign debt crisis and the U.S. budgetproblems1.

The only thing likely to be certain about the globaleconomy in 2012 is continued uncertainty unless, thingsget worse.

I global economies sink into a recession, which someEuropean countries may be very close to doing, the

recovery rate will be slower than it was ater 2008.Oilprices, or example, are much higher than they werein early 2009, which could slow economic recovery,the International Energy Agency has warned2. Then,ast growing emerging markets, which were able tosustain their strong GDP growth, led the global recovery;today, however, China, India, and Brazil, are seeing theireconomies slow due to weak demand or goods andservices rom Europe and the United States.

In November 2011, major central banks took steps to keepmarkets liquid in an attempt to avoid a situation similarto the credit crunch that ollowed the 2008 nancialcrisis. However, governments that used massive stimulusspending in 2009 to urther liquidity and spur economicgrowth are unlikely to be able to aord such programs in2012.

Ater several years o economic uncertainty, boards arewell aware o their organisations need to careully monitorchanging market conditions. When creating and reviewingstrategic plans, boards must challenge the economic andbusiness assumptions that provide the oundation o thoseplans to ensure they are both reasonable and take intoaccount dierent scenarios, including the risks created bychanges to market liquidity and nancing. When assessingthe potential impact o deteriorating economic conditions,

boards should ensure that managements analysislooks beyond the companys own walls to assess, orexample, the ability o suppliers to continue meeting theircontractual arrangements and customers maintaining theirorder levels and ability to pay invoices on a timely basis.

Keep your seatbelts astened,

continued turbulence ahead

Global economy

1. Factories stall worldwide, U.S. jobless claims rise, Reuters,December 1, 2011. Unrealized Assumptions Could Alter 2012Forecasts, The Wall Street Journal, December 8, 2011.

2. Oil prices could strangle economic recovery hopes: IEA, Reuters,

November 24, 2011

Questions to ask: Do we receive regular briengs on the state of the economy in the jurisdictions in

which our company operates? Have we identied key indicators pertaining to our

company and its markets to help us directly gauge how economic changes are

aecting our organisation? Do these indicators include those that enable the board

to assess the economies eect on suppliers, customers, and other partners?

Is our business plan based on reasonable economic and marketplace assumptions?Have we developed scenarios to model how dierent economic events would

impact our business?

Has the board reviewed and approved a contingency plan to be implemented if

the economy suddenly weakens? Is that plan able to accommodate changes tomarketplace liquidity and the availability o nancing?


5/20Directors Alert: 12 issues or 2012 3

The 2008 nancial crisis exposed severe weaknesses inmany organisations risk management practices, underwhich assessments o strategies and opportunities ocusedon the potential benets while d iscounting the associatedrisks, i not ignoring them altogether.

More than three years later, companies around the globehave implemented ar more robust risk managementpractices. With the continuing uncertainty in the globaleconomy, risk management continues to top the agendaso many boards. The question, however, is whether riskis now over dominating boardroom discussions? Boardsthat once ocused too exclusively on the upside o anopportunity may have since adopted a highly intensive riskocus that causes them to see only the downside risks.I so, these organisations may be suering risk paralysis being araid to act on an opportunity that would create

value or the organisation today.

Organisations suer when viable opportunities aremissed just as much as when legitimate risks are ignored.Organisations need to develop a risk intelligent culture thatosters smart risk-related decision-making, in which theorganisation would determine how much risk it is willingto take on and how those risks will be managed andmitigated so the organisation both preserves and createsvalue.

Questions to ask: Do we take an appropriately balanced view of risk and opportunity?

Are we too aggressive or too risk adverse when assessing opportunities? Do we have a risk intelligent culture within the boardroom and the management

suite? Is the organisation taking steps to embed that culture throughout ouroperations and business units?

Does management keep the board apprised to the organisations key risk indicators

and the steps being taken across the organisation to mitigate those risks?

Keeping risk and opportunity in balanceRisk oversight


6/204 Directors Alert: 12 issues or 2012

A business environment in which capital markets, exchangerates, consumer condence levels, and other actorsfuctuate rom day to day with extraordinary volatilitycreates unprecedented challenges or organisations inexecuting their longer-term strategies.

Strategic plans set out objectives to be realised over thelonger-term typically between three to ve years andthose goals must remain ocused i they are to be achieved.At the same time, however, a strategic plan must be fexibleso it can be adapted and realigned to continuing changesin market conditions.

In their oversight o strategy, thereore, boards need tocareully monitor changes in marketplace conditions thatcould aect the organisations ability to achieve its strategicgoals. Together with management, boards should identiy

the high level risk indicators related to the organisationsstrategic objectives. When reviewing reports on theprogress the company is making towards executing itsstrategy, boards should rigorously question the underlying

numbers and assumptions related to market trendsand key activities within the industry, such as mergersand acquisitions. Many boards also require that certainactivities, decisions, and transactions greater than a specicsize or complexity be reported to them, with periodicupdates on matters o lesser size or other topics.

Since directors are normally recruited to the board or theirbusiness knowledge and experience, their insights providesignicant value to the organisation in setting, monitoringand, when necessary, realigning strategy. With all o theirother responsibilities and the time required to addressthem, however, boards need to careully plan the topicsand timing o their discussions o strategy, perormance,and growth and make it a standing agenda item or boardmeetings.

How agile is your strategy?Strategy, growth, and performance

Questions to ask: Do we monitor the effect that changing market conditions may have on our

organisations strategy? Do we consider dierent scenarios and how those

conditions would aect our ability to achieve our strategy? What processes does the company use to identify and evaluate changes in its

operating environment? Are these ndings reported to the board so the board canconsider them when assessing strategy?

Have we worked with management to set key performance indicators related to

strategy, and does the board receive timely reports on them?


7/20Directors Alert: 12 issues or 2012 5

Increasingly boards o directors have expanded theirresponsibilities or oversight o their organisations strategyto also include oversight o strategic operational issues,because they refect the status and consequences ostrategy execution. The agendas o these boards typicallyalternate between discussions o strategy at one meetingand operational issues at the next meeting.

This is a broad scope or a board because operationalmanagement encompasses activities included in thedelivery o products or services that ranges through processdesign, cost management, employee remuneration,succession planning, innovation, compliance, and more. Itis through the combination o these processes resources,people, knowledge, technology, and acilities that theorganisation delivers on its commitments, which will otencover a range o policy and strategy considerations. For

example, organisations no longer manage their supplychains solely rom the perspective o enhancing theireciency and eectiveness; they now also ocus onmeeting various corporate social responsibility objectives,such as ethical sourcing, sustainability, and partnerselection.

Boards can add signicant value by working withmanagement on strategic operational issues, includingthose related to market, product, and location strategies.This oten involves obtaining an external perspective o thepractices o other companies, industries, and countries.Many boards role in operational management includessupporting and instigating growth and eciency initiativesas well as sponsoring innovation to be delivered throughoperational changes in the organisation.

Questions to ask: Does our board play an appropriate role in the oversight of operational

management and the execution o strategy?

Do we receive reports on key performance indicators needed for us to understand

the operational issues acing the organisation and to guide the boards input intothe development o short, medium, and long-term goals and objectives?

Does our board receive regular reports on strategic and tactical operational matters,

including those related to eciency, eectiveness, perormance benchmarks orcompetitors and other industries, customer satisaction indices, and other reportson the execution o strategy?

A strategic role in operational managementOperational management


8/20


In the days immediately ollowing the 2008 nancial crisis,the reeze up o certain credit markets made liquidity acritical issue or organisations and their boards to manage.Since then, and despite continuing economic uncertaintyand the risk that sovereign debt problems may create ormany nancial institutions, global bankers have worked toavoid a return to a global liquidity crunch.

Today, despite the continuing slow growth o manymarkets, companies have built up sizeable cash reserves.In part, these are unds that have been saved ater threeyears o squeezing costs out o their organisations whiledeerring making most new investments until globaleconomies improve. But is such a strategy still viable oradvisable?

The challenge or companies is to determine the best useor the cash they have in hand. I it is to protect that cash,boards should assess the risks to it. These include assessingcounterparty risks, the problems that may be unique tooperating in specic markets or jurisdictions, or whether itis necessary to modiy the capital allocation within a group.

On the other hand, boards may query whether or not thecash should be put to better use. Given that the globaleconomy is unlikely to return to pre-2008 conditions,organisations may be at risk i they continue to wait untilbetter times beore reinvesting in their inrastructure,people, research and innovative activities, acquisitions, andother areas that will be essential to their uture viability andgrowth.

Making the best use o cash in handCapital, cash, and liquidity management

Questions to ask:

What potential nancing risks does our organisation face? Do our current cashreserves provide sucient protection rom these risks?

Is our company making the best use of its cash in hand? If we are continuing to

accumulate cash holdings by keeping costs out o the business, is that strategyputting our longer-term viability at risk? Are we making sucient reinvestments inour business?


9/20


Global merger and acquisition activity has been steadilyincreasing since mid-2010, and will likely continue to do soin 2012. Private equity rms made acquisitions topping$144 billion in 2011 and are likely to continue to be keyplayers1. Corporations, which have up to 50 percent morecash on their balance sheets than ve years ago, may lookto acquisitions to oset slower growth in the United States,

Europe, and elsewhere.

In this environment, every company is potentially in play,i not as an acquirer than as a target o one.

With many sophisticated, well-unded buyers in the market,organisations looking or acquisitions need to approachthe market with a solid M&A strategy. In reviewing thisstrategy, boards should rst consider the strategys overallobjectives: is it to reach a specic growth objective or is it

purely deensive? Other important considerations include:

Alignment with the companys overall business strategy

acquisitions must be compatible with and supportiveo overall strategy and be in the best interests o keystakeholders.

The focus on potential acquisitions strategies should

dene the parameters o an ideal deal against whichpotential acquisitions can be assessed.

Corporate culture deals that look good on paper rarely

live up to expectations when they involve organisationswith signicantly dierent cultures.

Structure and nancing determining the appropriate

deal structure and identiying nancing at the outsethelps ensure the transaction lives up to expectations.

Board members o a target company are oten oeredseats on the combined company board, which ensures thepost-merger board has members with a solid knowledge o

the acquired company. Unless managed careully, however,such an arrangement may reduce board eciency,particularly i the membership o the combined board is toolarge or eective decision-making or culture d ierencesamong the board members inhibits team building.

When an acquisition or divestiture is proposed, theboard should determine how the transaction will becommunicated to the organisations stakeholders, such asthrough meetings, web sites, webcasts, etc. Inormation

should be clear and transparent, provide a balanced viewo the opportunities and risks, and be presented withsucient time or shareholders to assess it in advance o ashareholder vote.

Questions to ask:

Have we considered the position of our organisation? Are we an acquirer or morelikely to be the target o one?

Has the board reviewed and approved a proactive M&A strategy for the

organisation? Does it include both oensive and deensive game plans?

Has the board developed a strategy for communicating the details of a proposed

transaction to the organisations stakeholders?

When every company is in playMergers and acquisitions

1. Bloomberg Global Legal Advisory Mergers & Acquisitions RankingsQ3 2011, pg 2. A Resurgence o M&A Activity in 2011 and What toExpect in 2012, Industrial Distribution, September/October 2011.


10/20


In a global marketplace, organisations have had to adaptbusiness strategies, corporate structures, marketing plans,and even production capabilities to meet the needs andpreerences o dierent domestic markets. Globalisationhas also created a greater mobility o labour; to enhancetheir competitiveness, many companies have transerredunctions to jurisdictions with educated workorces and

lower labour costs.

With more diverse workorces, many companies arebuilding increasingly fexible organisations to accommodatedierent work preerences fex time, telecommuting, parttime work, aging workers, and independent consultants.To maximise fexibility while maintaining stability andreducing costs, organisations have had to re-engineerbusiness processes, redesign jobs, outsource activities, andtake other actions to increase eciency. Such changes are

challenging to manage; employees need time to adaptto process changes while organisations must respondquickly to the competitive pressures that oten drive thosechanges.

To urther speed their response to customers and otherstakeholders, organisations are fattening their hierarchiesand structures. Many are orming networks with strategicpartners, joint ventures, and others to increase fexibility;reduce costs or employee benets, oce and plantspace; nance new initiatives; and urther fatten theirorganisations.

These organisational changes create managementchallenges. Business operations oten span multiple

jurisdictions and time zones. Because they remainultimately responsible or the end product or service,while having to rely on outsourcing providers and strategicpartners or the quality and reliability o their goodsand services, companies may need to implement newcontrol structures to mitigate risks across their globalised,networked organisation.

Boards must determine how to apply eective oversighto a diverse, multijurisdictional organisation. Boardmembership may need to be adjusted to refect thediversity in the organisation. Boards must also ensurethat the tone at the top and its supporting valuesare consistent and relevant when translated across amulticultural environment, particularly or operationsin countries where business practices are tainted bycorruption. Similarly, organisations that move unctions to

jurisdictions with lower labour costs must take care thattheir operations are not exploitive and that they complywith air business and labour practices.

Global, exible, at, and networkedOrganisational structure

Questions to ask: Do we fully understand all of the risks that extend across the company globally?

Are we condent that our outsourcing providers and strategic partners areidentiying and mitigating the risks they ace? Are we providing regular oversight othe global control structure?

Are we satised that our organisational values are relevant to everyone and areshared and supported across our multicultural environment? Are our networkpartners values consistent with our values?

How well does our organisation adapt to process changes? Do employees have

sucient time and support to learn and become comortable with new methodsand processes in order to achieve expected eciency improvements?

Strategy should be the primary driver o an organisationsstructure, which should be designed to achieve the goals and

objectives o the company and each o its major businessunits. Organisational structures should be adjusted andadapted to the companys business needs.

Joaquin Moreno, Independent Membero the Board o Directors, Ecopetrol.


11/20


Our people are our most important asset is a muchused phrase in the corporate lexicon, though it is otendicult to nd evidence o corresponding action andaccountability.

Human resources and compensation committees,or example, spend much o their time ocused on

compensation practices in response to shareholderdemands or a say on pay, new regulatory requirements,and media scrutiny o executive pay packages. The broaderissues o talent management tend to reach the committeesagenda only when a gap exists among senior managementocers.

Organisations recognise that talent management is closelylinked to strategy, since top talent is needed to drive topperormance. However, developing and retaining that

talent is increasingly dicult when the organisation itselisnt growing enough to create sucient opportunitiesor people to build their management and leadershipskills. What is less recognised is the link between talentmanagement and risk. Inappropriate actions on the parto an individual, or group o individuals, resulted in thedemise o, or serious nancial or other damage, to manycompanies.

Boards and executives who explicitly embed talent into

their risk management processes tend to make moreinormed, proactive and hence more eective investmentin talent. The reason or this is that they realise that theyunderstand that achieving desired business results hinges

as much on an organisations talent as anything else andthey know that getting the right talent is not a simple,mechanical exercise that just happens.

I people truly are considered to be an organisationsgreatest asset, they should be managed as such even italent is not an item that is recognised on the balance

sheet. Organisations that take a longer-term view tomanaging talent will seek to protect this asset, including attimes when revenue growth may be less than expected.

Understanding the strategic and risk implications associatedwith talent management, and properly integratingthose issues, can create a competitive advantage ororganisations. In their oversight o strategy and risk inrelation to talent management, boards may want toconsider whether their mandates should include:

Ensuring a corporate culture in which talent management

is recognised as a top priority at all times.

Approving a corporate code of conduct that incorporates

the organisations key values.

Oversight and tailoring of talent management processes,

including those to identiy, retain, motivate, and developkey employees.

Oversight of and input into the organisations human

resource strategy.

Investing in development of leaders at all levels to guide

their organisations in this new age o uncertainty.

Questions to ask: Does the board understand all of the strategic and risk implications associated with

our organisations people and the development o talent? Does our organisation truly view people as a strategic asset and are we taking

appropriate steps to ensure the renewal o our talent resources?

How well do leaders in our organisation understand the capabilities and aspirations

o their teams? Do they spend sucient time helping their people set goals andproviding eedback and coaching to enable meaningul development?

Understanding the talent, strategy,

and risk continuum

Talent management


12/20


Sustainability has become inexorably linked toorganisational success. Customer demand is creatingmarkets or new, green products and services.Organisations in supply chains are insisting that theirpartners work with them to improve sustainabilitythroughout the chain, or be replaced by companies thatwill. Ratings analysts give sustainability increasing weight

in their evaluations o companies, investors are actoringit into their decision making, and shareholders are holdingcompanies accountable or their sustainability activities.Growing numbers o workers say their preerence is towork or organisations that make a conscious eort to besocially and environmentally responsible. Regulators areocusing on practices related to environmental health andsaety, materials bans, packaging and product labels, labourstandards, recycling, energy, and, in many jurisdictions,carbon emissions.

In this environment, boards need to ensure that theirorganisation views corporate sustainability as more than

just good corporate citizenship it must be an integralcomponent o its overall business strategy.

Sustainability initiatives can strengthen an organisationsreputation, competitiveness, the morale o employees,and ability to attract capital. They have enabled manycompanies to streamline processes, reduce costs, andstrengthen their public image, thereby creating valueand improved competitive positioning. At the same time,however, sustainability is also a critical risk consideration.

Unanticipated changes in regulations or the sustainabilitypolicies o supply chain partners can suddenly transormbusiness environments in a way that may make existingbusiness models unviable.

With their responsibility or the oversight o organisationalstrategy and the identication and mitigation o risk,boards have a clear responsibility or the oversight osustainability activities. Many boards choose to go beyondan oversight role. Given that short-term concerns oten

demand the near total attention o management, it is otenup to the board to address the longer-term issues aroundsustainability, such as by integrating the organisationssustainability program in the governance structure.

An integral component o

organisational strategy

Sustainability and corporate responsibility

Questions to ask: Does our organisation have a sustainability vision and strategy supported by suitable

sustainability policies? Have they been reviewed and approved by the board?

Does the board understand the sustainability opportunities and the sustainability

risks, not just to the organisation but also to directors? Has the organisation carriedout a sustainability risk analysis?

What are the organisations policies regarding setting goals and measuring

perormance in economic, environmental, and social areas? What inormation isdisclosed on sustainability issues, and is the board required to review and approvethose disclosures?


13/20


Around the globe, governments and regulators areintroducing new rules in response to issues ranging romnancial stability to environmental protection to combatingterrorism. While each new regulation may have merit, sinceew jurisdictions have removed existing rules to make wayor new ones, the cumulative eect is proving onerous orbusiness.

In South Arica, companies have to ensure that legaland regulatory compliance costs are aligned to businessobjectives and compliance programs are built into existingmanagement and business processes, responsibility andaccountability.

There are emerging governance trends which meansBoards will have to spend more time on risk management,including regulatory compliance e.g.:

Ensuring alternative dispute resolution to enable businessto preserve business relationships, by speedily solvingproblems;

Ensuring the role of the compliance function (part of theoverall risk management process), and the rameworkand processes put in place to ensure compliance withregulatory requirements are critical, given the potentialor increased Directors liability under the new CompaniesAct.

Considering issues related to integrated reporting.

The new Companies Act contains a number o provisionsthat directly impact d irectors and the prescribed ocersi.e.: The codied standard of conduct, which having been

set so high, may have the unintended consequence odirectors not being prepared to take dicult decisionsor expose the company to risk. In this regard, the Act

has codied the business judgement rule, and providesor the indemnication o d irectors under certaincircumstances, as well as the possibility to insure thecompany and its directors against liability claims incertain circumstances;

Personal liability where a third party suffers loss ordamage where a director or prescribed ocer didnot adhere to the standard o conduct. A d irector orprescribed ocer o a company may be held liable orany loss, damages or costs sustained by the company

as a consequence o any breach by him or her o a dutycontemplated; Declaration of conicts of interest and the consequences

o non-compliance; and Disclosure of all remuneration received by directors and

prescribed ocers in the annual nancial statements.

Building better working relationships with regulators mayalso ease the transition to new regulations. For their part,regulators may be able to provide directors with a betterunderstanding o the intent o the new rules, allowing

companies to minimize the cost and disruption created bytheir introduction. In return, boards may help regulators betterunderstand the potential impact o the proposed rules.

Questions to ask: Are we aware of all the proposed new regulations affecting our organisation

and the cost o their implementation? Have we determined the boards role inimplementing the new rules, and how the new regulations may aect the board?

Has our organisation adopted a proactive approach that would enable us tomanage the implementation o new rules as a portolio, instead o having torespond to each new requirement as it arises?

Have we built strong relationships with key regulators? Are we liaising with them

to gain a better and earlier understanding o the new rules that may aect ourorganisation?

The next wave o regulationRegulation and compliance


14/20


In recent years, a greater dialogue has emerged betweenmany boards and their shareholders to the benet oboth parties. Shareholders have been able to voice theiropinions on issues o importance to them, such as a sayon pay, while boards have the opportunity to share theirviews on key issues such as strategy and risk management,compensation, d isclosure issues, and corporate

sustainability.

To acilitate their interaction with shareholders, someboards have initiated ace-to-ace meetings with keyshareholders while others identiy one or more d irectorsas a key board contact or shareholders wishing tocommunicate. While these approaches may be a easibleinterace with a limited number o institutional and otherlarger investors, the boards outreach to most stakeholderscontinues to be through written reports and other

disclosure documents.

For investors, analysts, and other stakeholders, themost useul annual reports, news releases, and otherdisclosure documents are those that are written in clear,unambiguous, straightorward language that tells it likeit is. When regulatory lings are complete and disclosuredocuments are easy to understand, or example, regulatorysta will likely have ewer questions and, thereore, be able

to expedite their review o the lings.

Written communications provide organisations withthe opportunity to tell their story and build strongerrelationships with stakeholders. For this reason, manycompanies are going beyond the mandatory disclosures,such as by publishing an easy to understand letter romthe board to shareholders that provides greater insight intohow the board views a topic or provides more inormationabout board processes. Companies may also wish to

consider providing an executive summary at the ront olengthy disclosures.

Telling it like it isTransparency in corporate governance

Questions to ask: Has the board developed and disclosed to shareholders a clear written policy that

outlines the practices the board will ollow to engage shareholders?

Does the board understand the expectations that shareholders and otherstakeholders have in terms o the topics and level o detail they expect incommunications rom the company and the board?

Do our reports and other disclosures clearly present the position of the company

and the board in language that is straightorward, easy to understand, and ree ounnecessary technical jargon?

According to the International Integrated ReportingCommittee (IIRC), the integrated report combines thedierent strands o reporting (fnancial, managementcommentary, governance and sustainability reporting) into a

coherent whole that explains and organisations ability tocreate and sustain value. The IIRC anticipates that theintegrated report will become and organisations primaryreport.


15/20


Regular assessments o board perormance coupled withdirector education programs to improve the eectivenesso the board, its committees, and individual d irectors is abest practice at any time. Today it is an imperative.

Organisations and their operating environments evolvecontinuously, but rarely at the rate and extent o the past

ew years. Companies in some industries were immediatelytransormed by the 2008 nancial crisis. Organisationsin many other industries have had to steadily reinventthemselves in response to ongoing changes in theirmarketplace.

Few companies are the same as they were our years agoand boards need to keep pace with the change occurringin their organisations. Some directors may no longer havethe right skills and experience to understand the new

challenges, opportunities, and circumstances aced bytheir companies. Others who serve on multiple boardsmay not have sucient time or their growing boardroomresponsibilities. As a result, boards may need to recruitdirectors who can bring a d ierent set o expertise andexperience to the board.

Since 2008, many boards have taken on greater, morecollaborative roles to work with management on issues

such as strategy execution, sustainability, and talentdevelopment. Individual d irectors may have stepped intonew roles, such as independent board chairs who becomespokespersons or their organisations, not just withshareholders but with all stakeholders, a responsibility theymay share with management and the CEO.

Yet while the demands and responsibilities o theboardroom have increased, the time available to addressthem has remained relatively constant. Boards have donewhat they can to work smarter by streamlining processes,improving the ocus and quality o the inormationprovided to them, and other steps.

In the 1990s, regulators suggested that boards couldimprove their governance capabilities and strengthenindividual directors accountability by reducing their

size to create a more eective working group. Giventhe signicant increase in their responsibilities and thecomplexity o issues acing boards today, some boardsmay wish to revisit their size and structure. This time,however, the ocus may be on ensuring that they are nottoo thinly populated to undertake all o their responsibilitieseectively.

Questions to ask: Do we have a clear development plan for the board and individual directors?

Do we conduct annual assessments o the board, its committees and individualdirectors, and do we incorporate the ndings o these assessments into our boarddevelopment plan?

Are we condent that the board, as a whole, has the right mix of knowledge and

experience to be able to address all o the boards responsibilities eectively?

Are we able to devote sufcient time to each area of responsibility? Have some

directors or committees become overburdened with new responsibilities they mayhave been required to take on in recent years?

The demands and expectations

keep growing

Board success


16/20


As the articles in this publication have d iscussed, theglobal business environment has changed dramaticallyin recent years and is likely to continue to do so. Boardso directors have an important role to play in helpingtheir organisations shit to and succeed in the new globaleconomic and business paradigm. Their duciary dutiesand the role they play in the development and oversight o

strategy and its execution, the identication and mitigationo risk, development and oversight o senior management,and other responsibilities gives directors a uniqueperspective and opportunity to guide their organisationsthrough signicant changes.

This publication discusses some important issues or boardsin 2012, but there are many others including those that areunique to an industry, operating jurisdiction or individualorganisation.

Since many o these issues will evolve rapidly, and becausenew ones are continually emerging, directors need toeducate themselves to keep pace with the challengesacing their organisations and to commit to helping theircompanies address those challenges. Directors needto ensure they have sucient time to carry out theirresponsibilities as directors. They need to make time to

ully review board materials and documents in advance omeetings, participate actively on board committees, andmaintain the knowledge o the issues and condence toask probing questions to get to the answers the boardneeds in order to make decisions.

Shiting to the new business paradigmConclusion


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Directors may also nd valuable insights to be gainedthrough networking with directors o other organisations.Several social media websites are available to bringtogether board members and to provide them with aorum or sharing ideas and experiences. Many businessschools oer education programs or directors that otenuse real-lie case studies to help directors build their

knowledge o emerging trends and issues and build theskills they require to lead their companies in addressingthese challenges.

The discussion o issues presented in this publicationincludes suggested questions or directors to ask to helpocus on the needs o their own boards and organisations.It also oers additional resources or directors to use tourther their knowledge o specic topics. We hope thispublication serves as a catalyst or discussion at your boardand we encourage you to contact your Deloitte partner to

continue the conversation.


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Contacts

Mark VictorGovernance, Risk and ComplianceDirector Risk AdvisoryDeloitte South AricaCell: +2782 772 3003Email: [email protected]

Carla ClampGovernanceAssociate Director Risk AdvisoryDeloitte South AricaCell: +2782 570 0379Email: [email protected]

Thabile NyabaRiskAssociate Director Risk AdvisoryDeloitte South AricaCell: +2783 376 1826Email: [email protected]

Kriba MoodleyComplianceAssociate Director Risk AdvisoryDeloitte South AricaCell: +2783 327 4500Email: [email protected]

Duane Newman

SustainabilityDirector Risk AdvisoryDeloitte South AricaCell: +2782 783 5057Email: [email protected]

Jaco PretoriusSustainability & Integrated ReportingAssociate Director Risk AdvisoryDeloitte South AricaCell: +2783 270 9470Email: [email protected]

Nina Le Riche

Director Risk Advisory (Cape Town)Deloitte South AricaCell: +2782 331 4840Email: [email protected]

Gareth BellAssociate Director Consulting(Human Capital)Deloitte South AricaCell: +2782 900 1045Email: [email protected]

David ConradieDirector Human Capital

Deloitte South AricaCell: +2782 469 1010Email: [email protected]

Dave KennedyService Line Leader Risk AdvisoryDeloitte South AricaCell: +2782 780 9812Email: [email protected]

Sidesh MaharajBusiness Unit Leader Risk Advisory(Johannesburg)Deloitte South AricaCell: +2783 297 4777Email: [email protected]

Elton BoschBusiness Unit Leader Risk Advisory(Pretoria)Deloitte South AricaCell: +2783 285 8435Email: [email protected]

Navin SingBusiness Unit Leader Risk Advisory(Kwazulu Natal)Deloitte South AricaCell: +2783 304 4225Email: [email protected]

Marius AlbertsBusiness Unit Leader Risk Advisory(Cape Town)Deloitte South AricaCell: +2782 450 7387Email: [email protected]

Jens KockBusiness Unit Leader Risk Advisory(Namibia)Deloitte NamibiaCell: +2648 1124 5457Email: [email protected]


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