Adapted from

1
Corporate Governance and South Africa
Adapted from ENF Corporate Governance Advisory
Services
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International Perspective

• Corporate governance is concerned with holding
  the balance between economic and social goals and
  between individual and communal goals The aim
  is to align as nearly as possible the interests
  of individuals, corporations and society
• Sir Adrian Cadbury
• Corporate Governance Overview, 1999
• World Bank Report

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Convergence of Interests

• International Investors
• General Public and Shareholders
• Public Sector Reform
• Multilateral Agencies
• Ethical Interest Groups
• Regulators
• Media

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What is Corporate Governance?
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Corporate Governance seeks to promote

• Effective, efficient and sustainable corporations
• Responsiveness and accountable corporations
• Legitimate corporations that are managed with
  integrity, probity and transparency
• Recognition of stakeholders rights
• An inclusive approach based on demographic
  ideals, legitimate representation and
  participation
• S Fakie,
• Auditor-General

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Governance Framework
STATUTORY ACCOUNTABILITY
EXTERNAL REPORTING
COMMUNICATION
BOARD
COMMITTEES
ROLES AND RESPONSIBILITIES
INTERNAL CONTROLS
ACCOUNTABILITY FOR RESOURCES
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Basis of South African Review

• Review commenced in 2000
• Guiding Principles
• International Developments
• SEAAR and SHE
• Compliance and Enforcement
• Task Team Priorities
• Progress to Date
• Release for Public Comment July 2001
• Finalise /- October 2001
• Implementation 1 January 2002?

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Good Governance More than Rules!

• the substance of good corporate governance is
  more important than its form adoption of a set
  of rules or principles or of any particular
  practice or policy is not a substitute for, and
  does not itself assure, good corporate
  governance
• The Business Roundtable, USA

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Governance Levers in US UK

• US Model
• Highly regulatory, eg. SEC
• Powerful institutional investors
• Litigation prominent
• Boards predominantly NEDs
• UK Model
• Statutory intervention
• London Stock Exchange
• Ethical pressure groups
• City Code Reputation paramount

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Governance in Emerging Markets

• Statutory Intervention, eg. India
• Government Policy, eg. Malaysia
• Banking Supervision, eg. Commonwealth
• Limited Global Investor Participation
• Shareholder Activism Muted, eg. Australia
• Regulatory Enforcement Generally Weak
• Little Correlation between Stocks / Markets

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Prevailing Issues in South Africa

• Lack of Enforcement of Companies Act
• Undue onus placed on JSE to regulate
• Name and Shame approach of FSB
• More effective supervision in financial sector
• Director delinquency largely unchallenged
• SAPS - Lack of commercial crime skills
• Judiciary - Main priority on criminal cases
• Emphasis on Form rather than Substance!
• International perceptions

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Issues to Consider

• Delineate Law and Governance
• Application of Existing Remedies
• Statutory
• Regulatory
• What new measures are necessary?
• Balance Performance v. Conformance

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Quo Vadis South Africa?

• Firstly, How serious are we?
• Utilise existing, available Remedies
• Enhance enforcement agencies
• Better enforcement of existing sanctions
• Class actions
• Contingency fees
• Increased Levels of Disclosure
• Individual directors remuneration
• Delinquent directors
• Focus on director education
• Legal backing for accounting standards

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Quo Vadis South Africa? cont.

• Role of Media
• Institutional and Shareholder Intervention
• Understand global investor imperatives, eg.
• McKinsey, Russell Reynolds, Credit
  Lyonnais
• NAPF model
• Myners recommendations
• Rating agencies, eg. SP, Dow Jones
• Role of Organised Professions and Business
• Role of State Enterprises and Agencies?
• Electronic Technology, eg. proxy voting, etc.

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Quo Vadis South Africa? cont.

• Impact of New Legislation
• International Developments
• Triple bottom line reporting
• Global Reporting Initiative
• Transnational Corporations
• Pan-African Forum part of International Agenda
• Earth Summit 2002
• International Conventions, eg. Human Rights,
  etc.
• Performance with Integrity!

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Shareholders/financial marketsAnalysts, fund
managers, investment consultants, pension
trustees, independent financial advisers,
ultimate beneficiaries, stock exchanges
Auditors

• GovernmentRegulatory framework
• company law
• competition law
• labour law
• environment law
• human rights law,etc. plus international
  conventions

Creditors
Media
CEO
Pressure groups/activists
Executive Directors
Voluntary codes of conduct and industry standards
Senior management team
Business partnersCEOs of joint ventures,
suppliers, contractors etc.
Business unit heads, functional heads
Trade Unions
Employees
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Dynamic Participative Approach
External Stakeholders
Consultants and advisors
Government
Internal Stakeholders
Lenders of money
Trade unions
Employees
Stock exchange
Board Directors Management
Share-holders
Corporate Governance
Media
Business Partners
Customers
Suppliers
Auditors
Environ-mentalists
Competitors
Trade associations
Local communities
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Balancing Conflicting Demands

• Shareowner Value v. Triple Bottom Line
• Investors v. Stakeholders
• Short-term Profits v. Long-term Sustainability
• Commercial Confidentiality v. Transparency
• Increasing Legal Liability and Reputational Risk
• .. some of societys conflicting expectations of
  business have become unrealistic, so Boards have
  to make choices! Sir Adrian Cadbury

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Concluding Remarks
There are few words more reassuring to investors
than accountability
The average company today is a complex
enterprise engulfed by rapid technological change
and fierce global competition. You have to
assess exposure to risk on an ever changing
landscape Arthur Levitt, former SEC Chairman
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Thank You!