Good Corporate Governance: a tick box exercise or a dire need?

Over the past year, there have been a number of scandals that have encouraged a renewed focus on good corporate governance, and the role of directors and governing bodies of an organisation as drivers of good corporate governance.

For most South Africans this scandalous nightmare began with the exposing of the “state capture project”, which has ultimately seen the boards of many state owned entities purged of the proverbial bad eggs. However it did not end there, as scandal after scandal has since hit the private sector, from the drastic corporate failures of the now infamous VBS mutual bank to “the fall of the JSE darling” Steinhoff (to borrow form the term used to describe the Enron disaster in the early 2000s).

In this insight, we will briefly explore the concept of corporate governance and why good corporate governance is important.

What is corporate governance?

Corporate governance generally refers to the mechanisms, processes and relations in terms of which organisations are directed. It speaks to the governance structures and principles I place that identify and distribute various rights and responsibilities to different stakeholders within the organisation that are tasked with governing aspects of it.

Many people view the duty of implementing good corporate governance as something that falls squarely on the shoulders of the governing body of an organisation, such as the board of directors of the company. However this is not entirely true, while the “buck” does indeed stop with the board of directors a brief look at the companies act reveals that there are good governance expectations on anybody who has a material influence on the governance, management or the day to day business activities of a company. Such individuals range from senior managers to any members of the audit committee of the company etc.

Principles and expectations of good corporate governance can be found in an array of sources relating to different organisations, from legislation to general common law principles. For example, with regards to companies, sections 75-77 of the Companies Act speak to the duties, responsibilities, standards of conduct and potential liabilities of directors or prescribed officers (senior managers etc). At common law, one can also find various standards and duties that are expected of directors in their conduct of a company.

The most prominent source of corporate governance principles can be found in a voluntary code known as the King Code or the King Report on Good Corporate Governance. The report has existed since 1994, and is on its fourth iteration, King IVTM. This document provides practical guidance for companies to achieve good corporate governance. This guidance is broken down into seventeen difference principles, which are in turn demystified in the form of different recommendations. The document is a voluntary code, however the JSE listings requirements were relatively recently amended to require that all listed companies on the main board adhere to King IVTM and makes various recommendations therein mandatory. While these important developments are only relevant to listed entities, any company would do well to implement the relevant principles and recommendations. Furthermore, the principles are not only relevant to private companies but many different forms of organisations, which are included through various sector supplements in King IVTM, relevant to different sectors such as the NPO, Small Business and Government sectors to name a few.

Why is good corporate governance important?

Whichever way one views it, good corporate governance fosters a culture of good faith, honesty, transparency, sustainability and ethics within any organisation, amongst other things. Values such as these create the kind of atmosphere within an organisation where scourges such as corruption, dishonesty and the misuse of power cannot easily rear their heads, let alone take root. Ultimately, this will not only lead to good organisational performance, but tangible and sustainable gains for employees, investors and society alike.

King IVTM puts a great deal of emphasis on ethics and the encouragement or ethical practices and leadership. Had principles of ethics been observed in some of the organisations that have been in the news for all of the wrong reasons lately, perhaps they could have made it into the news for the right reasons. Beyond considerations of organisational culture and ethical leadership, good corporate governance can do nothing but lead to good, sustainable organisational growth.

Looking at what is presently happening in the country, the focus on corporate governance is indeed warranted and the need for good corporate governance has never been more dire. In light of this, those in governance roles, be it directors of a big corporate company or the small business owner, should not shy away from adopting good corporate governance practices, or view it as a mere tick box exercise, but implement such practices with seriousness.

Deborah Mutemwa-Tumbo – Chairwoman