Corporate Governance and Illicit Conduct

Transcription

1 PART I

2 and Illicit Conduct Developed from the Book Titled: Corporate Governance and Illicit Conduct Author: Peter Goss Available from: Publisher: Agency for Corporate Governance

3 The Problem Illicit conduct Behaviour lacking in personal and business integrity

4 The Problem Illicit conduct Highly publicised incidents At the pinnacle - State capture re. State-owned companies Collusive private sector cartels violating competition law SARS Tax Administration and Governance SAPS Commissioner of Police jailed

5 The Problem Illicit conduct Highly publicised incidents R50b 2010 Soccer World Cup Stadiums tender collusion R14b impairment loss at Petro SA and bonus payments R100m AgriBEE Fraud A literal A to Z of Anarchy

6 The Problem Illicit conduct Highly publicised allegations in the media Questions around integrity of Assurance and Consulting Firms McKinsey Alleged payments without service delivery KPMG Alleged irregularities re. SARS Rogue Unit Nkonki Alleged ties with Gupta Family

7 The Problem Illicit conduct Exemplified by: Infringements of Companies Act and Public Finance law Commercial offences (fraud and corruption) Civil delict (bidding and contract violations)

8 The Problem Illicit conduct Exemplified by: Absence of courageousness and robust debate in business Limited in-depth scrutiny and professional scepticism Succumbing to client and group pressure

9 The Problem Illicit conduct Causal factors that lead to corporate collapse Absence of independence and objectivity Conflicts of interest Related parties

10 The Problem Illicit conduct Reasons for increase Impression that Internal Controls are the solution Over-reliance on auditors for detection It can never happen to us

11 The Problem Illicit conduct Reasons for increase A tolerable problem because its materiality is low Corporate fraud with disastrous effects seldom occurs Unrealistic expectation that law enforcement is solution

12 The Problem Impact of illicit conduct Negative economic growth and societal depression Grand corruption (State Capture) Petty Corruption (Administrative corruption) Unaccountable rich elite - be corrupt to win culture

13 The Problem Impact of illicit conduct Corporate citizenship erodes Corporate citizenship: Corporate reputation and image of the organisation as a juristic person who is a responsible and accountable member (a literal citizen) of society

14 and Illicit Conduct Contextual Overview: Corporate Governance

15 Why strengthen governance processes??? Spread of creative accounting Increase in business failures Unscrupulous directors expropriating stakeholder s funds Developed from Wixley and Everingham Corporate Governance 2005

16 Why strengthen governance processes??? Limited role of auditors Poor connection: executive compensation vs organisational performance Market focus on short-term results vs general sustainable business performance Developed from Wixley and Everingham Corporate Governance 2005

17 Corporate Governance Principle Activities Direction Execution Supervision Accountability Developed from RI Tricker Corporate Governance Gower 1984

18 Corporate Governance Principle Activities Direction - strategic direction formulation Execution - involvement in crucial executive decisions Developed from RI Tricker Corporate Governance, Gower 1984

19 Corporate Governance Principle Activities Supervision monitoring and overseeing management performance Accountability responsibility to those demanding accountability Developed from RI Tricker Corporate Governance, Gower 1984

20 Corporate Governance Principle Activities Strategic Direction, Executive Action, Supervision, Accountability depend on: Ethical Behaviour of individual members of Governance Structures Leadership and Application of Governance Functions Developed from Wixley and Everingham Corporate Governance 2005

21 Strategic Direction, Executive Action, Supervision, Accountability depend on: Leadership composition Independence and Competence Distribution of Power to Committees when necessary Developed from Wixley and Everingham Corporate Governance 2005

22 Strategic Direction, Executive Action, Supervision, Accountability depend on: Understanding and leveraging opportunities while managing risk Effectiveness of controls Developed from Wixley and Everingham Corporate Governance 2005

23 Defining Good Corporate Governance: Ethical leadership Effective leadership Using assets and operating as a mature corporate citizen Developed from G20/OECD Principles on Corporate Governance 2015

24 Defining Good Corporate Governance: Achieving strategic objectives Within an organisation that is ethical in all respects Performing against business plans Developed from G20/OECD Principles on Corporate Governance 2015

25 Defining Good Corporate Governance: Responsibly both in law and in the face of society Effective checks and balances Developed from G20/OECD Principles on Corporate Governance 2015

26 Corporate Governance - In summary The ethical and systematic controlled and collective leadership, direction and steering of an organisation towards meeting its goals and objectives in the interests of all its stakeholders

27 Background and Legal Standing - Codes of Governance For two-year period ending new / revised codes globally Company law generally forms the basis for codes Conversely codes are developed as company law evolves Some principles in codes become part of jurisprudence

28 Background and Legal Standing - Codes of Governance Some principles in codes become part of jurisprudence This means that principles recorded in codes become the basis against which a court of law might make a ruling by reading from best practices that are recorded in codes of good governance and ethical business conduct

29 Background and Legal Standing - Codes of Governance Comply or explain / Comply or else regimes exist globally Apply and explain in RSA (a historical shift) RSA has moved from a compliance- to principles-based approach to governance

30 The key question What is obligatory about Codes of Governance? Understand the nature of corporate governance A. Substantive Governance = Compliance with the law B. Voluntary/Self Regulatory Governance = Application of governance principles and practices to fit in within the organisation s market and industry frameworks and setting

31 The key question What is obligatory about Codes of Governance? B. Voluntary/Self Regulatory Governance International markets and peer pressure prevails Listed companies are first to be obliged to comply with Codes as a listing requirement on stock exchanges For others, voluntary acceptance and adherence in full is optional

32 The key question What is obligatory about Codes of Governance? B. Voluntary/Self Regulatory Governance This means Albeit one can write in a code that certain sectors are obliged to comply This remains aspirational A. Substantive governance, i.e. the law - is not optional or aspirational but obligatory

33 The solution Robust and sound application of ethical leadership Application of Substantive Governance Backed by appropriate governance structures, governance functions, plans, policies and processes for the organisation s context

34 The solution Take reasonable and diligent steps to be informed Ensure the absence of conflicting financial interests between the company and its representatives Disclose and investigate the implications of conflicting interests Make rational decisions in the best interests of the company

35 The solution Take reasonable and diligent steps to be informed A measure of Reasonable : Know, and do not violate the law (for example the Companies Act or Public Finance Laws) Know, and do not violate known policies and procedures Develop, know, and adhere to standards of business ethics for the organisation

36 The solution Take reasonable and diligent steps to be informed A measure of Reasonable : Moral norms, good governance norms and standards of business conduct will be considered by a court when accusations of director and management delinquency arise Ensure that ethics and business conduct standards are documented and training is provided