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Business Landscape

Your Business Needs a Corporate Governance Policy

Corporate governance policies provide valuable measures for all businesses.

Nicolene Schoeman-Louw




The term corporate governance is widely defined as: “The framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with all its stakeholders (financiers, customers, management, employees, government, and the community)….”

It is also defined as: “…..the structures and processes for the direction and control of companies. Corporate governance concerns the relationships among the management, board of directors, controlling shareholders, minority shareholders and other stakeholders. Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital.”

Defining corporate governance

It is thus, in my view, no surprise that a general misconception exists in the industry as to the exact nature of corporate governance, what it involves and the need for it in any entity (regardless of size).

In my view, appropriate corporate governance structures serve, essentially, the following purposes:

  1. It is a broad concept involving the body or rules consisting of the MOI (if applicable to the entity – otherwise the constitution), rules of the company (sometimes referred to as “by laws” or regulations) and policies;
  2. This body of rules (in the broad sense) helps to guide the current and future board of directors (management) in decision–making, running the company (entity)  and ensures that accountability, fairness, and transparency is created and maintained within the entity,
  3. it strategically contributes to sustainable development and growth within the entity, and
  4. ensures continuity.

Related: 7 Legal Pitfalls You Need to Stay Away From

The role of the MOI and rules in corporate governance

A Memorandum of Incorporation (MOI) is defined in the Companies Act 71 of 2008, as amended (the “Act”), as an instrument: ‘that sets out rights, duties and responsibilities of shareholders, directors and others within and in relation to the company, and other matters as contemplated in section 15; and by which:

1. The company was incorporated in terms of this Act, as contemplated in section 13; or

2. A pre-existing company was structured and governed before the later of:

aa) the effective date; or

bb) the date it was converted to a company in terms of schedule 2’.

This means that the MOI is the constitution of the company and regulates the relationships of the company both internally and externally. It is also a public document, filed with the CIPC (companies and intellectual property commission), thus, additional protection is afforded to persons dealing with the company.

Where companies choose to implement MOI’s that incorporate special or more restrictive provisions, they are obliged to disclose these by affixing the suffix ‘RF’ to the company name under section 19 of the Act so that the general public is alerted thereto.

The board of directors may, however, in addition execute rules to regulate matters not addressed in the Act or MOI. Section 15(3) of the Act provides that “except to the extent that a company’s Memorandum of Incorporation provides otherwise, the board of the company may make, amend or repeal any necessary or incidental rules relating to the governance of the company in respect of matters that are not addressed in this Act or the Memorandum of Incorporation, by:

(a) publishing a copy of those rules, in any manner required or permitted by the Memorandum of Incorporation, or the rules of the company; and

(b) filing a copy of those rules.

Section 15(4) then provides that “a rule contemplated in subsection (3) must be consistent with this Act and the company’s Memorandum of Incorporation, and any such rule that is inconsistent with this Act or the company’s Memorandum of Incorporation is void to the extent of the inconsistency;….”

Section 1 defines the rules as “any rules made by a company as contemplated in section 15(3) to (5).”

Therefore the MOI can be viewed as the foundation of the corporate governance structure or, put differently, the framework thereof.

In my view, in the absence of guidance as to the exact nature and practical purpose of the rules (as defined in the Act) in either the Act, CIPC (practice directives) and precedent, we can only but assume that the rules amplify matters already regulated by the MOI in more practical detail.

Accordingly, the aspect of governance policies as envisioned in King III is a guideline for achieving accountability, transparency and generally good governance in both the profit (business) and non-profit sector and for that reason (in my view) a very different concept to the rules as enshrined in section 15 of the Act.

Related: Why Black-Owned Businesses Also Need BEE

Does King III only apply to big business?

According to the report King III applies to:  “all entities regardless of the manner and form of incorporation or establishment and whether in the public, private or non-profit sectors.”

Based on the above, King III applies to all entities, regardless of industry or size. Importantly, the report sets an international benchmark with an ‘apply or explain’ approach, which means that entities need not comply with the Code when they can justify their non-compliance.

Although King IIII does regulate the formation of committees and advisory structures within a corporate structure (which easily reinforces the myth) the important principles included therein which are all applicable to any entity regardless of size, should be noted – these include:

  • Sustainability
  • Board composition
  • Director development and performance management
  • IT governance
  • Compliance and risk management
  • Alternative dispute resolution.

A strong focus is on informed decision-making, regulation regarding systems and processes used (including IT), monitoring and evaluation of business strategies generally and electing the best managers (directors) and managing / monitoring their performance. Resolving disputes through more cost effective means and to ensure compliance and implementing risk aversion strategies.

Accordingly, in my view, companies should implement policies aligned with the spirit of King III and, where appropriate, incorporate these in the company’s MOI and rules.

Policy documents are dynamic guidelines and thus flexible enough to evolve with the business’ needs strategically.

The rules on the other hand, also enjoy a degree of flexibility (compared to the MOI which requires a special resolution of shareholders to amend), but is filed with the CIPC and ideally should only contain that which is not of a confidential nature and would be in the general public / stakeholder’s interest to have readily available as a public document.


Implementing governance policies that are in line with the provisions and spirit of King III as well as the entity’s specific needs instils stakeholder confidence, ensures business continuity and risk aversion generally, in any size entity. King III is therefore by no means reserved for listed companies only and should be implemented in any entity regardless of its size. It is therefore in my view a non-negotiable element of any responsible business or entity.

Business Landscape

How Economic Crime Is Impacting Business In South Africa

77% of SA organisations have experienced economic crime and CEO’s and boards are increasingly being held accountable for economic crime.






South African organisations continue to report the highest instances of economic crime in the world with economic crime reaching its highest level over the past decade, according to PwC’s biennial Global Economic Crime Survey.

South African organisations that have experienced economic crime is now at a staggering 77%, followed in second place by Kenya (75%), and thirdly France (71%). With half of the top ten countries who reported economic crime coming from Africa, the situation at home is more than dire.

The Global Economic Crime and Fraud Survey examines over 7200 respondents from 123 countries, of which 282 were from South Africa.

The rise of economic crime

Trevor White PwC Partner, Forensic Services and South Africa Survey Leader, says: “ Economic crime continues to disrupt business, with this year’s results showing a steep incline in reported instances of economic crime. At 77% South Africa’s rate of reported economic crime remains significantly higher than the global average rate of 49%. However, this year saw an unprecedented growth in the global trend, with a 36% period-on-period increase since 2016.”

Related: PwC Focus On Sugar Tax

Economic crime in South Africa is now at the highest level over the past decade. It is also alarming to note that 6% of executives in South Africa (Africa 5% and Global 7%) simply did not know whether their respective organisations were being affected by economic crime or not.

While the overall rate of economic crime reported was indeed the highest for South Africa, the period-on-period rate of increase for South Africa and Africa as a whole was below that of our American, Asian and European counterparts.

Global indicators of a rise in economic crime

From a regional perspective, the biggest increase in experiences of economic crime occurred in Latin America, where there was a 25% increase since 2016 to 53% in respondents who indicated they had experienced economic crime. The US was a close second with a 17% increase over 2016 to 54% of respondents, while Asia Pacific and Eastern Europe experienced increases of 16% and 14%, respectively.

Asset misappropriation continues to remain the most prevalent form of economic crime reported by 45% of respondents globally and 49% of South African respondents. While the instances of reported cybercrime showed a small decrease in the South African context (29% in 2018 versus 32% in 2016), it retained its second place in the global rankings (31%) albeit at a lower rate of occurrence than 2016.

One of the new categories of economic crimes was that of “fraud committed by the consumer”.

It is the second most reported crime in South Africa at 42% and takes third place globally at 29%. This was followed closely by procurement fraud (39% in South Africa versus 22% globally). This indicates that the entire supply chain in SouthAfrica is fraught with criminality.

Related: PwC: Pria Chetty

When combined with the high instances of bribery and corruption reported (affecting more than a third of organisations at 34%), the resultant erosion in value from the country’s gross domestic product (GDP) is startling. Accounting fraud, which is usually perpetrated by senior management and results in the largest losses, increased from 20% to 22%.

Accountability of the board

Accountability for fraud and economic crime has moved into the executive suite, with the C-Suite increasingly taking responsibility, and the fall, when economic crime and fraud occur.”

The survey shows that almost every serious incident of fraud has been brought to the attention of senior management (95%).

85% of South African respondents indicated their organization had a formal business ethics and compliance programme in place.

In addition, 20% of local respondents indicated that the CEO (who is part of the first line of defence) has primary responsibility for the organisation’s ethics and compliance programmes, and is therefore more instrumental to the detection of fraud and the response to it.

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Business Landscape

PwC Focus On Sugar Tax

The proposed sugar levy is unlikely to make sizeable dent in fiscal deficit, but the Sugar Beverage Industry is offering a helping hand to reduce obesity.






In 2016, the National Treasury announced a Sugar Beverage Levy (SBL) on sugar-sweetened beverages (SSBs) scheduled to take effect April 2018. The aim of the levy was to prevent and control obesity in South Africa, but key industry players also viewed it as a potentially significant new source of revenue that could help plug the growing fiscal deficit.

The fiscal deficit has been widening as National Treasury faces slow economic growth and a shrinking tax base. Initially estimated at 3.1% of GDP, fiscal deficit projections increased to 4.3% of GDP in October last year.[i]

However, official data suggests the deficit already reached R195 billion in the first 8 months of the 2018/19 fiscal year, so it could amount to approximately R250 billion, thereby exceeding Finance Minister Gigaba’s October projections by 25%.

The levy has undergone various changes since it was first announced.

When the levy takes effect in April this year, it will amount to 2.1 cents per gram of sugar per 100ml, above 4 grams per 100ml.

This is down from an initial 2.29 cents per gram of sugar with no exempted amount.[ii]

Related: Silver Linings For Smaller Businesses In Budget 2018

Our estimations suggest the tax burden is approximately 10% given current levels of sugar content, down from approximately 20% previously. In addition, industry has recently reacted to the news of the SBL, reducing the sugar content of popular beverages by including non-nutritive sweeteners.

In addition to efforts to reformulate, the industry introduced smaller bottle sizes to curb excessive sugar consumption and limit the excise tax burden.

SBL excise revenue estimations

We estimated that in a scenario in which the beverages industry makes no change to the sugar content of SSBs, the levy would result in an estimated R1.5 billion loss in sales revenue and a R 1.4 billion excise revenue gain for government.

However, a reformulation by industry would result in a lower loss in sales revenues of only R1.07bn and lower than expected excise revenue gain for government of R990mn.

Given the estimated fiscal budget deficit of up to R250bn, additional revenues of between R990mn and R1.4bn are unlikely to make a significant dent in plugging the deficit and could support the assertion that the levy will focus on curbing sugar consumption rather than providing significant additional revenue inflows.

In our quantitative analysis of the proposed tax on SSBs, we use the PwC Economic Impact Assessment Model to derive the potential impacts, based on a 10% sales reduction calculation due to potential excise driven price changes.

Although excise revenues are expected to increase, other tax revenue streams are likely to experience a decline. Not considering excise impacts, the prospective tax revenue loss stemming from reduced sales revenues and showing in lower VAT, corporate income tax (CIT) and personal income tax (PIT) could range between R363 million and R518 million in the reformulation and non-reformulation scenarios, respectively.

Related: 4 Budget Speech 2018 Outcomes To Know For Your Business

Therefore, the net impact on estimated tax revenue combining the implications for excise tax, VAT, CIT and PIT revenue would only range between R631 million and R856 million, subject to which scenario is implemented.

It is unclear whether the SBL levy will assist in reducing consumers’ sugar consumption. However, industry facilitates lower sugar consumption by reducing bottle sizes and through reformulation.

Smaller sizes nudge consumers to lower sugar consumption

In addition to reformulating popular SSBs, the beverages industry has altered the size of the 500ml buddy bottle to 440ml, potentially nudging consumers to reducing their sugar consumption.

The move to the 440ml bottle represents a 12%[iii] reduction in size and means that sugar content fell from 53 grams in the 500ml bottle to 46.6 grams in the 440ml bottle.

The implementation of the new levy could still result in an approximately 61 cent increase in the price of the 440ml bottle.

It remains to be seen how South Africans will react to the current and impending price change of SSBs and if the SBL can indeed assist in reducing obesity. It is clear that monitoring and evaluation are key tools to help government and industry understand the effectiveness of this initiative to prevent and control obesity in South Africa.

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Business Landscape

What It Will Really Take For South Africa’s Businesses To Scale And Create Jobs

It is the “low-hanging fruit” of scaling up South Africa’s established SME businesses that we believe is at the core of how we can grow this economy further.

Graham Mitchell




Much has been said about the potential of SMEs to drive job creation and economic growth for South Africa. Our unemployment rate is at 26.7% – an astonishing figure that speaks volumes about the dire need for job creation. On the back of this, we are seeing increasing amounts of money being channeled into incubators and the funding of startup companies.

Although important, the starting of new businesses, unless they are completely innovative, well-timed and highly scalable, will not provide us with much-needed quick wins on our path to job creation and economic growth. It is the “low-hanging fruit” of scaling up South Africa’s established SME businesses that we believe is at the core of how we can grow this economy further.

The state of established businesses in South Africa

Established businesses that already employ 10-20 people have a working product, willing buyers and a proven business model and with some modifications, increased guidance and adequate management, they have the potential to increase their number of employees significantly as they scale up. However, a 2016/2017 report by the Global Entrepreneurship Monitor (GEM) in partnership with the University of Cape Town found that the rate of established businesses in South Africa has declined by an incredible 26% since 2015.

Related: How South Africa’s Small Businesses Plan To Invest Their Money In 2018

In fact, South Africa had one of the lowest established business rates of all the economies that participated in the GEM 2016 study (ranked 61st out of 65 economies). This, the report says, “paints a bleak picture of the SMME sector’s potential to contribute meaningfully to job creation, economic growth and more equal income distribution.” While we should not neglect the starting of new businesses, scaling up established businesses will provide young people with much needed experience to ensure that when they eventually start their own businesses, they may have greater chances of success.

How to increase the proportion of established businesses that scale up    

Have a clear vision for your business

When we as business coaches work with established businesses that are scaling up, we make sure to start with the founder as their attitudes and desires determine how far the business will go. Scaling up an established business begins with a clear vision. Often, we find that the businesses owners don’t have a clear vision of where they want to take their business, and without a vision, it’s very difficult to scale.

Determine why your business exists

Linked to a clear vision, business owners need to have a strong purpose that answers the question of why they want to scale. Some business owners often see their business as a vehicle that provides them with an income, rather than the business serving a bigger purpose to impact an industry or the broader society. As a result, they often stop short of developing the full potential of their businesses.

Be willing to learn and seek help where needed

Business owners also need to have a willingness to learn. Being entrepreneurs, they often have a definitive view of the world and how it should work, which drives them to create something that they believe needs to exist (a new business venture). A risk to these strongly held views and high levels of confidence is that entrepreneurs potentially won’t open themselves up to new ideas, or to being challenged that some of their beliefs and views may, in fact, be holding their businesses back.

Business owners need to realise that they may not have all the skills to scale their business. I’ve found that entrepreneurs tend to be strong in customer service, innovation and sales, and are often weaker in people management and attention to detail – skills that become a lot more critical at the point of scaling the business.

Related: Levergy Founders Tell You How To Scale Quickly – And Intelligently

business-day-tv-sme-summitOther areas of importance in scaling up

There are other critical areas that businesses need to address in scaling up but dealing with the founder is most critical. Strategy is one, cash flow is another, as is the question of hiring/finding and developing key talent. I will be unpacking these and more at the upcoming Business Day TV SME Summit on 8 March; and with increasing efforts by government to address the unemployment crises through platforms like the Jobs Summit announced in the State of the Nation Address, we hope that more conversations are had around harnessing the job creation power of established businesses that manage to scale up quickly and sustainably.

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