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:
- 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;
- 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,
- it strategically contributes to sustainable development and growth within the entity, and
- ensures continuity.
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.
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:
- 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.
5 Thoughts To Give You The Courage To Make Change
The only constant is change. If you can’t learn to embrace it, you’ll be left behind.
In my experience, change is harder for those who perceive themselves to be succeeding than those who perceive themselves to be failing. Failure produces an irresistible motivation to reflect and to seek changes that will eliminate the pain you are feeling. It is those who perceive themselves to be successful who are most likely to stick to the status quo in a sea of change.
Change always happens: Contexts change, markets change, competitors change and so on. So, reinforcing a strategy and recipe for success seems the logical thing to do, right? If it ain’t broke, don’t fix it, goes the mantra. Why on earth would you mess with a winning formula?
The problem is that these winds of change are numerous and subtle, moving slowly and in different directions, making them invisible to the ‘successful’ eye. Business books are filled with case studies like Kodak who, despite acknowledging the threat of digital, were so entrenched in their current thinking that they sailed their ship right off the end of their flat earth.
Here are five thoughts to provoke you and guide you in finding the courage to change.
1. This too will pass
Live by the law of impermanence that says that nothing remains permanent; neither failure nor success. This should create a level of healthy paranoia in successful entrepreneurs that drives them to anticipate what will change and when it will change, and to constantly live in a start-up mindset. Being aware, self-reflective and conscious of your bias is the best remedy for the allure of a permanent reality mindset.
2. Use what you have
One of the most common reasons that we do not want to change is having to admit that the resources we have so painstakingly and expensively built and maintained are not as useful anymore. The now popular and commonly-used terms of ‘radical’ and ‘disruptive’ conjure up scenarios of throwing away everything we have.
In most instances where change is required, the most successful way to change is to use the resources currently available in your business in a reconfigured manner. My rule of thumb is that any new strategic direction should incorporate no more than 20% of new resources, know-how or processes. This approach might not be radical or disruptive, but it ensures that there is a higher appetite for change in the organisation and a higher probability of it succeeding.
3. Focus on the positive energy change creates
Change is terrifying for many, but it creates a positive energy in a business. We often spend too much time trying to pacify employees who are fearful of change. In my opinion, you should rather be weeding these people out of your business as it grows.
They slow down progress and redirect valuable time and energy from focusing on the future and building towards that. It is important to focus your energy on the positive energy that is being released when change happens, such as excitement, new possibilities, and new growth opportunities for people and the business.
4. Plan your change, but also expect the unplanned
Effective change is ideally planned. Thought-through, documented and communicated phases are always better than a chaotic laissez-faire approach. But as Mike Tyson once said,
“Everybody has a plan until they get punched in the face.”
Life happens, the unexpected is ever-present in our lives, and we need to plan for this. Allowing a 10% to 20% tolerance for the unknown is a wise thing to do to ensure your expectations are catered for. Accepting the potential of random change in your planning will make it easier to accept and manage.
5. Expect Magic
After the dust has settled following a recent change or upheaval, and nerves and emotions have normalised, there will inevitably be an unforeseen positive outcome from the change. When you expect to find this outcome and appreciate the chemistry of time, resources and random events that created it, you will see change as the unavoidable path to these magical events.
It makes going through the change so much more tolerable when you know that when this phase of change is completed, there will be an outcome that will make it worthwhile. This expectation has never failed to deliver for me.
Entrepreneurs do not have the luxury of remaining still and constant, even for a short while. Mighty corporates are also susceptible to the devastation of the law of impermanence. But, there is a different lens on this that I prefer; every day and every moment brings the gift of change to us which is always a door to a better, more fulfilled future.
5 Steps To Cutting The Fraud Of A Cash-Driven Society In Africa
African consumers still prefer cash transactions – here’s how to stop this from impacting on your business bottom line.
There is an issue when it comes to transactions in Africa. That issue is cash. There are plenty of reports that point to the percentage of people who remain unbanked on the continent – it’s high. There are also reports that talk about how those who are banked use their accounts as little more than cash repositories – money in on payday, money out on payday. Why?
The African consumer doesn’t trust the system. They also face significant difficulties in rural areas that have limited card-based services and access to cashless transactions. And bank charges are hefty, eating into their pockets.
Pay attention: Cash is king
Your consumer isn’t banking savvy. They have a bank account because their employer wants to pay via EFT or because a sales rep got them enrolled, but didn’t explain exactly how the banking system could work to their benefit. They don’t trust banks, they don’t like the transaction fees and cash remains the currency of choice. In this world, cash is king. For the entrepreneur this cash-based society has both challenges and opportunities.
The challenge: Cash is easy to lose
If the majority of your business transactions are carried out with cash, you run a big risk. Cash is easy to steal as transactions are rarely audited and accounted for. Unethical employees can put half in their pocket and half on the books, directly impacting on your income. Paper money is hard to audit and track, it is expensive to bank, and often undeclared.
The challenges lie in the land where you are the entrepreneur receiving the cash, but the opportunities lie in helping other people to manage their cash.
The solution: find ways of tracking cash
The business has to be smart. Allow cash transactions to remain a part of the process, but use services that facilitate some of the collections and ease those headaches. Companies often use cash management companies, but their price tag makes handling of cash even more expensive. Fraud is rife in the cash market. There are many ways to skin a cat, but handling cash in without technology to track it can be dangerous. Any mismatch of manual records and payments needs to be carefully analysed to pick up any discrepancies.
An alternative is to employ a service provider who can manage the cash transactions for you, but this will also be a cost to the business, Retail stores can collect on your behalf, but they want you to pay a service fee. Understandable costs, but ultimately each one impacts on the bottom line.
The technology opportunity
One opportunity which has already started to edge into the mainstream is the use of eWallets and digital cryptocurrencies. Cash carrying individuals can swap these out for virtual monies that they can use to manage their payments. M-PESA in Kenya is a superb example, even if it never really got a foothold in South Africa. For the entrepreneur that wants to engage with the cash empowered customer, these solutions could potentially help overcome the hurdles of trust and cost and ensure security on both sides of the fence.
The final countdown
What it boils down to is this – cash exists and cash-based transactions and attitudes are unlikely to change overnight so the entrepreneur needs to invest in solutions and systems that manage and audit transactions carefully. Ensure there are various control measures that can pick up anomalies, give people the opportunity to unpack these anomalies and then identify any issues.
Ultimately, if your business is to successfully avoid the multiple opportunities for fraud in the cash transaction society, then you have to invest in tools that will ensure your cash is properly managed and that you’ve chosen a well-known service provider to do so. Otherwise you’re just swapping cash fraud for technical fraud…
Are You Forgetting To Think About Your Business Strategy?
If you want to make money, save money and improve your efficiencies in 2018, you need to keep reviewing your strategy.
It’s hard to keep upwith the pace of change. Economic uncertainty, disruptive technologies, fast-changing consumer needs and complex digital marketing means entrepreneurs have to move fast just to stand still. While managing constant change this is easy, but dangerous to forget about strategy. A couple of pertinent questions: What are your business and marketing strategies? Who owns them? How many people in your organisation understand them? When last did you review them to see if they are appropriate now, and likely to be appropriate in the next year or two?
Every organisation, from tiny businesses, clubs, NGOs and start-ups to much larger companies would benefit by taking time out to review key strategy issues. I suggest you examine whether your target markets are the right ones, and are still buying enough to meet your sales targets. You should ask if your sales channels, pricing policies, promotional messages and the media used are right for the times.
- Do you really know what your target market needs and how those needs are changing?
- Are your products and services providing solutions to those changing needs?
- Does everyone in your organisation know what differentiates you from your competitors?
- Do you have the right people?
- Is your financial strategy still sound?
- What about purchasing or manufacturing — is it still as cost-effective as it could be?
- What are your competitors doing now?
- What are they likely to be doing in future?
Get out of your comfort zone
These are tough questions, but if you ignore them, your organisation may drift along in its comfort zone in the hope that everything will work out. A company that continues to try to sell familiar products to anyone who will buy, and does not know what its competitors are doing is taking very high risks in a changing environment.
The risk increases if your prices reflect your efficiency or otherwise at product procurement rather than the value they deliver to customers. Risk rises to danger levels if few people actually know and understand the strategy, because they will usually keep their heads down and do the same old things.
Start the journey
Strategy development is like a journey. You know the starting point, you decide on your destination (your goals) and then you map out how to get there, which is your strategy. You have to consider the time it will take, the resources you will need, especially money and skills, and how you will know you are still on track (your milestones). Start at the beginning; ‘we know where we are’.
Do not assume everyone has the same idea of where you are, especially your management team; you may be surprised at the distance between perceptions of where you are now. Then set the goals and recognise that the future may not be what you envisage. You will have to be flexible to cater for change in a different economy.
Using questions like those in this article, map out the strategy of how to get there. An outside facilitator is a good idea for a strategy session but if you choose to run it yourself be careful that your management team does not only tell you what you want to hear.
What great strategies are made of
Keys to good strategy in these turbulent times are to really understand your target market needs and provide solutions at a price that the customer regards as fair value. Two other ideals are to provide the products or services in a manner convenient to the customer rather than to you, and to inform the customer of the advantages of your solution in a manner and in media that the customer trusts. You may recognise the venerable 4Ps of marketing in a new guise; outwardly focused, concentrating on the customer.
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