Calling the Steinhoff fraud scandal an accounting irregularity effectively depersonalises the misconduct. Corporate governance is fundamentally about\u00a0human behaviour, attitude,\u00a0mindset and responsible leadership of institutions.\u00a0It places emphasis on the rules and constraints on decision-making, specifically the need to constrain \u2018managers\u2019 to act in the best interest of the institution, especially public ones.\u00a0Law and regulation\u00a0will\u00a0never be able to improve governance practices. You cannot legislate ethics.\u00a0Unethical individuals will always find ways to subvert laws, regulations and good governance practices such as the King Code. King IV defines corporate governance as the exercise of ethical and effective leadership by the governing body towards the achievement of the following governance outcomes: ethical culture; good performance; effective control and legitimacy.<\/p>\n
Corporate governance is typically thought to be the exclusive\u00a0domain of board of directors. But not necessarily so as Leon Kirkinis, former CEO of African Bank cautioned me in 2006\u00a0when I did my MBA research on \u2018Factors affecting female representation on boards of directors.\u2019 He thought I was overzealous and over-estimating the\u00a0role of boards in leading organisations. Kirkinis said: \u201cThe individual you must focus on\u00a0is\u00a0the\u00a0CEO. The character and values of the CEO are critical in setting the tone\u00a0and they play a greater part in running an organisation, not the board.\u201d\u00a0Gill Marcus, the former Governor of the Reserve Bank, as part of the same research shared that as a Chair of a\u00a0board; she prefers to have three Executive Directors minimum, including the CEO, being on the board. She observes their individual contributions and sees whether they are always in agreement which would be a symptom of collusion or being under duress that can indicate a deeper problem.\u00a0With all these corporate scandals ranging from Enron, Regal Bank and now Steinhoff, Kirkinis\u2019 warning\u00a0was inside wisdom which must be heeded, especially in view of how things turned out at African Bank. All these companies had boards. There\u00a0had Audit Committee members skewed towards Chartered Accountants. And yet the shenanigans of the CEOs were not detected by these boards.<\/p>\n
The question being increasingly asked is, \u201cWhat is the value of boards?\u201d We must remember that boards of directors are a structure\u00a0that was\u00a0created to overcome the agency theory\u00a0which\u00a0assumes that those tasked with the control of an institution are motivated by self-interest at the expense of\u00a0shareholders\u00a0and stakeholders.\u00a0The belief was that when given decision rights, managers may act in ways that maximise their own welfare at the expense of the organisational good.\u00a0In many instances of bad governance, this assumption has proven to be true. So in practical terms, how does a board that meets four times a year, with working\u00a0board\u00a0committees in between, really know what is happening in the organisations they are accountable for and monitor. That is what should be keeping every board member awake at night. Sitting on boards is no longer a status symbol or for prestige.\u00a0Risk oversight is an imperative for boards\u00a0and gained increased focus in the aftermath of the global financial crisis. I would venture to say that the oversight role of boards itself is a critical risk that needs more efficient and effective ways to\u00a0exercise, especially as they are at the mercy of the information being prepared and provided by the executives with gatekeeping by the CEO.\u00a0<\/span>\u00a0<\/span><\/p>\n King IV sees combined assurance as a model to optimise the assurance services and functions to facilitate effective control environment with the outcome\u00a0being\u00a0information with integrity to support decision making and for external reporting.\u00a0Combined assurance is safeguarding a co-ordinated (combined) approach to assurance on whether key risks are managed appropriately within an organisation. The first line of defence is management. The second is internal auditors. The third is the external auditors.\u00a0However if risk is defined\u00a0as\u00a0a probability or threat of damage, injury, liability, loss or any other negative occurrence that is caused by external or internal vulnerabilities and that may be avoided through pre-emptive action, in my\u00a0\u00a0eighteen years of sitting on boards, I have never seen\u00a0CEO\u00a0integrity risk on any risk register or audit plan. Yet\u00a0the lack of a CEO\u2019s integrity\u00a0has the ability to\u00a0destroy billions of dollars of a company\u2019s share price in less than a week. If there are board members even in organisations that have not had governance scandals as yet who are not feeling vulnerable\u00a0or that their useful days are numbered, then they\u00a0need a reality check.<\/p>\n","protected":false},"excerpt":{"rendered":" Calling the Steinhoff fraud scandal an accounting irregularity effectively depersonalises the misconduct. Corporate governance is fundamentally about\u00a0human behaviour, attitude,\u00a0mindset and responsible leadership of institutions.\u00a0It places emphasis on the rules and constraints on decision-making, specifically the need to constrain \u2018managers\u2019 to act in the best interest of the institution, especially public ones.\u00a0Law and regulation\u00a0will\u00a0never be able to improve governance practices. You...<\/p>\n","protected":false},"author":1,"featured_media":363,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","jetpack_publicize_message":"","jetpack_is_tweetstorm":false,"jetpack_publicize_feature_enabled":true},"categories":[1],"tags":[],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/www.busaraleadershippartners.co.za\/blog\/wp-content\/uploads\/2017\/12\/blog-steinhoff.jpg?fit=280%2C190","jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p3tQPV-5Q","jetpack_likes_enabled":true,"_links":{"self":[{"href":"http:\/\/www.busaraleadershippartners.co.za\/blog\/wp-json\/wp\/v2\/posts\/362"}],"collection":[{"href":"http:\/\/www.busaraleadershippartners.co.za\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.busaraleadershippartners.co.za\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.busaraleadershippartners.co.za\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.busaraleadershippartners.co.za\/blog\/wp-json\/wp\/v2\/comments?post=362"}],"version-history":[{"count":1,"href":"http:\/\/www.busaraleadershippartners.co.za\/blog\/wp-json\/wp\/v2\/posts\/362\/revisions"}],"predecessor-version":[{"id":364,"href":"http:\/\/www.busaraleadershippartners.co.za\/blog\/wp-json\/wp\/v2\/posts\/362\/revisions\/364"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/www.busaraleadershippartners.co.za\/blog\/wp-json\/wp\/v2\/media\/363"}],"wp:attachment":[{"href":"http:\/\/www.busaraleadershippartners.co.za\/blog\/wp-json\/wp\/v2\/media?parent=362"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.busaraleadershippartners.co.za\/blog\/wp-json\/wp\/v2\/categories?post=362"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.busaraleadershippartners.co.za\/blog\/wp-json\/wp\/v2\/tags?post=362"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}