African Peer Review Mechanism: Parliamentary Ad Hoc Committee

on Corporate GovernanceCape Town

5 December 2005

Jacques Marnewicke

Who is BUSA?

• Established by the merger of Black Business Council & Business South Africa in 2003

• BUSA is:– the voice of organised business;– at both national and international levels; and – will proactively by means of effective co-ordination, dynamically

address different business views.

The Vision of BUSA

BUSA is:– a unified and fully representative organisation;– that contributes to a vibrant, transforming and growing economy

in South Africa.

BUSA aims to ensure that:– organised business plays a constructive role;– within the context of the country’s economic growth,

development and transformation goals;– in achieving an environment in which businesses of all sizes

and in all sectors;– can thrive, expand and be competitive;– both nationally and internationally.

The Mission of BUSA

Business Unity South Africa

MEMBERSHIP CATEGORIES OF THE SAME STANDING

CHAMSA CORPORATE ASSOCIATIONS

PROFESSIONALASSOCIATIONS

UNISECTORALS

Membership

Chambers of Commerce and Industry (CHAMSA) AHI• Foundation for African Business and Consumer Services (FABCOS)

• National African Federated Chambers of Commerce (NAFCOC)

• South African Chamber of Business (SACOB)

Corporate Associations• Black Business Executive Circle (BBEC)

• Congress of Business and Economics (CBE)

• National Black Business Caucus (NBBC)

• South Africa Foundation

Professional Associations• Association for the Advancement of Black Accountants of South Africa

(ABASA)

• Association of Black Securities and Investment Professionals (ABSIP)

• Black Lawyers Association (BLA)

• Black Management Forum (BMF)

• South African Black Technical and Allied Careers Organization (SABTACO)

• South African Institute of Black Property Practitioners (SAIBPP)

Membership

• Agri SA• African Minerals and Energy Forum (AMEF)• Automotive Industry• Banking Association• Black Information Technology Forum (BITF)• Master Builders of South Africa (MBSA)• Chamber of Mines of South Africa(COM)• Chemical and Allied Industries’ Association (CAIA)• Insurance Industry Employer Association (IIEA)• Life Offices Association (LOA)• Retailers’ Association• Road Freight Employers Association (RFEA)• South African Communications Forum (SACF)• South African Federation of Civil Engineering Contractors (SAFCEC)• South African Insurance Association (SAIA)• South African Petroleum Industry Association (SAPIA)• Steel and Engineering Industries Federation of South Africa (SEIFSA)• Casino Association of South Africa (CASA)

Membership: Unisectorals

Corporate Governance: General

• “The system by which companies are directed and controlled” – King 1994;

• The structures associated with management, decision-making and control;

• It relates to the governing of an organisation at the top;

• Key elements:– Supervising and monitoring management performance; and– Ensuring accountability to shareholders and other stakeholders

Corporate Governance: General

• King reports:– King I in 1994;

– King II effective from financial years 1 march 2002;

– JSE Securities Exchange listing requirement

• Sarbanes-Oxley Act:– United States of America;

– More stringent than King;

– Legislation

Corporate Governance: General

• High profile corporate scandals:– Enron, Worldcom, Leisurenet & others

– Ethical failures, not governance failures

– Lack of integrity at highest level

• Countermeasures:– Corporate governance measures & legislation will not prevent ethical

failure;

– “Legislation, regulation, listing rules or ethical norms will not restrain individuals who are intent on fraud” – Manager’s guide to S-O Act;

– Risk of over-regulation;

– An Ethical Framework for Financial Services – UK FSA October 2002 Discussion Paper 18

– Total cost of compliance commensurate with benefits?

Codes of Good Business Ethics

• The promotion of good business ethics– Institute of Directors - IOD– Ethics SA

• Combating white collar crime:• NPA & Scorpions• Specialised Commercial Crime Project - BAC and NPA• BUSA / BAC Alliance• National Anti-Corruption Forum

• Business Actions:• FSB : FAIS debarment • LOA S-reference• SAICA, Law Society, etc

• The role of the regulators – capacity and enforcement

Codes of Good Business Ethics

• Assessment of integrity of corporate sector– BESA Survey 2002: Internal survey of organisation

– Ask Africa Trust Barometer 2004: External survey of customers

• Assessment of corruption in corporate sector– KPMG 2005 Africa Fraud and Misconduct Survey

– PWC Global Economic Crime Survey 2005

Business Ethics SA Survey 2002

• 53 JSE listed companies - over 800 000 employees• All sectors, except media participated• 421 telephonic interviews• Measured technical ethical compliance against

effective ethical compliance.

Business Ethics SA Survey 2002

• General findings:– Corporate ethics management in RSA is healthier than

expected;– A relatively stronger emphasis on ethical values - as

opposed to technical compliance - in corporate governance issues;

– Business must catch up on technical and effective compliance; and

– Must improve the ethical culture in organisations to remain attractive to investment of mobile and risk-sensitive capital.

Business Ethics SA Survey 2002

Findings• Negative:

– Internal communication by top management;– Maintenance of theft-free environment;– Adequate ethics education & training;– Credibility of corporate values;– 25% of management & 33% of staff not aware of code of

ethics;– Hotlines in less than 50% of companies;

Business Ethics SA Survey 2002

Findings• Positive:

– Pressure to act unethically low;– 96% of respondents had written disciplinary procedures;– High commitment to BEE;– High level of reporting on:

• Good governance - 94%• Social responsibility - 92%• BEE & transformation - 85%

– Discrimination against HIV positive individuals low;– Sexual harassment incidence very low.

KPMG Survey 2005• 237 Companies surveyed by questionairre;• 64% considered fraud a major problem;• 68% expected an increase in fraud;• Reasons for fraud:

– 67% listed economic pressure;

– 58% listed a decline in society’s values;

– More than 50% listed ineffeciences in the justice system.

• 76% experienced fraud by employees;• 32% experienced fraud by management;• 81% had written ethics policy;• 88% communicated their ethics policy;• BUT 65% had no ethics officers or committees in place.

PWC Survey 2005

• 100 companies surveyed, 60% were listed on the JSE;

• 83% were subjected to economic crime;• 26% expected economic crime to increase;• 54% experienced internal frauds.

Fair Treatment of Stakeholders

• Shareholder protection– Companies Act

– JSE rules & listing requirements

• Recognition of shareholder rights by corporate governance framework– Legislation, voluntary codes

– Access to information - PROATIA

– Representation and interaction

Fair Treatment of Stakeholders

• JSE Socially Responsible Investment (SRI) Index:– Launched in May 2004;– Second review 9 October 2005 to 15 December 2005;– Measures triple bottom line.– All companies on the FTSE/JSE Index may participate;– Participation is voluntary.

• Three Pillars of the triple bottom line:– Environmental sustainability:

• Impact on the environment;

– Economic sustainability:• Long-term growth as opposed to short-term performance

– Social sustainability:• Strategies to promote social upliftment, development & poverty reduction

• JSE SRI Index also addresses corporate governance• Dow Jones SRI

Accountability of corporations, directors & officers

Reporting requirements (financial & non-financial)• Accounting standards

– IFRS - International Financial Reporting Standards

• Auditing standards– International Auditing and Assurance Standards Board

(IAASB) of the International Federation of Accountants (IFAC) • External : International Standards for Auditing (ISA’s) & International

Auditing Practice Statements (IAPS’s) – previously South African Audit Standards (SAAS)

• Internal : Institute for Internal Auditors (IIA Inc)

– Auditing & Assurance Standards Board (AASB) established by S10 of Public Accountants’ and Auditors’ Act, 80 of 1991

Four Pillars NetworkBackground & Aims• Commission for Africa:

– Calls for a widespread business partnership;– A response to the humanitarian crisis in Africa; – Africa is the world’s foremost development challenge.

• The Four Pillars Network aims to:– Promote a positive investment climate in Africa;– Enable African and Western business professionals to share

expertise and information;– Focus on the four pillars of trust in business:

• Corporate governance;• Audit;• Compliance; and • Corporate responsibility.

Four Pillars Network

• Comprises:– committed individuals;– with expertise and practical experience in the focus areas;

• Seeks to:– work with Chambers of Commerce, business leaders and their

counterparts in African business;– help identify potential solutions to the challenges facing businesses in

Africa.

• Operate:– through conferences, seminars, and training programmes;– will explore with African business leaders other ways in which the

practical experience of participants can be made available to African businesses.

Four Pillars Network

• Activities:– Initial conference in Johannesburg scheduled for April 2006– Members of the Network and business leaders in Africa

interested in participating in this project– Subject to approval at this conference, further events will be

held in Africa and in the West– The individuals in the Network have agreed to participate in an

annual conference and/or an annual summer school.  

Questions?