GlobalGovernanceVoice

ISSUE 3 • FEBRUARY 2016

Succession Planning

Page 8

Watching the Watchdogs

Page 12

Certainty in Entity Management

Page 18

CONTENTS Feb 2016The Global Governance Voice, the magazine of the Corporate Secretaries International Association (CSIA), is published on behalf of the CSIA by Ninehills Media Ltd and is sent to member countries and globally to selected senior executives in the public and private sectors. Views expressed are not necessarily the views of the CSIA or Ninehills Media Ltd.

Any views or comments are for reference only and do not constitute investment or legal advice. No part of this magazine may be reproduced without the permission of the publisher or the CSIA.

Production by:Ninehills Media LimitedLevel 12, Infinitus Plaza, 199 Des Voeux Road,Sheung Wan, Hong KongTel: (852) 3796 3060Fax: (852) 3020 7442Email: enquiries@ninehillsmedia.com Website: www.ninehillsmedia.com

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4 President’s Message

6 CSIA Council Members Speak at Issuer Forum

8 Succession Planning

12 Who’s Watching the Watchdogs...?

18 Achieving Certainty in Entity Management

20 Corporate Governance Initiatives of ICSI

22 Do Board Effectiveness Evaluations Add Value?

28 Women on Board: Voluntary or Mandatory Quotas?

31 International Corporate Governance Perspectives

35 Zimbabwe: Excellence in Corporate Governance Awards

40 Whole-of-Organisation Governance: The Next Frontier

42 Member Update: Governance NZ Event Round-up

44 Member Update: MAICSA Annual Conference 2015

45 Member Update: HKICS News

46 Member Update: Training on Governance Audit by ICPSK

49 Member Update: 2nd ICSB National Award for Corporate Governance Excellence 2014

Full Members

Affiliate Members

PRESIDENT’S MESSAGE

Greetings to you all and may I take this opportunity to wish everbody a successful 2016.

I would also like to extend a warm welcome to the new representatives from our member countries and hope that you will enjoy being part of CSIA and that together, as a team, we can make a difference to the corporate world.

We can do this by ensuring that Corporate Secretaries are fully trained to handle the changes which are taking place in the world today, particularly with regard to Corporate Governance, Risk Compliance and Management.

The articles in the magazine will continue to focus on this arena of competence.

I would also like to extend a warm welcome to Paul Davis, who is the Commercial Director of Ninehills Media Limited.

In November 2015, CSIA and Ninehills Media Limited entered into an Association Management Services Agreement.

Paul has many years of experience in the B2B media industry in Hong Kong and across Asia, and with his expertise in digital media we are certain that we will produce a magazine that not only elevates CSIA in the eyes of our current members and sponsors, but will hopefully attract other countries to become members and get additional sponsors on board.

However, as I have already mentioned, this can only happen if we all support this Association of ours.

Contact with other country members will help us all to benefit from how and what they have done and are doing in their respective areas to promote our ideals.

We cannot let this wealth of expertise go to waste.

As mentioned in the “President’s message” in the previous edition of this magazine, we are “recognised by the Organisation for Economic Co-operation and Development as the Global voice of corporate secretaries and governance professionals, and are the only organisation representing the corporate point of view on global governance issues today”.

This is a level of excellence which we need to guard jealously.

In closing I would like to express my sincere thanks to the EXCO of 2015 for their dedication to the Association and welcome the 2016 EXCO members.

Vice President: Dr. Nicholas Letting (Kenya)Treasurer: Carina Wessels (Southern Africa)Secretary: Atul Mehta (India)Executive committee member: Dr Nat Ofo (Nigeria)

Rick SummersPresident2016

Dr Nicholas Letting Atul Mehta

Dr Nat Ofo Carina Wessels

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CSIA Council Members Speak at Issuer Forum

The Issuer Forum is a Computershare sponsored forum for South African issuers: it is a multi-disciplinary assembly for professionals to stay up-to-date with matters affecting company secretarial practice and for networking within corporate and public sectors.

The specific objectives of the forum are:• Networking and relationship building• Knowledge sharing• Training• Events and presentations from speakers• Online Forum – information sharing• Addressing common issues with regulators

In the spirit of these objectives, it was regarded as an ideal opportunity of sharing international practices and trends with South African issuers through an experienced and extremely knowledgeable international panel discussion.

The panel discussion was facilitated by Carina Wessels (Past Chartered Secretaries Southern Africa and CSIA President) and consisted of:• Katherine Combs (CSIA President 2015)• Samantha Suen (Chief Executive of the Hong Kong

Institute of Chartered Secretaries)• Peter Turnbull (Past Governance Institute of Australia

and CSIA President)

A variety of topical issues were dealt with and a summary of some are included below:

1. Earlier in the year CSIA had launched a thought leadership paper on shareholder engagement during a Computershare webcast participated in by over 500 individuals. Katherine touched on the original motivation for the topic: although many papers on the subject existed, none specifically captured the role of and practical learnings and tips by company secretaries and it was thus regarded that a practical toolkit on the subject would be opportune and add value to the vast amount of information already available.

The guidelines can be accessed on CSIA’s website: http://csiaorg.com/publications

This led to a discussion on some of the challenges experienced with shareholder activism in many countries and Peter emphasised that in Australia there had been a significant increase in activism, as well as institutional shareholders being more vocal and active. As in the United States of America (USA), major proxy advisors were very active in Australia and especially conflicts of interest in this space remained a challenge.

Proxy advisors were not especially prevalent in Hong

Kong, whilst steadily on the rise in South Africa. Katherine confirmed that, despite the USA Securities and Exchange Commission having been quite vocal with their criticism of certain proxy advisory practices, specifically conflicts of interest, and having suggested greater regulation for some time, it was not expected that any firm regulation would be forthcoming any time soon. Carina touched on the Canadian Securities Administrators that had actually gone so far as to adopt a National Policy Guidance for Proxy Advisory Firms, providing guidance on recommended practices and disclosure for proxy advisory firms (refer article on page 12, where Carina deals with this matter in more detail).

Peter explained that there was also no specific regulation of proxy advisors in Australia, except for the common law and competition law statutes preventing false and misleading statements/conduct. Peter noted that some form of regulation of proxy advisors was possible in the future which may include the need to hold an Australian financial services licence.

2. Carina explained that in South Africa there had been some challenges in the past where issuer data had been sold to marketing and other companies.  Resultantly many debates had ensued as to data ownership and issuer rights and obligations in this regard, especially considering the impending effective date of the

CSIA’s Council Meeting took place in Johannesburg on 29 and 30 October

2015 and was combined with an Issuer Forum session on 29 October.

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Protection of Personal Information Act (in brief a piece of legislation, not yet in force, with the intention to bring South Africa in-line with international standards of protection of personal information and which would radically change the way in which both government and business deal with individuals’ private information).  In Australia, the Privacy Act 1988 regulated the handling of personal information about individuals and included the collection, use, storage and disclosure of personal information, as well as access to and correction of that information.

3. The prominence of electronic methods for shareholder communication and engagement was discussed and Katherine shared some statistics on the increased utilisation and success thereof in the USA. Peter explained that electronic shareholder communications and voting were introduced in Australia in 2004 and have now become the standard and well accepted method of voting. Both Peter and Katherine confirmed that they were not aware of any major issues involving voting fraud and the checks and balances were seemingly well monitored and controlled.

4. Carina explained that in South Africa the business judgement rule had been written into law in the 2008 Companies Act and it was a principle applied in many other countries around the world, but one which greatly depended on the actual information shared with directors and whether such enabled communication and debate and was sufficient enough for them to reach a decision in the best interests of the company.  The company secretary as gatekeeper for governance and the conduit between management and the board could play a critical role in the quality and detail of the information reaching the board and thus the quality of their discussions and debates, as well as board communication in general. 

Peter shared some examples of what a company secretary could do to improve board communication, namely:

• Dealing with or squashing politics.• Ensuring the Chair and MD were always properly

informed.• Focusing on the quality, style and content of board

papers.• Communication between meetings, thereby keeping

the board’s knowledge up-to-date.

It was confirmed that CSIA was planning to publish some thought leadership on this critical topic, so watch this space…

The session concluded with a presentation by Etienne Nel on the anticipated introduction of a second exchange in South Africa.

All attendees had emphasised the wonderful learning and networking opportunity and thanked CSIA for the enlightening panel discussion.

A special word of thanks to our sponsor, Computershare, for not only making the Issuer Forum possible, but also sponsoring the first part of the CSIA Council meeting. Computershare has been a long-standing international sponsor and partner and CSIA looks forward to continuing a mutually beneficial relationship with them.

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Succession Planning

The easiest way to lose a friend, an old saying goes, is to start a business together. The same is true within

a family. That’s partly why passing on a business to the next generation is anything but simple and may open painful wounds. Indeed, HSBC said in a report earlier this year that next to divorce and bereavement, transition of a family business can be the most stressful time in your life. But done properly, a successful ownership succession is the reward of a lifetime; a legacy passed on to the very people you love and trust the most.

Michael Chan Yun Kwong, Chairman of fast-food group Café de Coral, knows this better than most. For almost three decades, he’s been running the company his father-in-law founded, and headed by his brother-in-law as CEO. He also co-founded the Legacy Academy, which is dedicated to raising awareness of the importance of succession planning.

‘Succession planning can be like a psychological tug-of-war’, Mr Chan said in an interview with CSj. ‘That’s why it’s so important to start the planning and preparation many years ahead of the transition. Most family business owners in Hong Kong want to pass on their business and legacy to the next generation, but very few have a plan for it’.

Family businesses are the backbone of most societies and account for about 80% of the global economy. Still, the diversely-held and professionally-managed listed company is often taken to be the ‘ideal’ company. How do you think family businesses can be role models?‘Family businesses are a driving power of the global economy and should get more credit. I think they could be very good role models. You have family members who have continuity and long-term vision. There’s a saying: “professional managers look at business on annual perspective, family managers on a generational perspective”. So family members are more concerned about the values and principles of running a business. And in terms of transitions, there’s a consistency among management. Even if you hire an outside professional manager, he or she will align with family dynamics. I believe it’s a good model for sustainability in the long term, both for listed and non-listed companies.

Having said that, I believe the reputation of family businesses might sometimes be unfavourable because many are not prepared for succession. They fail because they don’t plan, and instead have to sell out or close down. That’s why many family businesses don’t get over to the next or the third generation. But if you plan and have corporate governance and consider all intangible values, I think family businesses should not have this reputation.’

CSj talks to Michael Chan Yun Kwong, Chairman of fast-food group Café de Coral,

and co-founder of the Legacy Academy which coaches families to pass on their

businesses to the next generation in a sustainable way.

Johan Nylander

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Café de Coral – which also operates Oliver’s Super Sandwiches, Spaghetti House and Super Congee & Noodles – has achieved 27-fold sales and profit since it listed on the stock exchange in 1986. In your annual report, you say the company is ‘undaunted by short-term ups and downs’. How has this long-term perspective helped you grow, and do you think this is typical for Hong Kong family businesses?‘From a family business perspective, you always want to provide opportunities for future generations and make use of the business platform to develop their potential. This is the major reason for a business enterprise to exist, especially for a family business. This is also the main motivation for some of the world’s most successful family businesses, like Rothschild, JP Morgan and Rockefeller’.

Your father-in-law, Victor Lo, started the restaurant chain in 1969. Recently you handed over the baton to your brother-in-law, Sunny Lo. How did you handle this process?‘It took a four-year transition period. He is doing well. But at the end of the day, I don’t want to comment too much on existing management. I have this philosophy – when you’ve withdrawn from management, don’t intervene. Give them a free hand to do whatever they want.’

How does it feel to pass on such responsibility?‘When you go through a succession, you have to let go of

power. You might have had that power for say 30 or 40 years, so letting go is quite a psychological challenge – it’s like letting go of your life. Power is like opium; once you get the taste for it, you want more. Even for a father to pass on power to a son, there will often be a lot of reluctance on the part of the father. I’ve seen many cases where the succession did not succeed because the father hung on to power.

The other psychological burden is that the successor himself wants to make a difference and doesn’t want to have any part with the old guys of the previous generations. He or she often wants to start over fresh. However, one should remember that a succession usually isn’t just one person handing over power to another person; it’s a whole group of people handing over to another group, that’s how I perceive it.’

Rivalry between siblings and family members might also be a factor, how should one deal with that?‘In fact, my personal philosophy of succession planning is to first look at the family. Family always comes first, then the business. Families are by nature irrational, so we’re not always talking about reason. Look at all intangibles, like harmony, consensus and relationship between siblings and parents. Family traditions and relationships are much more important than just writing a cheque and transferring the wealth. Governance of a family business is an art as well as a science.’

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Your son runs a chain of bakeries in China and your daughter an interior design company. They are not actively involved in the Café de Coral family business. Would you say passing on a legacy is more than just passing on a business?‘Precisely. When you talk about legacy, you don’t need to talk just about business, it’s more a question of the DNA and the personality. I often use the analogy of a soya bean: if you are a soya bean, this doesn’t have to mean that your son or daughter will become a soya bean, they might prefer to become bean sprouts. So even if you enjoy running your own business, it doesn’t have to mean that your son or daughter will enjoy running it. They will inherit other values from the family legacy.’

Today, many of the new generation are reluctant to take over family businesses. A 2010 study by the Chinese Academy of Sciences said that 90% of people running family businesses want to pass them on to their children, but 95% of the second generation don’t want to take them up. Why is that?‘In China, where the children have received a more liberal education abroad, they are often reluctant to accept the operational methods of their parents when they come back to the family enterprise. They may feel that they no longer share the same value system as their parents and disagree with how they operate the business. Many young people want to have a more democratic and transparent structure. In addition, many of the second generation are very rich but want to make a difference to society as a whole. They may prefer to find work in an NGO to exert their influence.

Another reason is that, whatever the children do, they may feel that they will never be able to outshine their parents. They fear they will always live under the shadow of the ones who created the wealth. There is a saying that goes: parents are the black hole that sucks the dream out of the younger generation. You often pursue the dreams of your parents, and not your own. Today, many of the second generation prefer to create their own dreams.

I read in a Chinese newspaper that a young guy who wanted to prove his determination not to take over his parents’ business chopped off four of his fingers.’

Two years ago you co-founded the Legacy Academy, which coaches businesses to pass on their legacies in a sustainable way. Why did you start it?‘There were reasons both on a personal level and a societal level. I had personally gone through a succession process and had come to appreciate that planning for succession is not something that can be done overnight. Many people think the chairman can just sit down with his son and say: “Tomorrow you’ll take over”. But that doesn’t happen. Succession needs time; five to 10 years of planning, but few make the effort to plan their succession with that kind of timeline. In China and even in Hong Kong, 90% of businesses want to have succession eventually, but a JP Morgan survey suggests that 88% have not done any planning.’

Why do so few companies plan their succession?‘Human nature. We tend not to do any planning until we are confronted by a critical situation, especially on subject

matters like this. We don’t want to face the fact of death or illness – if you don’t talk about it, it won’t happen, right?If you look at the Corporate Governance Code in the listing rules, there’s almost nothing about succession planning, but if a succession process fails it can be disastrous both for the family and the shareholders. The business might have to be sold or closed down. That’s why I’m so curious and have done so much research.

That’s why I want to raise awareness in Hong Kong.’

What has the reaction been to the Legacy Academy?‘There’s a lot of interest from private bankers, insurance companies and academics who want to understand the dynamics of succession planning. There’s also big interest from professional bodies, like the Hong Kong Institute of Directors and the Hong Kong Institute of Certified Public Accountants.’

Having many family members as senior executives in a listed company, could that potentially be a source of conflict of interest, and how would you deal with that?‘It all depends on whether the family group perceive the company as a “private club” or in true sense as a public company. In my perspective, most families in Hong Kong that run public companies take it very seriously. They have independent directors and strong corporate governance to make sure family interests as well as other shareholders’ interests are taken care of.’

In a company, who should be responsible for the succession planning, and what role does the company secretary play?‘Of course, the responsibility has to come from the top. No one will go to the chairman and tell him it’s time to retire. Having said that, I think company secretaries play a pivotal role to institute measures to ensure proper succession planning, such as a correct planning process, instructions, policies and procedures. They will need to ensure the plan is incorporated into the company charter in a consistent way. Family businesses, especially with many members, need structure. So the company secretary has a very important role.’

What advice would you give to a company secretary in terms of succession planning?‘In the planning process, company secretaries are important for transparency. They can lay it down in black and white so everybody will realise that the process in not just for a closed group. They will also overlook vital policies and procedures, like employment policies, how you set salaries for incoming and exiting CEOs, or what happens if someone wants to sell shares.’

What are the first things you need to think about when planning a family succession?‘First, family assessment. You make an inventory of your family members, their talents, ages, and so on. Then you have family meetings. Some family members might just want to be shareholders and collect their dividend, others might want to be part of management. The meetings have to be transparent. This is very important. The meetings are not casual. You need an agenda and facilitators.

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Third, make a family charter. Even among families you need a charter that establishes policies and procedures. It’s not just about wealth, but values and traditions. In fact, one Hong Kong company said in its charter that members should “try their best to have early marriages”, because they want more offspring so the family would grow larger.’

You talk a lot about non-monetary values, what does it mean to you to pass on a legacy?‘When we talk about a successor, it’s not just a business successor we are looking for but a family successor. A successor has three roles: as business leader, family leader and mentor for the next generation. In some cases, the same person can perform all three roles, or it might be three different people. Ideally, it’s the same person.

A common mistake when family businesses talk about legacy and succession is to talk solely about wealth. It’s more important to think about governance, traditions and intangibles like family values and relationships.’

Investors and business academics often talk about profit maximisation. Do you think we need to raise other intangible values in the debate?‘Definitely. The idea of profit maximisation has been quite popular for the last few decades, but I think since the turn of the century, especially after the financial crisis, people have come to realise that profit maximisation might not be sustainable. People today look more at what are the real reasons behind wealth creation and they start questioning the whole idea. The rising generation has a lifestyle of health and sustainability. They are concerned about human rights, environmental issues, the underprivileged and social justice more than profit maximisation.’

You’ve said that Japanese families are the best in the world at passing on businesses, could you talk a little more about that and also about what Hong Kong businesses can learn from Japan?‘In Japan there are 3,146 businesses that have existed more than 200 years. It has to do with culture and how the Japanese view legacy. It’s quite different from most other countries. The Japanese have a very high respect for traditions and heritage. This mindset is a key ingredient. They look at the intangibles more than the tangibles of wealth transfer.

Many capitalist countries, including Hong Kong, have been taught and trained to look at legacy or succession planning only from the wealth perspective. That is one of the reasons we have the common saying that “wealth cannot be transferred to three generations”. If you just look at wealth, you will keep diluting from generation to generation, so you have to look at family values, relationships and history.’

You’ve also said that China is in the midst of the greatest inter-generational transfer of wealth ever – why is that?‘In China entrepreneurs have no experience in succession planning at all. The opening up of the economy was only some 30 years ago. So many of those early entrepreneurs are now over 60 years old. This is in fact the first time they have had to address succession planning challenges. In China, the

number of businesses that have existed for more than 200 years, you can count on less than 10 fingers.

In Hong Kong it’s a little bit better. We’ve been more stable as a capitalist economy for the last 40-50 years. We’ve already seen some successful families who have sustained the business over past two or three generations.’

How does the Confucian tradition affect successions here?‘On one hand, Confucian culture is beneficial in terms of its emphasis on respect and hierarchy, but this can also be a heavy burden. Confucianism talks about seniority over ability, and male domination over female. If you only have one daughter, some people feel they don’t want to hand over ownership to a woman. Even in Hong Kong some businessmen have this sentiment.’

What’s your view on that?‘It’s very dangerous. In terms of business sustainability you have to look at ability more than seniority, and you have to go beyond the male and female differences. For family businesses, women sometimes play a more important part in terms of sustainability. I’ve seen many women successful in running family business.’

This article was first published in CSj November 2015 edition. CSj is the official magazine of the Hong Kong Institute of Chartered Secretaries, published by Ninehills Media Ltd.

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Who’s Watching the Watchdogs...? Carina Wessels (LLB, LLM, Advanced Labour Law, PMD, FCIS)

Past President, CSIA and CSSA, Group Company Secretary – Exxaro Resources Limited

Executive summaryThis article is a discussion of the emergence of proxy advisory services globally. The practice of proxy advisory services is explained, as are international moves to address the lack of regulation of this industry. A discussion of the potential risks posed by proxy advisory services highlights issues including conflicts of interest (not necessarily having the shareholder’s best interests at heart), transparency and governance. The writer examines recent US efforts to review the proxy system, as well as similar initiatives in Canada before considering South African options for regulating proxy advisors under existing legislation. The article concludes with a proposal that such efforts should be regarded as short term solutions with the ultimate longer term objective being the negation of the need for proxy advisors because of company alignment with the King Code of Governance Principles for South Africa 2009 and investor alignment with the Code for Responsible Investing in South Africa 2011.

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On 1 April 2014, Moneyweb published an article entitled “Shareholder activist sells views to the public”

marketing Proxy View (a then newly established proxy advisory company) – seemingly one of the first public pieces on proxy advisors1 or such practices in South Africa. They had reported on it specifically because of the involvement of Theo Botha, the well-known South African shareholder activist.

Other than this mention, information on South African proxy advisory firms and practices remain limited. It has however been reported that in the United States of America (US) Institutional Shareholder Services (ISS) and Glass Lewis & Co (Glass Lewis) control 97 per cent of the market for proxy advice: these two dominant proxy advisors reportedly affect 38 per cent of votes cast at US public company shareholder meetings.2

Their dominance in the proxy marketplace not only affects numerous votes, but more importantly, how companies manage and deal with their shareholders.

It has been argued that proxy advisory firms wield enormous influence without having “skin in the game”. According to a 2002 study published in the journal Financial Management, a negative recommendation on management proposals from ISS influenced between 13.6 per cent and 20.6 per cent of the vote.

In addition, institutional shareholders often purport to fulfil their fiduciary voting obligations, in part, by relying on the recommendations provided by these firms, which not only emphasises the enormous responsibility placed on them, but also the risk if they do not act ethically, professionally and with the same fiduciary duties in mind.

Most concerning however, given the influence they have on public companies, is that many of the advisors, inter alia, profit from engaging in activities involving potentially material conflicts of interest, including marketing their advisory services to many of the same companies for which they provide proxy recommendations. In addition, Glass Lewis is owned by an activist fund with an agenda.

Harvey Pitt, former chairman of the Securities and Exchange Commission had on occasion commented that: “Proxy advisory firms are unregulated; more significantly, they operate without any applicable standards – either externally imposed or self-imposed – and do not formally subscribe to well-defined ethical precepts..., ...this lack of any operable framework for such a powerful presence on economic growth and corporate governance is unprecedented in our society.”3

Resultantly, a US Congressional hearing in 2013 had considered requiring the registration of proxy advisors and the regulation of their activities, whilst the US Chamber of Commerce had dedicated significant resources to combating abuses by proxy advisory firms.

Even before this, on 14 July 2010, the US Securities and Exchange Commission (SEC) had issued a 151 page concept release on the US proxy system highlighting the responsibilities of the SEC in regard to the proxy solicitation process and had requested comments on potential SEC rule updates.

This had been the initial step in a broad review of the proxy system, meant to promote greater efficiency and transparency, as well as to enhance the accuracy and integrity of the shareholder vote.

Some of the issues that had been raised during the public comment process, included:• Potential conflicts of interest• Factual errors in the analyses that influenced voting

recommendations• Review time by issuers• A lack of transparency

The Canadian Securities Administrators (CSA) had issued a consultation paper on 21 June 20124 in order to provide a forum for the discussion of certain concerns raised about the services provided by proxy advisory firms and their potential impact on Canadian capital markets and to determine if, and how, these concerns should be addressed by Canadian securities regulators. The concerns that had led to the paper were similar to those raised in the US and included:• Potential conflicts of interest• Potential inaccuracies and limited engagement with

issuers • Perceived lack of transparency• Potential corporate governance implications • The extent of reliance by institutional investors on

the recommendations provided by proxy advisory firms

On 24 April 2014, the CSA had published for comment a proposed National Policy: Guidance for Proxy Advisory Firms, to address the regulation of proxy advisory firms. For the most part, the policy merely provided guidance in the form of suggestions that proxy firms “may consider” rather than rules that must be followed, and as such, was regarded, at the time, not to necessarily be the regulatory regime that many companies had been expecting or hoping for.

1 A proxy advisor is a firm hired by shareholders of public companies (in most cases an institutional investor of some type) to recommend and sometimes cast proxy statement votes on their behalf.

2 Boards should minimize the role of proxy advisors (refer references).3 Boards should minimize the role of proxy advisors (refer references).4 Canadian Securities Administrators Consultation paper 25-401 (Refer references).

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Since then, on 30 April 2015, the CSA had advised that they were adopting National Policy 25-201 Guidance for Proxy Advisory Firms (the policy) and although some aspects had been amended following the public participation process, the changes had not been regarded as material enough for it to be published for public comment again.

The policy provides guidance on recommended practices and disclosure for proxy advisory firms. The guidance contained in the policy is intended to: • Promote transparency in the processes leading to voting

recommendations and the development of proxy voting guidelines.

• Foster understanding among market participants about the activities of proxy advisory firms.

The policy addresses the following areas:• Identification, management and mitigation of actual or

potential conflicts of interest.• Transparency and accuracy of voting recommendations.• Development of proxy voting guidelines.• Communications with clients, market participants, other

stakeholders, the media and the public.

As indicated above in respect of the proposed policy, the final policy also merely suggests certain steps that proxy advisory firms may consider taking in relation to the services they provide to their clients and their activities. It further expects proxy advisory firms to publicly disclose their practices to promote transparency and understanding among market participants. The CSA indicates that, although the policy applies to all proxy advisory firms, the guidance contained in the policy is not intended to be prescriptive, but they rather encourage proxy advisory firms to consider this guidance in developing their own practices and disclosure

On the above mentioned launch of Proxy View in South Africa, Jon Duncan, head of responsible investment at Old Mutual Investment Group had, inter alia, mentioned: “...all proxy voting comes with an agenda and anyone who chooses to purchase the service must understand Proxy View’s yardstick for measuring good corporate governance.”5 Albeit that this comment may not have intended to suggest conflicts of interest between Proxy View and related advisory services (Proxy view is driven by research and opinion provided by, inter alia, CorporateGovernance.Pro, a corporate governance comment and evaluation specialist6, thus providing other advisory services to companies as well), the fact that an “agenda” was referred to, in itself suggests potential conflicting interests.

ISS, which also provides proxy recommendations on many South African listed companies, reportedly has 1 700 clients that manage about $25 trillion in assets world-wide. ISS

was owned by Risk Metrics Incorporated, a JP Morgan spinoff, before it was acquired by MSCI Incorporated in 2010 and most recently by Vestar Capital Partners in April 2014. ISS had long been criticised for selling corporate governance consulting services to some of the same companies that were the subject of its voting recommendations, but have publicly stated that it has adopted policies to guard against possible conflicts of interest.7

Glass Lewis is owned by the Alberta Investment Management Corporation and Ontario Teachers’ Plan Board, a Canadian pension fund (one of the world’s largest institutional investors) and counts as clients more than 900 institutional investors that manage more than $15 trillion world-wide.8 Glass Lewis lacks a consulting arm and thus, at least, the risk of conflicts is mitigated.

Avior Capital Markets, another advisory firm very prevalent in the South African environment, markets themselves as an independent equity research firm and trading house that provides in-depth and insightful research on selected JSE-listed and Sub-Saharan Africa companies. They indicate that they value their ethics highly and do not participate in corporate action or proprietary trading, as it ensures unbiased points of view9: again, at least, thereby eliminating the conflicts concern.

Although advisors would likely agree that they have a responsibility to ensure the accuracy of the information they are disseminating, most are not regulated at all and therefore sometimes lack the proper oversight that governs the other financial market players, which have on the most part become highly regulated. As a result, with no recourse, the data used in their reports is not always accurate. Spending valuable time and resources chasing shareholders in an attempt to correct the factual errors within a proxy advisory firm’s report, post issuance with inaccuracies, should not be a regular step of the proxy reporting process. Unfortunately, once the report is issued, the damage has also been done, and even with corrective action it may be too late to unwind negative press and opposing shareholder votes already cast based on incorrect information.

This aspect, amongst others, was again emphasised in August 2014 by SEC Commissioner, Dan Gallagher, in a wide ranging synthesis of the rise of proxy advisory services and he had, inter alia, commented on the reliance on proxy advisory services by investment advisers. He had indicated his concern regarding investment advisers that rotely follow advisory firm recommendations without engaging with companies: such advisors also tended not to afford companies an opportunity to tell their story – a trend which he had regarded as deeply troubling. He had argued that such rote reliance on proxy advisory firms had caused

5 Shareholder activist sells views to public (Refer references).6 Shareholder activist sells views to public (Refer references).7 For proxy advisers, influence wanes (Refer references).8 For proxy advisers, influence wanes (Refer references).9 Avior.co.za.

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ahead of big votes and those investors were handling more of the voting analyses themselves.11

As an example, in respect of the 2013 JP Morgan Chase & Co (JP Morgan) annual general meeting, ISS and Glass Lewis had recommended that shareholders support a non-binding proposal to split the roles of chairman and chief executive, but JP Morgan had mounted an intense shareholder lobbying effort to defeat it, resulting in only 32.2 per cent of the vote having been cast in favour. In response, David Eaton, vice president of proxy research for Glass Lewis had commented that “Our power is probably shrinking a little bit”.12

It seems that in the US shareholders have started to realise that proxy advisors are not necessarily motivated to provide value to the shareholder or company. Some boards have also started to challenge proxy advisors, especially when their conclusions do not increase long-term shareholder value or are not supported by the facts. Regulation is nevertheless still anticipated, albeit that progress has been slow.

In the South African environment however, the use of proxy advisory services has not yet matured to this extent and is likely still on the increase.

Although the Code for Responsible Investing in South Africa 2011 (Crisa) specifically applies to service providers of institutional investors and thus extends to proxy advisors, it is contended that this only suggests such advisors take Crisa’s principles into consideration in preparing their advice, and is centred around encouraging the inclusion of environmental, social and governance considerations into long-term investment strategies, but still does not regulate the advisors and the detail of how such advice is approached and prepared.

investment advisers to lose the forest for the trees: he believed they were so focused on checking the compliance boxes that they had forgotten their broader fiduciary duty to investors to cast votes in the investors’ best interest. That fiduciary duty, he had argued, could not be satisfied through rote reliance on proxy advisory firms.10 

On the positive side, some South African firms do well by engaging companies prior to issuing their reports (inter alia by issuing a draft report to comment on), although often very limited time (or in fact, no time at all) is provided for such engagement. But again, this is done on a voluntary basis and cannot be enforced. Equally, the lack of regulation leaves a vacuum whereby companies could take uncomplicated, immediate remedial action against advisors for wilful or negligent misrepresentation or inaccurate disclosures.

A key aspect discussed in the CSA research had been that proxy advisory firms may have become de facto corporate governance standard setters and that, as a result, companies are compelled to adopt certain one-size-fits-all standards which may not be entirely suitable for their specific circumstances. Although this could also be regarded as a general raising of the bar and potentially have a positive impact on the governance practices employed by companies, it should be considered with caution.

Resulting from many of the concerns discussed above, it seems that practices, in the US at least, have started to shift. The Wall Street Journal on 22 May 2013 had reported that proxy advisory firms selling recommendations on how to vote were losing some of their relevance, as companies had started to more aggressively court key investors themselves

10 Outsized  Power & Influence: The Role Of Proxy Advisers (refer references).11 For proxy advisers, influence wanes (Refer references).12 For proxy advisers, influence wanes (Refer references).

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Crisa emphasises that market failures in relation to governance are, at least in part, due to an absence of active institutional investors or investment behaviour driven by short-term results. Thus, in addition to questioning the lack of regulation applicable to proxy advisors, it should also be questioned whether the service they provide would actually in the long term assist to achieve a more present and active investor base.

In a still maturing South African environment and especially in instances of smaller institutional investors who cannot afford their own analysts, the role of proxy advisors is not disputed. However, the general concerns discussed and the additional risk, that real and meaningful institutional and individual investor activism may be negated by blindly following advisors’ views, should be properly considered and addressed.

It is contended that current South African legislation could potentially accommodate the regulation of proxy advisors through the Financial Markets Act 19 of 2012 (FMA).The FMA specifically refers to, inter alia, the purpose of providing for codes of conduct and the objects, inter alia, includes promoting the protection of investors.

Chapter II section 5 details the powers of the Minister and the fact that the Minister may prescribe, in accordance with section 107(2), a category of regulated person (other than those already specifically regulated under the FMA) if it would further the objects of the FMA to regulate persons in such categories.

Chapter VIII section 74 deals with codes of conduct for regulated persons: the registrar may in an appropriate consultative manner prescribe a code of conduct for, inter alia, any other regulated person, where the required standard of conduct is not prescribed in another law or code of conduct, and a code of conduct is necessary or expedient for the achievement of the objects of the FMA.

This code of conduct would be binding on any regulated person in respect of whom the code is prescribed and on their officers and employees.

In accordance with section 75 such code must be based on the regulated person following these principles:• Acting honestly and fairly, with due skill, care and

diligence and in the interests of a client.• Upholding the integrity of the financial markets.

Such code may also provide for (argued to be applicable in this case):• The disclosure to a client of relevant material

information, including the disclosure of actual or potential own interests.

• Proper record-keeping• Avoidance of fraudulent and misleading advertising,

canvassing and marketing.• Any other matter which is necessary or expedient to

be regulated in a code to achieve the objects of the FMA.

Although there may likely not be much support for this view, on a wide interpretation, it could potentially even be argued that proxy advisory services could fall within the definitions of the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS). A financial services provider in terms of FAIS includes any person who as a regular feature of their business, inter alia, furnishes advice. Advice, inter alia, being defined as any recommendation, guidance or proposal of a financial nature furnished by any means or medium, to any client or group of clients and in respect of the investment in any financial product.

It could be argued that advice regarding voting on resolutions (especially if it deals with resolutions like proposed rights offers, mergers and acquisitions or even seemingly straight forward ones like the provision of financial assistance) could be interpreted as recommendations or guidance of a financial nature as these resolutions could indeed have “a financial impact” on the securities held by the client.

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Similarly “in respect of the investment in any financial product” (which includes shares in a company and any securities as defined in the FMA) could be interpreted widely enough to cater for proxy advisory services.

It is anticipated that proxy advisors would not take kindly to this contention, as it would mean registration, writing exams, fit and proper tests et cetera – overall, significantly more bureaucracy and less freedom, which may indeed need to be the ultimate objective, but perhaps in the meantime could be treated as Judge Prof Mervyn E King had on occasion suggested regarding the approach to the King Code of Governance Principles for South Africa 2009 (King III): an aspirational target to achieve over time, a journey and not a destination.

However, based on the risks highlighted, the fact that proxy advisors should not continue to operate within a vacuum is clear (the watchdogs also need to be controlled in some way or another). It is contended that the most appropriate,

immediate South African solution is indeed a code of conduct in terms of the FMA, which could largely be based on the Canadian example, thereby addressing most of the key concerns regarding proxy advisors in general.

Perhaps acquiring a Jack Russell, to keep an eye on the other dogs, is sufficient for now, but with the potential medium term objective of acquiring a Pitt Bull (if the environment turns out to so require), however with the longer term objective to work towards an environment where, in fact, no watchdogs of any nature are required…

Thus, a longer term environment where:• Companies, by their responsible actions, over time

negate the need for proxy advisors. Where they provide sufficient background detail motivations to shareholders to make informed decisions on resolutions and actively engage with shareholders prior to general meetings, without disclosing any confidential or price sensitive information.

• Institutional and individual investors take accountability for their investments and empower themselves to adhere to Crisa without a dependency on advisors (as much as possible). Admittedly, the only meaningful manner to achieve this would require companies to truly internalise the principles contained in King III (or any similar new proposals in the much anticipated King IV) and communicate openly, transparently and in simple language (as well as with brevity) with investors on a regular basis so as to enable even the individual investor to understand and make his/her own decisions based on the information.

References:• A plea to the SEC: Now is the time for action on proxy advisory firm

oversight, Bob Romanchek and Jeff Keckley, 14 March 2013 (NACD Directorship).

• Avior.co.za.

• Boards should minimize the role of proxy advisors, Louis J. Bevilacqua, 11 October 2013 (Cadwalader Quorum – a newsletter for corporate board members).

• Canadian Securities Administrators Consultation paper 25-401 (Potential regulation of proxy advisory firms), 21 June 2012.

• Code for Responsible Investing in South Africa 2011.

• Financial Advisory and Intermediary Services Act 37 of 2002.

• Financial Markets Act 19 of 2012.

• For proxy advisers, influence wanes, Joann S. Lublin and Kirsten Grind, 22 May 2013 (The Wall Street Journal).

• King Code of Governance Principles for South Africa 2009.

• Outsized power and influence: The role of proxy advisers, The Honourable Daniel M. Gallagher (Washington Legal Foundation, number 187, August 2014).

• Shareholder activist sells views to public, Hanna Barryl, 1 April 2014 (Moneyweb).

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Luke Phillips Client Services Manager – Computershare Governance Services

Achieving Certainty in Entity Management

The management of corporate legal entities, such as companies and trusts can often follow a lifecycle of

neglect, urgent research and patching-up, with a period of certainty and calm before it all starts again. Most of us aspire to a final zen-like state of up-to-date entity management but this can be difficult to achieve, especially without the right systems and processes.

As part of our work in the Governance Services team at Computershare, we assist clients with collecting sometimes disparate information, unifying it in one place and helping them to think about their ongoing and future needs.

Achieving greater certainty about the companies you manage or oversee is not necessarily a difficult task, but it does require regular application of your time and energy, alongside a basic set of principles.

In order to achieve certainty in entity management, our clients have found the following principles helpful:

Firstly, getting your basic company information up-to-date will help quantify the size of the task. Identifying all of the entities that you should know about is not easy, but it is vital that you co-opt the support of your legal, tax and

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accounting teams, compare the lists that they have and arrive at a complete set of data. Once you have that list, you should start by running some basic checks on entity names, numbers, jurisdiction, dates of formation and current status of the entity (such as Operating, Winding Up or Sold). This will flush out potential red-flag issues of neglected entities and help to identify those that moved on long ago.

Next you should gather and update a current information summary for each of your companies: addresses, directors, company secretary, shares and shareholder details. While there may be thirty years of history in the archives, you should set a realistic starting point such as aiming to have all current information for your companies up to date. In many jurisdictions you can request a company statement from the regulator or buy an extract from an information agency, such as Dun & Bradstreet. Of course there is also a risk that the regulator’s information hasn’t been updated - in which case you’ll just have to make the best of what you can find in the company records.

In order to maintain some control over a growing number of entities, it is good practice to centralise an approval process for establishing new legal entities. This would normally include a requirement to have advice or approval from tax, finance and legal functions before new companies can be created. It’s very easy to create a new company, but not always easy to get rid of them, so it’s best to make sure from the start that your organisation has solid reasons for going down that path and a clear idea of the potential risks involved.

Centralising a small subset of common directors is another way to streamline the administration of companies in a large internal group. This might typically involve the company secretary, general counsel and CFO/finance head as directors of corporate entities. There may be good reason to depart from this approach for trading or operating

companies and subsidiaries that are part of a distinct business unit. While common directors can simplify the day-to-day management of entities, you will need to be prepared for bulk resignations and form filing at some point when one of those key executives moves on.

Managing overseas entities provides a different set of challenges. Depending on the nature of the jurisdiction, you may have to deal with paper forms, notaries, stamps and seals, translation requirements and local laws and customs you don’t necessarily recognise. While in all likelihood everything is fine and the records are there (the office does exist and the local accountant is a real person), this is probably the area of greatest risk and is likely to cause you the most concern until you get across the details.

Another way to get a good handle on a complex corporate structure is to utilise a good entity group chart. Being able to visualise how companies are grouped together, and what attributes they possess such as jurisdiction, licences held, tax status or business divisions, can lead to insights not obvious from an alphabetical list.

Lastly, achieving certainty in entity management comes by capturing good corporate memory. Our clients usually want to know the key purpose and activities of an entity (why was it created, was it for an on-going need or something short term). The addition of more detailed history and internal notes – especially with respect to significant transactions – will prove extremely valuable to those looking after the entity records in the years to come.

If you have any ideas on what works best for you, or are interested in discussing how our Global Entity Management System (GEMS) can help you achieve greater certainty in entity management, please contact governanceservices@computershare.com.

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Corporate GovernanceInitiatives of ICSI

The Institute of Company Secretaries of India (ICSI) National Awards For Excellence In Corporate Governance: This is one of the important initiatives of the Institute to promote good Corporate Governance which was instituted in the year 2001 to promote good governance practices among the corporate and to recognise those companies worthy of being exemplified. Every year, following categories of awards are being bestowed for Excellence in Corporate Governance: –• Two Best Governed Companies and acknowledgement

of Company Secretaries of the respective Awardee Companies.

• Certificate of Recognition to other Top 5 Companies.• ICSI Life Time Achievement Award for Translating

Excellence in Corporate Governance into reality.

The Jury headed bya Former Chief Justice of India selects the winners of the ICSI National Awards for Excellence in Corporate Governance and the ICSI Lifetime Achievement Award for Translating Excellence in Corporate Governance into Reality for the year 2015.

Corporate Governance Year: Good corporate governance helps to engender confidence in the stock market and create a more attractive environment for investment. Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital.

India with its rich culture and glorious past which has etched the highest standards of governance ought to be recognized and acknowledged as a beacon of good governance.

In line with this thought, the Institute has declared the year 2016 as the “Corporate Governance Year”.

Issuance of Secretarial Standards: The Institute, recognising the need for integration, harmonisation and standardisation of diverse secretarial practices prevalent in the corporate sector, has constituted the Secretarial Standards Board (SSB) with the objective of formulating Secretarial Standards. SSB was constituted in the year 2000. The formulation of SSB is a unique and pioneering step by the Institute since there is no such Board or body throughout the world. The purpose of constituting this Board was for long-term benefits for the growth and enhanced visibility of the profession and setting up international benchmarks in Secretarial Standards. After the recognition of Secretarial Standards this was a crucial year for the issuance of Secretarial Standards on General

meetings and Board Meetings, which have been recognised by the Companies Act, 2013. Ministry of Corporate Affairs accorded its approval to the Secretarial Standards; SS:1 (Secretarial Standards on Meetings of the Board of Directors) and SS:2 (Secretarial Standards on General Meetings) were notified on 23rd April, 2015 and made effective from 1st July, 2015.

Maintaining of a Repository of Independent Directors as required under Companies Act, 2013: The Institute jointly with other professional statutory bodies namely “The Institute of Chartered Accountants of India and The Institute of Cost Accountants of India”  under the active encouragement of the Ministry of Corporate Affairs, Government of India maintains a Repository of Independent Directors. This repository has been developed to facilitate the individuals who are eligible and willing to act as Independent Directors and also to facilitate Companies to select the persons who are eligible and willing to act as Independent Directors under Section 150 of the Companies Act, 2013 and Rules made there under.

ICSI Recommendations to strengthen Corporate Governance framework: The Satyam revelations in January 2009 led to a re-look at the regulatory provisions that exist. The Council of the Institute accordingly constituted a Core Group to analyse the issues arising out of Satyam Episode and to inter-alia make suitable recommendations for policy and regulatory changes in the legal frame work. The Core Group undertook a detailed study of the prevailing corporate governance practices across the world, the recommendations of various committees and corporate governance codes, the best practices adopted by the industry and after benchmarking the best practices that can be mandated, made its recommendations to strengthen Corporate governance. Many of these recommendations form part of Corporate Governance Voluntary Guidelines, 2009 and later adopted in the Companies Act, 2013.

Major Contribution towards drafting National Corporate Governance Policy: A committee was constituted by MCA in 2012 under the chairmanship of Mr. Adi Godrej, to formulate a Policy document on Corporate Governance. ICSI being the convenor of the Committee played a pivotal role in formulation ‘Guiding Principles of Corporate Governance’.

Centre for Corporate Governance Research and Training (ICSI-CCGRT) set up by the institute at Navi Mumbai continues to act as catalyst organization in the professional

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development of Indian corporate sector, through qualitative research and high level training and Directors’ Development Programmes.

National Foundation for Corporate Governance (NFCG): With the goal of promoting better corporate governance practices in India, the Ministry of Corporate Affairs, Government of India, on 1st October 2003 had set up National Foundation for Corporate Governance (NFCG) in partnership with Confederation of Indian Industry (CII), Institute of Company Secretaries of India (ICSI) and Institute of Chartered Accountants of India (ICAI).

Directors’ Development Programmes & Capacity Building Initiatives- As an initiative towards propagating and creating awareness on good corporate governance, the Institute has been organising customized training programmes for Regulatory bodies, Banks and Public sector companies on Corporate Laws and Governance.

Post Membership Qualification Course in Corporate Governance: The Institute had started the Post membership Qualification Course in Corporate Governance way back in the year 2007, for the governance professionals to enhance their knowledge in the specialised area of Corporate Governance.

Investor Education and Awareness Programmes: Investor protection has always been the prerogative of the institute. Institute has been organising various Investor Education and Awareness Programmes in various cities, so far institute has organised 3900 such programmes.

Publications on Corporate Governance – The institute has brought out various publications highlighting the critical aspects and importance of corporate laws and governance.

Founder member of Corporate Secretaries International Association (CSIA): At the global frontier, the Institute is a founder member of Corporate Secretaries International Association (CSIA). CSIA is an international federation of professional bodies that promotes the best practices in Corporate Secretarial, corporate governance, and compliance services. 

International Initiatives: As an important initiative the Institute has linkages with various International bodies involved in promoting Corporate Governance such as Organisation for Economic Co-operation and Development (OECD), International Corporate Governance Network(ICGN), Global Corporate Governance Forum GCGF (IFC- Washington), Asia Corporate governance Association (ACGA). The Institute also holds various Joint programmes with, these institutions and also with professional bodies like CASS Business School (London), ICSA Singapore, ICSA Malaysia, etc.

Nationwide Knowledge Sharing on Company Law and Governance: The governance is important at all levels of administration including corporate administration and governance. In this context, the Institute being leader in compliance and corporate governance has conceptualised an idea of creating awareness about Company Law and need for good corporate governance at municipalities, and panchayat level. Under this concept, the Institute is studying the governance under Panchayat system and developing a model governance structure for gram panchayat and a training module for creating awareness and to train panchayat level officials about importance of compliances, conduct of meetings, writing of minutes, etc.

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Do Board Effectiveness Evaluations Add Value? Dr Victor Prozesky

Managing Director of The Board Practice – a leading global provider of board consulting services

Carina Wessels (Group Company Secretary Exxaro Resources Limited, Past President CSIA and CSSA)

IntroductionBoard effectiveness evaluations have become a standard part of annual board cycle routines since the Cadbury report was published in the UK in 1992[Cad92]. The report contained a number of recommendations for improving the governance of boards of directors, of which evaluation of performance was a key aspect. While recognising the legal status of the board as a whole, the different contributions of executive and non-executive directors were highlighted. One of the key responsibilities ascribed to non-executive directors was reviewing the performance of the board and of the executive. Ever since this introduction, board effectiveness evaluations have evolved to become the responsibility of the full board. It also regularly contains extended elements; such as evaluating the chairman, committees, effectiveness of individual directors and

depending on specific jurisdictional requirements, inter alia, the Company Secretary (as is the case in terms of the JSE Listings requirements in South Africa). These evaluation processes have matured significantly over the past few years and have become a more regular feature with many codes of good corporate governance internationally recommending an annual self-evaluation by the board with external assistance every third year, so as to also ensure some periodic objectivity in the procedures.

Given that virtually all large and listed companies are now adhering to annual effectiveness evaluations, a valid question to be asked is whether these evaluation processes add value to the work of the board, or has it become an exercise to be noted in the annual or integrated report to make sure investors do not ask tough questions.

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Current best-practiceWith evaluation processes having matured there are a number of readily available tools usually used. Practically all evaluations kick off with a set of questionnaires focusing on the subjects of the evaluation (board, chairman, etc.) with the themes of interest to the particular board at that particular time. Usually this is where an internal self-evaluation is concluded, once a report has been drawn up based on the survey results and shared internally with the board. The board may then contemplate an action plan to address the outcomes if needed. In some cases such internal processes may include one-on-one interviews between the chairman and individual directors.

In the case of independent external evaluations, various additional elements are added; mostly this would include interviews with individual directors to extract context on the responses given during the questionnaire stage. This also allows the discussion of more sensitive topics difficult to address in a questionnaire. Other elements often include the observation of meetings and benchmarking exercises.

One criticism of meeting observations is that this often causes artificial behaviour by participants, knowing the meeting and its participants are being ‘examined’. If the observer is professional and experienced this should not

influence the issues observed, as these should be more structural by nature, such as whether comments are made through the chairman, whether email-checking is tolerated, team dynamics, etc.

Benchmarking exercises may include formal issues, such as how the particular board compares to other similar boards in terms of, inter alia, size, composition and structures. Extensions to this can include an evaluation of the skills / strengths of individual directors and a comparison with other specific boards.

Some pitfalls in evaluating performance: take due careThe obvious danger of an annual evaluation is that it is treated without due care. Except in cases where there is conflict or other personality issues, most boards are quite comfortable with the way the board is working. Therefore, even if there are areas of potential improvement, any such outcome may disturb the balance on the board and may result in a barrier from the board to allow uncomfortable outcomes in such a process. Experience has shown that indeed an evaluation process not applied with due care can result in destabilisation or lead to conflict on boards. Obviously boards will attempt to avoid this outcome and may therefore avoid an in-depth open and frank process.

Secondly; with an annual evaluation of a board, only having possibly met about four times in a particular year, it may seem too regular an exercise for members. The statement is often made that little has changed during the last year, hence the status quo is acceptable. In all human interactions there is resistance to changing ways of interacting, unless prompted by a crisis or something similar.

Practical example of benefits:In a recent evaluation of the board of a large construction company, during the benchmark process, it became clear that other boards in the same industry had started to appoint more directors with a legal background and experience.

The client board recognised this immediately as the result of most construction companies seeking more international contracts and opportunities and in a multitude of disciplines, such as toll-gate operations. Such an expansion and diversification strategy places an increased burden on the contractual and legal implications and understanding different jurisdictions, hence the increase in the particular skill and knowledge base of the benchmarked boards.

This provided the client board the opportunity to decide on how to respond to this particular trend.

Had a benchmark process not been completed, they may have completely missed this trend and business need.

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Thirdly; boards may simply go through the motions in any case; ensuring that stakeholders are made to believe that the board is actively keeping a finger on its own pulse and will diagnose any unhealthy trend, as well as respond to it.

In some rare cases boards or individual directors may want to use the external party performing an independent evaluation as a change-agent on their behalf.

The components of a good board evaluation processGiven the survey based platform of any evaluation process the exercise may be akin to an ‘audit’ process, rather than an introspection of strengths and weaknesses and an honest measure of activities, both as teams and individuals. Often statements such as: ‘The board meets often enough’ are encountered in standard evaluation questionnaires. The outcome desired is often explained as finding out whether all critical issues are adequately dealt with in a timely fashion. The question should be rephrased to ask exactly that, otherwise the outcome may not yield any real information of value, or a multitude of questions need to be asked to get to the full answer.

Similarly, many questions may relate to compliance issues only (also similar to an ‘audit approach’). These may include statements such as: ‘The board reports on all compliance issues in a timely fashion’. As important as the topic is, and there is nothing against including it in an evaluation process, this can only lead to a ‘yes’ or ‘no’ kind of response. This lacks the richness of a contextual statement where opinion and thought are required in response to a question such as: ‘What should the chairman do more of?’. In this case the respondent has to venture an opinion based on his / her experience in the boardroom. Even though a wide range of responses may be the result, any particular trend if present will be measureable.

Given the two dimensions of governance, those of conformance and performance, often the question is asked if one of these should be prioritised during a review process, and if so, which one and why. This begs the question on

what are the important aspects of governance resulting in boards creating value. An insight comes from the research of Booz and Company (now Strategy&) during 2005 [Boo05] and 2012 [Boo12]. There are many studies of successful companies and attempting to establish the reasons for success. In these studies the biggest losers are looked at: companies globally that, in one way or another, have failed to either keep up with the industry, or failed in absolute terms over a 10-year period.

Where does it go wrong? The researchers looked at four possible reasons for failure:1. Declines resulting from external shocks that were

natural, political, or regulatory in circumstances in which the external event could not be controlled or easily anticipated.

2. Fraud, accounting problems, ethics violations, and other failures to comply with laws or standards.

3. Major operational problems, such as supply chain disruptions, customer service breakdowns and operational accidents.

4. Major strategic blunders (e.g. new product or new market failures) or a company caught by a major industry shift, including failed M&A, as well as dramatic shifts in major enterprise value drivers.

The researchers were surprised by the results of the initial 2005 study, which was post-ENRON and other highly publicised failures related to that period of the global economy pointing to serious compliance failures. For this reason they repeated the study in 2012, post the biggest impact of the global financial crisis. They were once again surprised that the results remained virtually unchanged. The outcomes are depicted in Figure 1 below.

Why might board members want to “use” an external party to fight their battles?

• Board members not able to convince a powerful chairman to step down before the appointment of a new CEO of the company: the evaluators were asked to bring this message subtly into the process.

• Similarly evaluators were asked to include a message to reign in a powerful CEO by inserting a cautionary in the evaluation report.

In both these cases the desired outcome was achieved, but at high cost for the boards as it led to significant conflict on the board, taking a long period to return to balanced operation.

Exhibit: Why they failStrategic blunders result in the greatest loss of shareholder value.

Distribution of bottom performers by reason for failure

Change in enterprise value

-35% -30% -25% -20% -15% -10%

External

Compliance

Operational

Strategic

Figure 1: Main reasons of failure of large companies

Source: Booz & Company

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In numbers this indicates the following: 84% of companies failed due to major strategic blunders; 7% due to operational issues; 8% due to illegal conduct and 1% due to unexpected external shocks. The reason for the surprise is the fact that most publicity is given to illegal conduct, such as fraud, ethics violations, accounting issues, etc. while a relatively small number of companies fail because of this.

One has to take care to extrapolate these results to the role of the boards involved, but at least the statement that the board is ‘in full control of the company’ indicates that it may not be totally unfair to at least assign some responsibility to these boards of failed companies. If that argument holds it begs the question on where boards should spend most of their time.

Failed strategy and execution of the strategy combined are far worse than anything else. It is important for the Company to comply with all laws, regulations, codes and policies and the board must enforce measures, processes and structures to ensure such compliance. This is a large part of the licence to operate, but compliance is not nearly sufficient for or a guaranteed recipe for success. Success takes real strategic insight and sharing, dedicated implementation and follow-up. In short; success depends on the board applying their minds to the really difficult stuff.

The three recommendations from the Strategy& study are:1. Broaden awareness about uncertainty.2. Integrate risk awareness directly into strategic decision

making.3. Focus on strategic resiliency.

This greatly assists in answering the question on which aspects of the board’s work should receive focus during the evaluation process.

A second aspect (implicitly linked to the work of Booz & Company) of what should form part of the evaluation process is addressed by the work of Ram Charan (ref). With this (admittedly American-focus) Charan addresses the purpose of the board, and considers the key tasks in order of importance, his analysis:1. The right CEO and his / her succession.2. CEO remuneration / motivation.3. The right strategy.4. The leadership gene pool.5. Monitoring health, performance and risk of the company.

If these tasks and the order of importance are accepted, an evaluation process should aim to establish whether the board indeed spends most of its time and effort on the appropriate matters of importance.

A third insight is provided by the work of Boris Groysberg in ‘Chasing stars’[Gro10]. Groysberg analysed the influence of some distinct factors on organisational performance, namely the economy, CEO, industry, or the specific firm. While keeping in mind that the research was focused on the financial services industry and may not be universally applicable, the results remain surprising: expressed as the percentage of contribution of a particular factor:

Table 1: Contribution of distinct factors on organisational performance

Factor % Contribution to Organisational Performance

Economy 5.2%

CEO 13.5%

Industry 15.5%

Firm 32.8%

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If one accepts the assumption that there is some universal truth in the analysis of Groysberg, the following holds:• Boards can do very little about the economy.• To move or diversify into other industries is neither

easy nor fast. • Hence the board really only has control over less

than 50% of what determines the performance of the organisation. Of that the largest contribution comes from the company itself; the board has mostly access to the organisation in terms of, inter alia, culture, succession and training through the CEO and other executives interacting with the board. The CEO as a person contributes to some extent, but his / her main influence is through aligning the organisation for optimal performance. Again this points to the priorities of board interaction with the CEO and indirectly with the organisation, and consequently what should be measured during a board evaluation.

How best to approach a board evaluation processDuring the years where boards perform an internal self-evaluation, the person responsible, usually the Company Secretary, should ensure access to current thinking and best-practice in terms of self-evaluation processes. Because self-evaluations are almost entirely questionnaire driven this means access to professional providers who can supply best-practice thinking and tools to support the board’s process.

There are service providers catering for the full internal self-evaluation process through the means of software tools, allowing the board to complete the process without external consulting. These software tools allow the use of best-practice questionnaires with the ability to customise the questionnaires to suit the particular needs of the company. The evaluation process is automated, i.e. emails with links, login details, passwords and instructions are sent out automatically, progress of completion can be checked, reminders sent and ultimately should produce an on-line automated report based on the data gathered through the survey process.

Some internal processes are supplemented by requesting a service provider to write the report on behalf of the board, allowing an independent analysis of the data, as well as the addition of recommendations based on the experience of the service provider.

Where the company wishes to utilise a full external independent evaluation process, the choice in consultant / service provider is critical, inter alia, preferably with international experience in order to truly incorporate global best practices in the process. References should be provided by the service provider and verified by the Company Secretary before accepting any proposal.

Board evaluation processes are generally of the ‘grudge-buy’ type, i.e. boards often do not focus on what can be gained through the process, but merely go through the motions to limit risks at the lowest possible cost of an evaluation process. While it is important not to simply buy the services of the most expensive provider, care should be taken not to waste the opportunity to obtain value-for-money. Experienced service providers should be able to provide insights from other boards, industries and jurisdictions and the result should give the board the appropriate recommendations with the sensitivity required for the board to be able to improve the way it is working and ultimately better enable the success of the organisation.

References:• http://www.theboardpractice.com/

• [Cad92]: REPORT OF THE COMMITTEE ON THE FINANCIAL ASPECTS OF CORPORATE GOVERNANCE; Sir Adrian Cadbury, http://www.ecgi.org/codes/documents/cadbury.pdf.

• [Boo05]: Booz Allen Hamilton Shareholder Value Destruction Study: Tracked market cap changes for more than 1,200 global companies with market cap > $1billion; analysed companies that performed worse than “worst performing” index (S&P 500) for 1998-2004 period and categorized companies by reason for value destruction.

• [Boo12]: The Lesson of Lost Value, Christopher Dann, Matthew Le Merle, And Christopher Pencavel, strategy+business, ISSUE 69 WINTER 2012. This article was originally published by Booz & Company.

• [Gro10]: Chasing Stars: The Myth of Talent and the Portability of Performance, Book by Boris Groysberg, Originally published: April 19, 2010.

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Women emancipation emanated from feministic activism. The ideology and thrust being the uplifting of

women to the same level as men for their full participation socially, economically and politically. This activism can be seen as the driving force behind the ‘lobbying’ for women quotas on the board of directors of companies in most countries. Of late, the activism has found its way into corporate governance in the form of ‘gender diversity’ in the board. The growing echo is sounding that a high proportion of women on the board is good corporate governance practice. But there are both proponents and critics to this growing movement.

Research on board gender diversity has been conducted as early as the 1980s, during which time the arguments sounded more feministic than governance. In recent years, the debate around board gender diversity has been rekindled following the aftermath of the global financial crisis of 2008-9.

The greatest debate around gender diversity is whether to have ‘feminism of equity’ or ‘feminism of difference’, that is, whether women should be included on boards for mere gender representativeness or for the business benefits they will bring to the board. Scholars are yet to show empirically whether gender quotas ‘shatter the glass ceiling’ or improve board decision-making or firm performance so as to plead the business case for board gender diversity.

Generally there are informal processes in play during the recruitment of board members which are biased towards a certain target population. Further, there is cognitive bias emanating from social science research suggesting a perception that men are better at business activities and thus better than women. There is research evidence showing gender-bias in the appointment of women as non-executive directors however, mixed evidence has been presented on

discrimination in wages or fees paid. This is because there is a tendency for people to associate with those people who are socially similar to themselves. This cliquing tendency results in corporate boards and nominating committees recruiting members from their existing networks, and those networks tend to be socio-demographically homogeneous and closed to outside members, leading to an appointment process that is not inclusive.

Companies are harming themselves and their shareholders by only looking at half the available talent pool and thereby not utilising their maximum potential. Intra-firm initiatives, civil society activism like the 2020 Women on Board, the 30% Club and databases of board-ready women can help in addressing gender inequality on the board but legal intervention may be necessary, especially to curb implicit cognitive bias and closed social networks. Dynamics in board gender diversity can also be explained from supply and demand perspectives. The supply-side is influenced by the career constraints women experience as a result of their family responsibilities, or that women are opting out of high-pressure career paths that lead to the executive suite. On the demand-side, there is a ‘glass ceiling’ blocking women’s access to the highest corporate level and limiting the pool from which boards are chosen.

In most societies, women are successful at university and in their early careers but attrition rates increase as they progress through an organisation. Despite the ascendance of women in educational attainment, once employed, women still face obstacles that are either directly related to them, as women, or indirectly imposed by society.

Probably all of the factors above play a role and degrees of legal intervention have been tolerated in different countries. Differences among countries have been influenced mainly by the prevailing economic system, social and political culture.

Women on Board: Voluntary or Mandatory Quotas?

Nelson Maseko Technical Manager, ICSAZ

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The business case for board gender diversityThe business case for board gender diversity is still weak if based on some empirical evidence to date. Some research postulate that increasing the percentage of women on boards can be linked to improved firm performance, corporate social responsibility and ultimately increased number of women in other high-level positions. Another research has also found that women have a propensity to engage in more rigorous deliberations, risk assessment, strategic thinking and monitoring. A diverse board asks critical questions and a range of perspectives can be brought into the discussions to help avoid the group-think mentality. Women directors are believed to contribute to effective governance because they usually come as outsiders – outside of male networks and thus more willing to challenge and change norms.

Women’s social networks tend to be wider and more diverse than men’s and as a result, firms with more women on their boards introduce a broader range of perspectives into their decision making. Some research has found an association between gender diversity and firm innovation as firms with more women on boards were found to spend more on R&D.

A 2013 study by Post and Byron (Women on Boards and Firm Performance: A Meta-analysis. Academy of Management Journal. http://amj.aom.org/content/early/2014/11/07/amj.2013.0319.full.pdf+html) looked at 140 surveys of board performance in 35 countries and found that having more women on a board improved a company’s financial performance. Post and Byron then concluded that with more women on the board, a wider range of insights, perspectives and experiences are brought to bear on the issues a board faces, and, ultimately improves how a board makes decisions. Further, the researchers argue that in more diverse boards, where debate and challenge are permitted to thrive, there tend to be more robust business. But the results were found to hold in countries with stronger shareholder protection practices. Some social researchers believe that female directors’ greater reluctance to lay off workers reflects a praiseworthy social orientation which may be rewarded by markets. This implies that more diverse boards are less subject to group think and more likely get in touch with the outside world.

Another study found that block-holders reacted positively to board diversity. In the same study, gender diversity was found to influence corporate performance not by shaping the efficacy, or monitoring capabilities, of boards but by activating bias on the part of the institutional investors.

In the long run, board diversity will allow a company to better represent and understand its own workforce, thus improving the delivery of strategy and future performance.

Quota reference points: the “Critical Mass”There are three reference points which are considered in determining optimum gender balance; (1) Percentage of women in the population, (2) Percentage of women in the labour force, and (3) Percentage of women on government boards.

The author believes that the last reference point (Percentage of women on government boards) can be misleading in some jurisdictions where women have always been underrepresented. This is because research has also found cultural norms to correlate with female participation in non-executive positions. In Zimbabwe for instance, a new constitution was adopted in 2013 which now recognises the rights of men and women to equal opportunities in political, economic, cultural and social spheres. The new constitution guarantees the right to equal pay and voids all laws, customs, traditions and cultural practices that infringe on the rights of women. The government adopted women quota system for its legislature which saw women’s representation in the Zimbabwe Parliament shooting up from 19% to 34% in the 2013 elections. Before the new constitution women quotas, Zimbabwe was previously ranked 116 out of 148 on the Gender Index. Women quotas in politics have also been introduced in many countries and it remains to be seen how these will impact on women on board.

An analysis of five countries in Europe and one in Asia that passed gender quota legislation or national guidelines revealed an international consensus on critical mass of at least 30% of each gender on the board. What vary across countries are the scope and severity of sanctions for non-compliance and the timeframes for achieving the set quotas. The aspiration worldwide is to have between 30-50% of a particular gender on boards of at least all quoted companies.

In most jurisdictions ‘the right gender balance’ is denoted by a minimum of 40% representation of each sex, which can be achieved by either voluntary or mandatory means. Arbitrary percentage may also be argued to provide ‘the right gender balance’. Differences in regulations across countries are the single most important factor that explains the differences in board gender diversity across countries.

Proponents of mandatory quotasProponents of diversity quotas affirm that equal opportunities are unattainable without enforcement of quota legislation to ensure equality through the principle of proportional representation. It is believed that mandatory quotas will alter business practices that exclude women from leadership roles. This will result in limiting the effects of bias on hiring, promotion and the distribution of rewards in the workplace and society as a whole. In a voluntary system, increases in board gender diversity have occurred belatedly, recently and from a low base. Quotas have thus been proven to address gender inequality on boards quickly, with Norway as one of the countries providing evidence. Research evidence indicates that markets with mandatory quotas have generally higher female board representation than those without. Proponents argue that mandatory quotas are the only proven method of advancing women into boardrooms in large numbers. They believe that there is systematic discrimination against women due to differential power and opportunity structures between men and women hence the need for mandatory quotas. They attack cultural bias in favour of social practices which they believe were created by and for men.

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some passing laws to enforce this purpose. The table below shows the percentage share of board seats held by women in companies at major stock markets in selected countries.

Table 1: Women’s share of board seats at companies in each country’s major stock index

Concluding RemarksThe inadequacies with voluntary mechanisms for achieving greater board gender diversity will lead many nations to adopt quota legislation. However voluntary regimes, unlike quota systems, allow companies and their boards to set their own targets for gender diversity without many repercussions on firm performance and stock prices. It is good for markets to be left to judge corporate governance practices as any quota legislation will dilute the effect of that prerogative. Most jurisdictions have codified national corporate governance guidelines that require companies to disclose reasons for non-compliance with the stipulated guidelines and this ensures self-regulation of the markets as investors make use of the compliance reports when making investment decisions. However, in the case that a jurisdiction wants to pursue the mandatory quota route, it is recommended that a flexible timeframe should be set for attainment of the quota by companies. The timeframe can be staggered in such a way as to allow companies to recruit qualified and experienced women board members. Studies have shown that more time is needed to nurture previously excluded minorities to have the requisite skills and experience. Also, authorities can consider putting in place some incentives, like tax allowances, associated with attainment of certain levels of diversity during the adoption period. Companies should not wait for the punitive quotas but must be proactive and put in place deliberate policies for recruiting, training and mentoring women directors and have the ‘feminine voice’ on their boards.

Institute of Chartered Secretaries and Administrators in ZimbabweFeedback and comments to nmaseko@icsaz.co.zw

Critics of mandatory quotasThe case for quotas is not air- and-water-tight. Critics of mandatory gender quotas for boards worry that quotas could produce a backlash; if female appointees are ‘tokens’ or if female directors are untrained or inexperienced. Women pressure groups have attacked board quota legislation for failing to ensure ‘pervasive gender equality’ across the economic spectrum, challenging the depth of commitment to gender diversity in countries with board gender diversity quota laws. Many advocate for cultural change instead of mandatory quotas, arguing that it is presumptuous to believe that legislation or quotas could tackle deeply engrained cultural beliefs. Some blame quota systems for using a ‘blunt tool’ to solve a complex and tangled problem.

One of the major critiques of the mandatory quota legislation is that quotas may stigmatize the women they intend to uplift. Critics argue that women will be thought of as tokens or as unqualified candidates who got their board positions only because of the quotas. If a country is ranked extremely low in gender parity, a higher percentage of women on boards may actually hurt the share price because of wrong market perception.

Some critics submit that quotas produce selection procedures whereby people are chosen not on merit but rather by the person’s physical or social characteristics, that is, it is affirmative action, itself discriminatory and unjust; and that serves to undermine the achievement of the women who have risen to senior positions on their own merit. ‘Tokenism’ puts pressure on the female directors to perform to some weird expectations, beyond their potential, because of the scrutiny they attract for being in their positions as ‘representatives’ for compliance purposes rather than based on merit.

Mandatory quotas are also viewed as a kind of intrusive state regulation of business which is against a laissez faire ideology assertion that the market is far better than the government at regulating business. Investors may consider mandatory quota legislation as state’s dictation on the gender of decision makers entrusted with the management of their money. In some instances, the mandatory quotas have been observed to violate national constitutions, for instance, the US Constitution’s Equal Protection Clause.

Studies have proven only that firms that voluntarily hire female directors perform well. Critics argue that therefore companies that may be forced to hire female directors would reap any benefits at all. Strong corporate performance leads to increased board diversity, and the opposite is not true. A 2010 study by Dobbin and Jung found that the cross-sectional positive relationship found between board diversity and corporate performance is likely spurious; a consequence of ‘reverse causation’. Another 2014 study by Smith does not justify gender quotas on grounds of economic efficiency but on socio-political grounds.

Global trends in board gender diversityGovernments in several jurisdictions have chosen to introduce gender quotas in phases over different timeframes with

Country % of Board Seats Held by Women

Norway 36%

France 30%

Britain 23%

Germany 19%

United States 19%

Hong Kong 10%

Japan 3%

Source: Catalyst Census on Women on Boards. http://www.catalyst.org/system/files/2014_catalyst_census_women_board_directors_0.pdf

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International Corporate Governance Perspectives

Joanne Matisonn Technical Advisor, CSSA

Chartered Secretaries Southern Africa (CSSA) held its 2015 Premier Corporate Governance Conference at

the Wanderers Club, Johannesburg on 27 and 28 October 2015. A panel discussion on international corporate governance was held with participation from six member countries of CSIA. The panelists covered a wide range of issues, reflecting common trends in different jurisdictions as well as challenges specific to a jurisdiction.

Katherine Combs from the U.S.A. focused on whether Sarbanes Oxley (SOX) and subsequent legislation has been effective in reducing fraud and corruption. Harvard University undertook a review on SOX and concluded that the initial costs were high but 10 years later disclosure was more reliable and internal processes have improved. However, it did not prevent the 2008 financial crisis from occurring. Criticisms of SOX were that it did not provide for sufficient flexibility and was difficult to systematically measure the cost/benefits of increased regulation.

The Securities Exchange Commission established a disclosure effectiveness initiative. The recommendations included eliminating duplicate disclosures, eliminating “glossy” annual reports, unless an issuer desired them for marketing purposes and reflecting sustainability disclosures in a separate non-financial report.

The 2015-16 National Association of Corporate Directors (NACD) director survey results highlighted that 79% of boards have at least one female director and ethnic minorities remained unchanged at 52%. Other interesting findings included that 44% of shareholders said that directors met with institutional investors in the prior year and that directors wanted more director materials on effective risk management, cyber security, IT risks and technical strategies.

The subsequent promulgation of the Dodd Frank legislation did not address the primary cause of the 2008 crisis, being changes required to government housing policies and agencies. It did however result in significant increased compliance costs for companies.

Dr Nicholas Letting from Kenya provided a broad overview of the corporate governance problems in East Africa and the responses to the challenges of corruption, weak regulatory enforcement, apathetic shareholders and board weaknesses. He highlighted the progress

on corporate governance in Kenya from the time of publication of The Principles and Sample Code of Best Practice for Corporate Governance in the 1990s, to the requirement by The Capital Markets Authority since 2002 that all listed companies comply with principles of good corporate governance to the introduction of a new Companies Act in September 2015. The new Act has a strong emphasis on the role boards play and provides punitive sanctions for directors who do not exercise their oversight role with due diligence.

Corporate Governance was also strengthened by the establishment of a Centre for Corporate Governance in 2002, initiated mainly by the private sector. Its main focus was to review the effectiveness of controls and to promote transparency and accountability. A new Constitution enacted in 2010 has a key objective as the promotion of good governance through transparency, effective leadership and integrity. In April 2015, the Mwongozo Code of Governance was passed, which required every state corporation to appoint a company secretary, have nine board members with diverse skills who are required to undergo induction upon appointment and term limits of two terms, comprising three years each. There was also a strong emphasis on declarations of conflicts of interest.

It was interesting to note that the role of the corporate secretary was included in their Companies Act in 1989 as well as making the board responsible for ensuring a proper governance process was in place. There was a strong focus on the composition of the board, with the position of the chief executive officer and chairman being separate and prohibiting a concentration of a particular profession on a board.

Peter Turnbull from Australia commented that Australia was focusing on the practical aspects of the implementation of risk management. Regulators generally place risk management, risk appetite and associated oversight and the role of the board at the centre of corporate governance thinking.

A key challenge was to move from a “box ticking” approach on risk and governance, to risk management being an effective decision-making tool. The Corporations Act, the main legislation, was largely silent on risk.

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Embedding risk management into the culture of a company was a challenge whereas a risk management framework was easy to design following guiding principles of simplicity and cost effectiveness. A proper culture underpins a good risk management framework. Culture needed to be underpinned by strong ethics and accountability. The Australian Securities and Investments Commission was focused on identifying a bad culture. However, in practice this was difficult to judge.

Risk management needed to be integrated with governance. Whilst the board was responsible for risk, in practice it delegated this responsibility to senior management. Accordingly, management and boards must be aligned and work closely together. A key element to ensuring the effectiveness of risk management was to embed risk management in the company culture and to link risk management objectives to KPIs. Key current risks concerning Australian companies were regulatory risk (too much intervention and cost), cyber security, third party risk, corruption, money laundering and reputation consequences following any of these incidences. Company secretaries were uniquely positioned to play a pivotal role in the risk management process.

Atul Mehta (India), incoming Secretary

Chua Siew Chuan (Malaysia)

Dr Nicholas Letting (Kenya), incoming Vice President Chris Gibbons (MC) and Stephen Sadie (CSSA CEO) present speakers with gifts

Peter Turnbull (Australia)

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Grace Tan from Singapore highlighted the benefits of a diverse board, which has become a more prominent issue since the 2008 financial crisis. McKinsey & Co in their annual “Woman Matter” studies concluded that there was a positive correlation between companies with more women on their boards and superior financial performance across all industries. Some of the benefits of having diversity in the boardroom included less “groupthink”, different perspectives considered, greater variety of potential solutions deliberated and better talent leverage. All these issues led to better decisions and better risk management. Institutional investors, particularly, reviewed gender, age, occupational background and ethnicity in the composition of boards.

In August 2014 a Diversity Action Committee was formed to build up the representation of women directors on boards of companies in Singapore. From a company perspective, the challenge was to make the changes at a pace that recognised and was sensitive to the cultural issues that have promoted male dominated boards. At the other end of the spectrum, too much emphasis on diversity could result in a board becoming dysfunctional.

Chua Siew Chuan from Malaysia advised that the 2012 Malaysian Code of Corporate Governance focused on the

importance of independent directors. The Code required at least two or one-third of the board of directors to be independent directors. This was a challenge as most companies had promoters and grew from family-owned businesses. Directors were only classified as independent for a period of nine years. Thereafter, they could remain board members but were reclassified as non-executive directors. The board must justify and seek shareholders’ approval if it decided to retain an independent director, who has served on its board for more than nine years. The concern related to long tenure possibly impairing independence. The nine year cap applied to consecutive service or cumulative service of nine years with an interval. The nine year limit was adopted as it aligned with the tenure limit for independent non-executive directors in other jurisdictions. This cap was further supported by a study undertaken by INSEAD Business School on 2 000 companies, which concluded that the optimal average period for independent non-executive directors was 7 - 9 years. This resulted in independent non-executive directors being able to accumulate the benefits of company-specific knowledge without the cost of entrenchment. The Malaysia-Asean Corporate Governance Report findings for 2014 on 873 listed companies found that more than half of 873 listed companies have directors, who have served on those boards for over nine years.

International panel from left: Atul Mehta, Chua Siew Chuan, Grace Tan, Peter Turnbull, Nicholas Letting, Katherine Combs

Katherine Combs (USA) Grace Tan (Singapore)

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Atul Mehta from India provided a high level overview of India’s Companies Act introduced in 2013. The focus of the Indian regulatory regime was to make it easy to do business in India, which has attained fifth place in the World Bank Doing Business 2015 index for emerging economies. The Indian Stock Exchange has the most listed companies in the world.

The new Act introduced two major changes impacting the company secretary profession, the first being the requirement for a secretarial audit for larger companies. This audit could only be performed by a practising company secretary, and the outcome of the audit must confirm that the relevant company has complied with all the laws of India. The second innovation was that the quorum for a meeting must be in place throughout the meeting and not just at the commencement of the meeting.

The 2013 Act also requires every company to observe secretarial standards specified by the Institute of Company Secretaries of India in regard to general and board meetings.

The presentations gave delegates a good overview of issues that concern boards and the progress made in tackling identified corporate governance challenges in different jurisdictions.

Lerato Manaka (South Africa) and Dr Nat Ofo (Nigeria)

Katharine Grace (Indonesia), Atul Metha (India), Dipta Mehta

CSIA delegates

Sutanu Sinha (India), Farai Musamba, Rick Summers (Zimbabwe)

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Zimbabwe: Excellence in Corporate Governance Awards

ForewordIn 2013, the Institute of Chartered Secretaries and Administrators in Zimbabwe (ICSAZ) introduced the Excellence in Corporate Governance Awards (ECGA) with the objective of promoting good corporate governance practices in Zimbabwe by recognising efforts of corporate boards for effectively leading their organisations in a sustainable, innovative and ethical way. Over the past three years the ECGA Awards have become Zimbabwe’s most prestigious awards for corporate governance. The inaugural Awards in 2013 focused on companies listed on the Zimbabwe Stock Exchange (ZSE) and, in 2014, the awards were expanded to include separate categories for banking institutions. This year the Institute is presenting award categories for State Enterprises and Parastatals (SEPs) with the full support of the Government of Zimbabwe (GoZ).

Selection of ParticipantsParticipants for the ZSE-listed Companies award categories comprised of all companies which were still trading on the

bourse from the start to the end of the adjudication exercise. Companies with secondary listing on the ZSE and that did not publish sufficient corporate governance reports on their Zimbabwean operations were excluded. Using this criterion, two companies were excluded and a total of 57 ZSE-listed companies were evaluated for the 2015 Awards, down from 60 companies last year.

For the Banking Institutions award categories, all banking institutions which were still trading under the Reserve Bank of Zimbabwe-issued banking licenses during the period of adjudication were evaluated. A total of 15 banking institutions were evaluated for the 2015 Awards, down from 17 banks last year.

A list of State Enterprises and Parastatals (SEPs) was obtained from the Government of Zimbabwe website and was validated through the Office of the President and Cabinet with the assistance from the Ministry of Finance. The SEPs that were already participating under the ZSE-listed Companies and

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Banking Institutions categories were excluded. Applying this criterion, a total of 64 SEPs were evaluated for the 2015 Awards. Among the SEPs were Grant-Aided Institutions like ZimTrade which have been evaluated and ranked together with State Enterprises and Parastatals. Going forward, the Institute will consider having sub-categories under SEPs like Regulators, Grant-Aided Institutions, and Commercial Entities etc. so as to properly yoke and rank similar entities using more refined criteria.

Sources of Information for AdjudicationThe reported corporate governance practices of participants have been judged based on their 2014 annual reports for financial years ending in 2014. Consideration was also given to any other governance-related subsequent information issued to investors in the form of public notices, corporate announcements and website information in the adjudication process. Where information was not published in time to be used in the adjudication exercise, the participants were contacted via emails and requested to supply the information. The Institute sent letters to all participating SEPs and the Government was also involved in informing SEPs of their participation in the ECGA Awards through Permanent Secretaries from all ministries under which these entities fall.

For ZSE-listed companies, annual reports were mainly downloaded from the ZSE website and/or companies’ websites, which two are the primary sources of information for investors. In some instances, annual reports in hardcopies or CDs were obtained from the companies. A total of 49 annual reports and two integrated reports from ZSE-listed companies were evaluated. There were six companies which did not publish or make available their 2014 annual reports and the team of adjudicators made use of the companies’ abridged reports in the adjudication process.

For banking institutions, most of the annual reports were downloaded from their websites. A few were obtained as hardcopies direct from the institutions. A total of 15 annual reports from banking institutions were thus evaluated.

The adjudication team faced challenges in obtaining information for evaluating State Enterprises and Parastatals. The majority of SEPs have up-to-date information on their websites. A few SEPs do not have websites. As a result, adjudication information could not be obtained easily and only three SEPs had their 2014 annual reports obtained from their websites. The Institute then wrote to all State Enterprises and Parastatals requesting them to supply their latest annual reports for the purposes of adjudication and set 30 September 2015 as a deadline for submission to allow completion of adjudication in time for the awards. Only two reports were received by the 30 September deadline which prompted the Institute to approach the Government and get its support in mobilising SEPs to submit their annual reports for evaluation. The deadline was then extended to 30 October 2015. A further 10 SEPs’ annual reports were received by the 30 October deadline and these were evaluated for the awards. One SEP submitted a set of financial statements for 2014, instead of a full annual, and this was also evaluated.

Given that this is the first year for SEPs to submit their annual reports for evaluation, the Institute feels that this is a positive development and thanks the Office of the President and Cabinet , The Minister of Finance and all Permanent Secretaries who communicated with the SEPs regarding the submission of their annual reports for evaluation. Improvements in the submission of annual reports by the SEPs are expected in the future. Some institutions submitted their annual reports for 2010, 2011, 2012 and 2013 which were not considered by the adjudicators for lack of relevant corporate governance information.

It is also important to state here that, during the assessment, adjudicators were looking at disclosures of corporate governance-related issues by participants. The adjudication decisions were therefore solely based on disclosure of corporate governance issues and not financial performance.

Adjudication PanelThe Panel which presided over the adjudication for the 2015 ICSAZ Excellence in Corporate Governance Awards had a total of eight members. The Panel comprised of professionals with high analytical and research skills, critical for the evaluation of the constructs and concepts defining international best practice in corporate governance.

We had five adjudicators who worked on the ZSE-listed companies and evaluated the three categories- Shareholder Treatment (Section A), Stakeholder Practices & Sustainability Reporting (Section B) and Board Practices (Section C). Three adjudicators worked on Banking Institutions and they assessed all three categories- Governance (Part 1), Risk Management (Part 2) and Internal Audit (Part 3). Another team of three adjudicators evaluated all the State Enterprises and Parastatals. The adjudicators used the ICSAZ Corporate Governance Scorecards to rate participants on their corporate governance practices, utilizing publicly available information.

The Adjudication ProcessThe adjudication exercise spanned over a period of seven months. It started on the 17th of March 2015 and was concluded on the 28th of October 2015. The adjudication process involved adjudicators going through publicly available sources of information which mainly included participants’ annual reports, published audited financial reports, notices to call general meetings, investor information on participants’ websites, analysts’ commentaries, and other publicly available governance-related information sources. The adjudicators used this information to answer evaluation questions posed by the Institute in the various Corporate Governance Scorecards.

In evaluating the reported corporate governance practices of participants, adjudicators were basically looking for information that answered the Scorecard questions. The Scorecard had rating scores which ranged from 0 to 3, categorised as Inadequate, Adequate, Better and Best with regard to rating of disclosure of corporate governance issues. A Scorecard sheet was completed for each participant by awarding scores for evidence (or lack of evidence) of corporate governance disclosures in line with recommended best

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practices. In awarding scores to participants, adjudicators were basically looking for evidence of the following:1. Innovative and informative forms of disclosure which

moved away from ‘box-ticking’;2. Comprehensive explanations of departure from

expected best practice;3. The integration of governance into the strategy and

day-to-day operations and decision-making of the company;

4. An indication of comprehensive understanding of the link between corporate power, responsibility and shareholder value creation;

5. Prioritization of governance issues in corporate reporting as indicated by the inclusion of a Corporate Governance Statement with a coherent cross-referencing to other sections in the Annual Report;

6. Demonstration of a holistic board thinking that had due regard for different stakeholder priorities;

7. Evidence of all forms of organisational compliance by preparing and presenting a ‘qualifying’ statement to that effect;

8. The existence of fully functional board committees with well-documented charters; and,

9. Directors’ satisfaction of their statutory duties, including meeting attendance.

The Major Highlights from the Adjudication ProcessZimbabwe Stock Exchange-Listed CompaniesA total of 57 annual reports were evaluated this year, down from the 60 companies which were evaluated in 2014. The following companies which were evaluated last year were missing:• ABC Holdings Limited,• Cottco Limited (formerly Aico), and• TA Holdings Limited.

(a) Shareholder Treatment:In this category, the objective was to look at how well the companies were upholding and protecting shareholder rights. The major focus was on the quality and quantity of information that companies supply to their shareholders and its timeliness. The main question which adjudicators posed and tried to answer was, ‘Do companies provide sufficient and timely information to shareholders to enable them to make decisions about their investment?’

The Scorecard to evaluate Shareholder Treatment was segmented into four parts namely, Shareholder Rights; Shareholder Information; Shareholder Communication; and Shareholder Protection.

The adjudication exercise revealed that there is very little disclosure in the following areas;• Dividend policy;

The majority of companies do not disclose the existence of any dividend policy which they follow in distributing returns to their owners.

• Policy on directors’ remuneration;This is a sacred area for almost all companies. There is basically no detailed disclosure on directors’

remuneration as required by best corporate governance practice. The adjudicators have however observed that those companies with secondary listing on the ZSE have more detailed disclosures on directors’ remuneration and thus score well in this area. The explanation is probably because their primary bourses have stringent requirements for the disclosures.

• Management’s shareholdingMost companies disclose management shareholdings which lack detailed breakdown to allow users to assess beneficial ownership.

Generally, it was observed that companies tend to disclose just what the regulators and/or the auditors insist on. No improvements have been observed under “shareholder Treatment” from the previous assessment years. It appeared that companies did not make efforts to change their practices as evidenced by lack of new information. With the low levels of shareholder participation currently obtaining in the market, the chances that companies will undergo reforms targeted at benefiting outside shareholders are slim.

(b) Stakeholder Practices and Sustainability ReportingThis category focused on the treatment of the wider stakeholders and the issue of sustainability of the company’s operations. The main focus was to assess how participants reported the impact of their operations on the wider spectrum of stakeholders and the natural environment.

The Scorecard to evaluate Stakeholder Practices and Sustainability Reporting was segmented into four parts namely, Disclosures pertaining to Employee Welfare; Relations with Trading Partners; Environmental Protection; Good Citizenship; Investor Relations; and Disclosure of impact assessment exercises undertaken.

The adjudication process revealed the following issues;

Only two listed companies presented Integrated Reports;• The annual report sections on Management

Commentary and Chairman’s Statement were well presented by almost all companies reviewed. This is one of the sections of the annual report with qualitative information which is reviewed by the Auditors. There was evidence of deliberate effort put by participants to ensure reporting congruency with the rest of the annual report in this area. The reasons probably were that the annual report would not be approved and certified by Auditors without this section. Shareholders pay particular attention to this section.

• Some companies adopted Integrated Reporting Frameworks which they failed to comply with;

• A number of companies provided unsubstantiated statements on corporate social responsibility (CSR) activities;

• The majority of companies continued to show no regard for stakeholder engagement;

• The adjudicators reported that the majority of companies are not using any formal or internationally recognised framework for disclosing non-financial information;

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• As a continuing trend from the last two reviews, some companies included statements of commitment to sustainability and sustainable development in their annual reports but there was no evidence provided to demonstrate such commitment with verifiable and measurable activities; and

• Lastly, the new trend that has emerged points to companies disclosing as fewer things as possible, probably in a bid to cut costs. The main focus of companies therefore was on meeting minimum Financial Reporting requirements as insisted on by auditors without regard to the needs of various users.

Generally the level of reporting under Stakeholder Practices and Sustainability Reporting has marginally improved from last year. However, due to the economic hardships being experienced, companies try to cut costs by writing about as fewer things as possible. Faced with financial constraints, companies mainly focus on financial reporting and the issues that get reviewed by the auditors, neglecting qualitative stakeholder information. Only two companies produced Integrated Reports for the period under review. There is a lot of development required in this area for most listed companies in Zimbabwe to produce internationally accepted Integrated Reports. While some companies have potential to do better in this area, many still do not realise how far they are lagging behind.

(c) Board PracticesThe purpose of this category was to evaluate corporate boards in their oversight role in governing the company for

the benefit of stakeholders. In evaluating Board Practices, adjudicators also looked at the structure and composition of the board.

The Scorecard to evaluate Board Practices was segmented into four parts namely, Ethical Leadership; Monitoring and Control; Board Integrity; and Effective Leadership.

The major issues that came out during evaluation and assessment under Board Practices were as follows:-• As reported in last year’s Adjudication Report, some

companies failed to make a distinction between Independent and Non-Executive Directors;

• There was evidence of selective application of chosen corporate governance codes by companies. The application of Codes is expected to improve with the adoption of the National Code on Corporate Governance for Zimbabwe (ZimCode) going forward;

• In the absence of a single corporate governance reporting framework and monitoring in this area, some companies presented highly summarised corporate governance reports;

• Listed companies reviewed failed to provide a statement and give details of Legal Compliance. The expected best practice in this area is for the Company Secretary to issue a Certificate of Compliance with all legal requirements, which certificate must be part of the annual report;

• The majority of companies did not disclose the responsibilities of their Audit Committees;

• Almost all companies failed to include various board

39

committee reports and charters in their annual reports despite reporting the existence of such committees;

• A majority of companies failed to disclose the skills set and experience on its board of directors hence the adjudicators could not determine whether the Board and its Committees were balanced in this regard. In addition, for those who did, it was observed that some Audit committees had no person with financial literacy and this was a cause for great concern in terms of ability to manage financial risks;

• Quite a number of companies did not conduct annual board evaluations and some simply mentioned that they did but failed to summarise the outcome of the evaluations as required under best practice.

• About 96% of the companies failed to specifically disclose that the CEO/MD was or was not evaluated on their performance. This was an improvement from 99% last year. Those closest to disclosure indicated that there was a performance appraisal framework in place.

• Some companies had their board chairmen chairing most of the board committees. This trend continues from last year. In some companies, the same individuals sit in more than two board committees as chairmen; and

• The adjudicators observed that the reporting weakness of scattering corporate governance issues all over the report in a disjointed manner has persisted; hence the need to have a template for Structured Corporate Governance reporting.

Banking InstitutionsThis is the second year the Institute is presenting separate award categories for Banking Institutions.

The Scorecard for assessing Banking Institutions was divided into three Parts as follows:• Part 1: which evaluated Board Governance;• Part 2: which covered Risk Management; and• Part 3: which was evaluating Internal Audit Disclosures.

The major issues that came out during evaluation and assessment of Banking Institutions were as follows:-• Almost all banking institutions failed to fully disclose

“related party transactions”, a persisting trend from last year. The general practice centres on banks disclosing the minimum on related parties to meet the minimum requirements of financial reporting frameworks;

• Banks did not fully disclose securitization issues in the detailed form required by the RBZ regulations;

• Also, most banking institutions did not have or did not disclose all Board Committees as required by Banking Regulations.

State Enterprises and Parastatals The ICSAZ Corporate Governance Scorecard for evaluating State Enterprises and Parastatals was developed primarily based on the assessment criteria specified by the Government through the Ministry of Finance and Economic Development when it granted authority to the Institute to include SEPs in the ECGA Awards. The Institute also incorporated best practice recommendations from the

Corporate Governance Framework for SEPs and the Public Finance Management Act (in particular Section 50) in coming up with a comprehensive tool to assess SEPs for the awards. The SEPs scorecard had two parts as follows:• Part 1: Board Practices (35 items);• Part 2: Sustainable Performance & Integrated Reporting (15 items)

The major issues that came out during evaluation and assessment of State Enterprises and Parastatals were as follows:-• The boards of most SEPs are fairly diversified in terms

of gender bust poorly diversified in terms of age, skills and ‘regional spread’;

• A sizable number of SEPs are operating without properly constituted and substantive boards of directors resulting in poor oversight over management;

• About 40% of the boards of SEPs reviewed failed to meet regularly in line with corporate governance best practice;

• About 83% of SEPs are failing to produce full annual reports and a majority of them are failing to hold annual general meetings (AGMs);

• Unsustainable operations by most SEPs are putting boards and management in serious ethical dilemma, and

• Lastly, the adjudication process revealed that mistaken stakeholder identity continue to dislodge most boards’ focus from their statutory mandates.

ConclusionsThere is evidence of lack of an agreed corporate governance reporting framework as revealed by disparities in disclosures by companies. As reported last year, the adjudicators noted that some information which participants failed to disclose may be readily available in the ‘cabinets of corporate insiders’. Participants may have policy documents on many of the governance-related issues but they scored badly for failure to disclose. There is need for the regulators, on one side, and stakeholders, especially shareholders on the other, to demand reforms in the disclosure regimes of participants.

40

Whole-of-Organisation Governance: The Next Frontier Steven Burrell

Governance Institute of Australia

For the last decade or more, the concentration has been on board governance. We’ve had a decade now of observing the effect of the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations in bringing meaningful change to governance practice and behaviour.

We are a founding member of the Council and understand more than any other organisation about the practice of governance. After all, it is our members who are charged with implementing governance frameworks in their organisations.

We know that good governance needs to extend beyond the boardroom — it nee ds to cascade throughout an organisation to enable performance. In a world with increased demand for more transparency and accountability; greater scrutiny of the actions of organisations and those who govern them (boards) and manage them (management); and the changing expectations of society, we believe that the next frontier of governance is ‘whole-of-organisation’ governance.

It looks deceptively simple from the outside — we know that it is not.

We also know that many in management will think ‘This is just more bureaucracy’. But this too is a deceptively simple response that does not take into account that the benefit of a well-known and deployed whole-of-organisation governance framework is that the organisation can respond in a more timely fashion, as and when needed, to achieve its strategic objectives.

In a world of rapid information dissemination, organisations need to be able to make decisions quickly. All decision-makers — including client and customer-facing employees — need the freedom to be able to make decisions. However, appropriate boundaries on decision-making need to be in place, clearly understood and followed.

To assist all those charged with governance and risk management responsibilities in their organisation, Governance Institute has developed Guidelines: Whole-of-organisation governance to help governance professionals and management:• ensure that the effort undertaken by all employees

across the organisation is aligned with the strategic objectives

• clarify individuals’ roles, authorities and accountabilities in achieving strategic objectives

• empower individuals to make decisions that are aligned with strategic objectives

• clarify the controls and boundaries that apply to the exercise of authority

• provide clear and effective accountability for the decisions taken and authority exercised.

Decentralised decision-making fosters innovation and growth

and sound whole-of-organisation governance provides the framework that allows for quick and effective decisions.

A clear whole-of-organisation governance framework supports the achievement of the organisation’s strategic objectives by clarifying that decision-making is tied to risk and there is accountability for the exercise of authority. Such a framework allows all employees to respond to changing circumstances, while ensuring that decisions are made within the risk appetite set by the board.

If everybody in the organisation:• is empowered to do what they need to do• understands their objectives and how they contribute

to progressing the organisation’s objectives• understands what they can and cannot do, and how

decisions are made, and• complies, and holds others to account

this reduces risk and improves performance through effective, efficient decision-making.

Whole-of-organisation governance adds value and enables performance by providing a clear and accessible framework that allows for:• decisions to be made in a timely fashion by the right

people as close to the action as possible• alignment of effort across the organisation• clear reporting of information about decisions to other

stakeholders• reduced risk• clear and effective accountability for decision-making.

Our mission focuses on assisting with the management of governance across the organisation, so we are proud to be able to provide the Guidelines: Whole-of-organisation governance to you. Members with significant expertise in implementing whole-of-organisation governance frameworks in their organisations – and with a deep understanding of the challenges inherent in this – have provided their input to ensure the guidelines will help all governance professionals.

For more information and a PDF copy of the guidelines, please visit www.governanceinstitute.com.au/WholeOrgGov

What are your thoughts on the guidelines? Share your feedback with us on Facebook, Twitter and LinkedIn. Also, if you’re interested in education, training and personal development opportunities in whole-of-organisation governance, visitwww.governanceinstitute.com.au.

Whole-of-Organisation Governance: The Next Frontier

Improving Board

CommunicationsLaunching this April

Practical Tips

Join the event

Following the very successful launch of the CSIA paper on stakeholder engagement in New York in 2015, CSIA will be launching its 2016 thought leadership paper “10 practical guidelines to improving board communications” sponsored by Diligent on 28 April 2016 in London.

The paper will provide practical tips to enable corporate secretaries to improve their and the company as a whole’s communication with the board. It is intended to also be thought-provoking at times in challenging corporate secretaries to think differently about the proactive and more strategic role they can play in facilitating board communications.

Invitations will shortly be distributed for individuals wanting to attend the event in person, whilst the event will also be accessible through a webinar. Speakers will include international CSIA representatives, London based company secretaries and representatives from our main sponsor, Diligent Board Member Services Incorporated.

Please contact Carina Wessels (carina.wessels@exxaro.com) for more information.

42

Governance NZ Event Round-up

The latter half of 2015 has been a busy but productive period for Governance New Zealand with several

significant key events taking place during September and November.

Governance New Zealand’s 2nd Annual National Governance Conference was held in Auckland on 17 September and brought together a line-up of well-respected speakers from across a broad range of governance and related disciplines.

The extensive programme comprising 20 presenters covering 14 topics certainly hit the mark, generating significant positive feedback from both attendees, presenters and sponsors. The diverse range of topics on offer ensured all attendees came away with plenty of practical knowledge and insights to apply to their role as a governance professional. With attendance figures up almost double on the inaugural conference held in 2014, the Annual National Governance Conference has rapidly become a popular and highly-regarded choice of professional development for those working in both governance and in the wider business community. The 3rd Annual National Governance Conference is planned for September 2016.

MemberUpdate

43

Women on Boards New Zealand was incorporated into Governance New Zealand in mid-2015. During November 2015, an introductory series of National Roadshow Events were held in Auckland, Hamilton, Wellington and Christchurch. The events attracted over 300 professional women who gathered together to share in a stimulating evening of networking, information gathering, bubbles and canapés. It was enlightening to visit the regions and meet with professional women from across all sectors of the business world, and discover more about what is required in

order to support and nurture these talented women as they progress through their governance careers. Planning is now underway to host a biennial Diversity Summit and Women in Governance Awards event, to be held in mid-2016.

44

MAICSA Annual Conference 2015

The Malaysian Institute of Chartered Secretaries and Administrators (MAICSA) held its flagship event, the

MAICSA Annual Conference 2015, on 5th and 6th August 2015 in Kuala Lumpur, with the theme ‘Integrity and Professionalism – Key to Business Success’. More than 500 delegates attended the Conference, which featured distinguished speakers from the regulators and corporate sector, including representatives of Companies Commission of Malaysia, Bursa Malaysia, Securities Commission Malaysia, Ernst & Young, CIMB Islamic and INCEIF.

Apart from enlightening sessions on updates on the latest laws and legislations presented by representatives of the regulators, the programme for the two day Conference included interesting sessions on “Personal Integrity and Identities in the Connected World”, “Integrity and Business Success”, “Integrity – A Principle of Life” and “Crowdfunding an Alternative Funding”.

The Conference was officiated by YB Senator Datuk Paul Low Seng Kuan, Minister in the Prime Minister’s Department, who was the guest of honour at the Official Opening Ceremony and also delivered the keynote address.

MemberUpdate

45

HKICS News

ESG reporting requirements to be strengthened in Hong Kong Hong Kong Exchanges and Clearing Ltd has decided to strengthen the Environmental, Social and Governance Reporting Guide (the ESG Guide) in its Listing Rules after its consultation on proposed changes to upgrade the disclosure obligation of the ESG Guide met with strong support from a broad range of respondents.

More information is available at: www.hkex.com.hk.

Competition Ordinance comes into full effect The Competition Ordinance (Ordinance), enacted by the Legislative Council in June 2012, has come into full effect since 14 December 2015. The Competition Commission has commenced full operations and is carrying out its law enforcement function under the Ordinance. The full implementation of the Ordinance will ensure that Hong Kong remains a competitive, dynamic and free market by curbing harmful anti-competitive conduct, bringing the benefits of a level-playing field to Hong Kong consumers, businesses and the wider economy.

More information is available at: www.compcomm.hk.

HKICS Annual Dinner 2016 The Hong Kong Institute of Chartered Secretaries (HKICS) held its Annual Dinner on 14 January 2016 at the JW Marriott Hong Kong. With the theme of ‘Celebrating our Heritage’, the event was held in celebration of the 125th anniversary of the Institute of Chartered Secretaries and Administrators (ICSA) and the 20th anniversary of the establishment of HKICS Beijing Representative Office. The dinner was joined by almost 570 guests of the Institute including our members, the Chinese Affiliated Persons, government officials and regulatory bodies in Hong Kong, as well as overseas guests:

the Malaysian Institute of Chartered Secretaries and Administrators President Chua Siew Chuan FCIS and Chief Executive YC Chan FCIS, and the Singapore Association of the Institute of Chartered Secretaries and Administrators Chief Executive Grace Tan FCIS. The ICSA President Frank Bush FCIS FGIA(Life) was present for the celebration in live broadcast from New South Wales, Australia. Ada Chung FCIS FCS JP, the Hong Kong Registrar of Companies, was the guest of honour.

Future HKICS activities

17th Annual Corporate and Regulatory Update (ACRU) conference Friday, 20 May 2016 Hong Kong

10th Biennial Corporate Governance Conference: Inside and Out - Forces Shaping Corporate Governance Landscape

Friday and Saturday, 23 and 24 September 2016

Hong Kong

MemberUpdate

46

Training on Governance Audit by ICPSK

Background The Institute of Certified Public Secretaries of Kenya (ICPSK) was approached by the State Corporation Advisory Committee (SCAC) to assist in the development of code of Governance for Government Owned Entities in Kenya. The Institute constituted a Taskforce to carry out this assignment in the year 2014. The Taskforce developed the Code of Governance popularly known as Mwongozo after the input from stakeholders. The Code was inaugurated by H.E the President of Republic of Kenya and issued a presidential order on its implementation. This Code made it mandatory for all State Owned Entities to carry out Governance Audit and the responsibility was vested with ICPSK. Since then, the Institute has developed other Codes of Governance including Code of Governance for Private Organisations in Kenya.

Governance training During its 144th meeting held on Thursday, November 6, 2014, the Council acting on a recommendation of its

Professional Development Innovations and Standards Committee constituted a Taskforce to develop a framework on Accreditation of Governance Auditors. This was in recognition that the Institute had been advocating for governance audits to be carried out in both private and public organizations by Certified Secretaries and the need to comply with requirements of Mwongozo. In this regard, the Council constituted a Governance Audit Taskforce. During its Special Meeting held on Friday, August 7, 2015, the Council on a recommendation of the Governance Audit Taskforce approved a Training of Trainers for the Governance Auditors, Governance Trainers and Board Evaluation Consultants.

The training of trainers programme was conducted on August 31st to September 3rd, 2015 at Sarova Panafric Hotel, Nairobi, Kenya with financial and technical support from International Finance Corporation (IFC) and the Institute of Company Secretaries of India (ICSI).

Duration Facilitator Name Institution

1st Aug- 2nd Sep 2015 Ms. Brenda BowmanMs. Rita Kabatunzi

International Finance Corporation

2nd Sep 2015(Trained on Governance and Secretarial Audit process).

CS. Ashish. C. DoshiCS. Banu Dandoma

Institute of Company Secretaries of India (ICSI).

Twenty participants, all members of the Institute, attended the TOT. The training was facilitated by the following consultants:

MemberUpdate

47

Training contents and coverage The training content covered from 31st August to 2nd September included the following areas:

Corporate Secretaries Role in Corporate Governance Framework

Topics Covered• Roles of corporate secretary in governance framework• Governance defined• Concepts of Corporate Governance: Transparency, Accountability, Fairness, Reputation and reputational risk

Importance of Emotional Intelligence in Applying The Principles of Corporate Governance

Topics Covered• Emotional Intelligence skills for Trainers and Corporate Secretaries:- Self Awareness, Self-management, Social

Awareness• Managing Relationships• Principles of Andragogy

Corporate Secretaries Tool Kit

• Structure and organization of the Tool Kit• Contents of the Tool Kit: The Tool Kit Modules• Administration, Use and copyright of the Tool Kit

Practice Approaches and Technique Appropriate for Trainers of Corporate Secretaries

Topics Covered• Theories of knowledge acquisition• Experiential Learning Cycle (ELC) – Four steps of ELC namely; Listen & Observe, Analyze facts and Options, Strategize with others and Just Do it.• ELC Methodology• Training Techniques

Micro- Training Sessions

• Group Practice Sessions on: Board Induction, Board Evaluation, Board Meeting, Share Registration, Disclosure.

48

Way forward The Institute has developed the following governance instruments and is ready to conduct Governance Audit Accreditation Course starting February 2016:

1. Governance Standards(a) General meetings(b) Meetings of the Board(c) Minutes(d) Resolutions(e) Board papers(f) Registers and records(g) Filing annual returns

2. Governance Guidelines(a) Professional ethics and conduct(b) Role of the certified secretary(c) Governance audit guidelines(d) Governance audit peer review mechanisms

3. Other Governance Audit documents(a) Curriculum for Governance Auditors accreditation course(b) Governance audit manual(c) Governance audit tool(d) Governance audit checklist

Institute of Corporate Secretaries of India Experience

Topics Covered• Experience in India Context• India set up

Governance

Topics Covered• What is Governance• Facets of Governance• Governance and Compliance: Levels of compliance• What do Boards do?• Elements of corporate Governance

Secretarial Audit

Topics CoveredSecretarial Audit defined• Secretarial Audit• Appointment of Secretarial Auditor• Rights and Duties of secretarial Auditort

General Principles/ Guidelines while conducting Secretarial AuditFocus on: Boards processes and industry specific laws

Process of Secretarial Audit • Communicating to the outgoing/incumbent auditor• Acceptance of appointment• Preliminary discussions/ Surveys• Preliminary meetings• Finalization of Audit plan and staff briefings• Testing, interviews and analysis• Working papers – specimen• Management representation letters• Audit findings summary for discussions• Secretarial Audit Report and submission – Sample Reports • Clean reports, qualified reports and nature of qualification.

Board Evaluation

Participants were given softcopy study materials on Board Evaluation.

The training content covered on 3rd September on Governance Audit included the following areas:

The 20 members of the Institute who participated in the ToT and were themselves accredited as Governance Auditors will facilitate the Governance audit accreditation course.

49

2nd ICSB National Award for Corporate Governance Excellence 2014

MemberUpdate

IntroductionInstitute of Chartered Secretaries of Bangladesh (ICSB) organized the 2nd ICSB National Award for Corporate Governance Excellence 2014 on 10th November, 2015 at the Grand Ballroom, Pan Pacific Hotel Sonagaon, Dhaka. The awards were presented by Mr. Abul Maal Abdul Muhith, MP, Honorable Minister, Ministry of Finance, Government of the People’s Republic of Bangladesh as the Chief Guest. Also, Bangladesh Securities and Exchange Commission (BSEC) Chairman Prof. Dr. M. Khairul Hossain and Senior Secretary, Ministry of Commerce, Mr. Hedayetullah Al Mamun ndc were present as special guest. It was one of the highly acclaimed programmes of ICSB to recognize the best companies which have proven their commitment towards excellence in Corporate Governance to run their business operation. This programme is now a regular annual event of ICSB.

BackgroundIn the milieu of existing corporate governance regime, the Institute of Chartered Secretaries of Bangladesh (ICSB) has introduced The National Award for Corporate Governance Excellence in the year 2014 as the “First National Award for Corporate Governance Excellence-2013” for the first time in the history of Bangladesh. Imbibed by the last year’s success, this year, too, by holding this ceremony in 2015, ICSB tried to inspire the corporate houses of the country to perform better and thus making the corporate environment more competitive for the corporations to excel their own governance standards set in the last year.

Aims and ObjectivesThe prime philosophy behind introducing National Corporate Governance Excellence Award is to accelerate in the continuous efforts for excellence, along with promoting and facilitating good governance in the corporate sector of Bangladesh. Through this award, ICSB has been trying to encourage the business houses to be more transparent and ensure the interests of all the Stakeholders for couple of years. ICSB believes that in an emerging economy like Bangladesh, the coming years are going to be very much crucial, in terms of maintaining the compliances of business. Only practicing good Governance can guarantee such compliances and will step forward to a solid ground of development. The main objectives of the ICSB Corporate Governance Excellence Award are:• Recognizing leadership efforts of corporate board in

practicing the Corporate Governance principles in their functioning

• Motivating the corporate houses in focusing Corporate Governance practices in their functioning

• Implementation of Corporate Governance norms in true letter and spirit.

The ICSB National Award for Corporate Governance Excellence is being conferring to public listed companies of Bangladesh in ten (10) different categories.

Selection of AwardeesThe awardees of “2nd ICSB National Awards for Corporate Governance Excellence-2014” were selected through a rigorous comprehensive evaluation process undertaken by an eminent independent “Jury Board”. The Jury Board went

Honorable Chief Guest Abul Maal Abdul Muhith MP, Minister of Finance, GoB (Middle) with Special Guests Prof. Dr. M. Khairul Hossain, Chairman, Bangladesh Securities and Exchange Commission (BSEC) (on his right), Hedayetullah Al Mamun, ndc, Senior Secretary, Ministry of Commerce, GoB (extreme right), ICSB President Mohammad Asad Ullah FCS (2nd from the right), Mohammad Nurul Alam, FCS Chairman, CGA Committee, ICSB (extreme left)

50

ConclusionThis 2nd ICSB National Award for Corporate Governance Excellence has become a topic of discussion among the Corporate Professionals in Bangladesh. They are exhilarated and getting concerned about being nominated for this prestigious award in upcoming years. The young

professionals, who are the forthcoming Leaders of our trade and commerce, are highly impressed with the concept of the awarding process and the event itself. Most of them pledged to practice a fairer Governance style in their professional life will, definitely, bring affirmative impact in the corporate sector of Bangladesh in the years yet to come.

through a rigorous reading of publicly available information and documents of the participating companies, such as: Companies Annual Reports, Audited Financial Reports, Notices to call general meetings, Investors information, Website analyses, Code of Conduct, Other public information. Firstly, ten Technical Committees became active and they started for initial screening and gave an initial nomination. Finally, the Jury Board selected awardees through an unbiased and meticulous evaluation process on the basis of both quantitative and qualitative criteria of their published Annual Report for the year 2014. In the Jury Board, we had the privilege of having Dr. A.B. Mirza Md. Azizul Islam, Former Finance Advisor to the Caretaker Government of Bangladesh as the Chairman of the Jury Board. The remaining Members of the Jury Board were the distinguished Fellows from different sectors. They performed a tremendous task of scrutinizing the best companies which are excelling in their practice of good Governance with the support of ten

(10) different Technical Committees for ten (10) different categories. A large number of corporate leaders from Bank, Insurance, Multi-national, National and Group of Companies attended the programme. The invitees appreciated the efforts made by the ICSB for holding such national level programme in which ICSB created tremendous awareness amongst the corporate sector of the country about the profession of Chartered Secretary which is contributing for the economic development of the nation.

All the Council members, most of the Fellow and Associate Members attended the majestic occasion of awarding and expressed their satisfaction on the event. They also venerate the endeavor and expected that this process will continue and pursue the quality of corporate governance of Bangladesh to the global standard.

Sl Category Name of the Company Medals

1 Banking Category

Eastern Bank Limited Gold

United Commercial Bank Limited

Silver

Social Islami Bank Limited Bronze

2 Non-Banking Financial Institutions

Prime Finance and Investment Limited

Gold

IDLC Finance Limited Silver

Delta BRAC Housing Finance Corporation

Bronze

3 Insurance Company

Green Delta Insurance Company Limited

Gold

Prime Insurance Company Limited

Silver

Popular Life Insurance Company Limited

Bronze

4 Pharmaceutical and Chemicals Category

Square Pharmaceuticals Limited

Gold

Square Pharmaceuticals Limited

Silver

Advance Chemical Industries Limited

Bronze

5 Textile andRMG Companies

Square Textiles Limited Gold

Envoy Textile Limited Silver

Winning Organisations

Sl Category Name of the Company Medals

6 Food and Allied Industry

Golden Harvest Agro Industries Limited

Gold

Agricultural Marketing Company Limited

Silver

7 IT, Telecom and Services Category

Bangladesh Submarine Cable Company Limited

Gold

Unique Hotel & Resort Limited

Silver

BDCOM Online Limited Bronze

8 Engineering Industries

Singer Bangladesh Limited

Gold

BSRM Steel Limited Silver

Ratanpur Steel Re-rolling Mills

Bronze

9 ManufacturingIndustries

British American Tobacco Bangladesh Limited

Gold

Premier Cement Mills Limited

Silver

Heidelberg Cement Bangladesh Limited

Bronze

10 Fuel and Energy Industries

Summit Power Limited Gold

MJL Bangladesh Limited Silver

Linde Bangladesh Limited Bronze

37

Company Name: Contact Name:

Company Address: (for Invoice)

Contact Number:

Email Address:

Technical Information:Please provide all art work at 300dpi, PDF, JPG or EPS file. Please ensure that the advert has a 5mm bleed around the whole piece.

Advert sizes:

210mm

297m

m

220mm - Bleed Size

307m

m -

Blee

d Si

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Key Do’s for shareholder engagement

For institutional investors:

• Disclose if the asset owner or asset manager is responsible for engagement and voting

• Disclose who in the organisation is responsible for voting and engagement

• Explain how you vote your stock

• Explain which governance guidelines you use and how you apply them

• Understand the companies in which you invest

For ASX-listed companies:

• Explain who in your organisation is responsible for engagement and on what issues

• Agree responsibilities as between the board and management for engagement on ESG issues

(environmental, social and governance)

• Understand your significant institutional investors at asset owner and asset manager level and their role

in voting decisions

• Understand the role of proxy advisers and other intermediaries and their influence on voting decisions

For both:• Have a regular, meaningful and mutually beneficial engagement program

• Ensure continuity of engagement so good interpersonal relationships develop between the right people

• Time your engagement program to avoid peak periods such as the AGM season

210mm

149m

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220mm - Bleed Size

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Full Page Advert

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“Global Governance Voice” is the quarterly e-Magazine published by Corporate Secretaries International Association (CSIA). With a readership of 100,000 legal, governance, risk, Senior Management and corporate secretary professionals across 30 countries, it is the first international e-Magazine of its type and aims to bring governance topics to the fore, highlighting the challenges faced by governance professionals across the globe. Contributions by in-country experts will bring local flavour to global issues, and will enable sharing of best practices. Don’t miss your opportunity to advertise your organisation or services, and reach more than other publications in this sector!

Readership: 100,000 governance professionals across at least 30 countries

TO BOOK AN ADVERT, PLEASE COMPLETE THIS FORM, SCAN AND EMAIL TO:

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Global Governance Voice

CSIA Launches Global Push onGood Governance

CSIA Launches New Toolkit

DRAFT

Note: CSIA country member organisations should contact samantha@csiaorg.com for special member association rates.

“Global Governance Voice” is the quarterly e-Magazine published by Corporate Secretaries International Association (CSIA). With a readership of 70,000 legal, governance, risk, Senior Management and corporate secretary professionals across 70 countries, it is the first international e-Magazine of its type and aims to bring governance topics to the fore, highlighting the challenges faced by governance professionals across the globe. Contributions by in-country experts bring local flavour to global issues, and enable sharing of best practices. Don’t miss your opportunity to advertise your organisation or services, and reach more than other publications in this sector!

Readership: 70,000 governance professionals across at least 70 countries

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ISSUE 3 • FEBRUARY 2016

Succession Planning

Page 8

Watching the Watchdogs

Page 12

Certainty in Entity Management

Page 18

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