Parliamentary Committee

Institute of Directors in 

Southern Africa

Corporate Governance

Why

Corporate

Governance

is

vital to

South Africa

Corporate Governance

• Alleviate key problems of housing, health, education and unemployment

Need growth rate of 6% per annum

Foreign Direct Investment

• FDI - Pivotal to SA Growth Targets

• “Every Government in Africa that betrays the principles of Good Governance betrays Africa”

- Tony Blair – G8 – July 2005

Foreign Direct Investment

• FDI – 2004

• Global US$ 65O Billion

• Africa US$ 18 Billion – 3%

• South Africa US$ <1 Billion - 0.1%

(Under 1 Billion for last 8 yrs)

Foreign Direct Investment

• 7 million - homeless• 5.6 million - HIV/AIDS• 12 million - school pupils• 580 000 - University / Technikon• 14 million - economically active• 30% - of population unemployed• 45 million - total population

Head Start

• Powerhouse of Africa

GDP GDP – Africa - US$ 700 (420) billion– South AfricaSouth Africa - US$ 234 (113) billion– Nigeria - US$ 50 (62) billion– Zimbabwe - US$ 8 (9) billion– Australia - US$ 518 (368) billion

Africa - Perception

• UnstableUnstable

• CorruptCorrupt

• Crime riddenCrime ridden

• Susceptible to despotic ruleSusceptible to despotic rule

• South Africa contaminated by this South Africa contaminated by this perception of poor Governanceperception of poor Governance

• Stable economy• Sound macro economic policy• Outstanding constitution• World class infrastructure• Banking system top 10 in the world• Cellular networks ?• Sasol oil from coal• Excellent Corporate Governance

South Africa Reality

Corporate Governance

• Good governance

• Good business sense

• McKinseys & Deutsche Bank

Good Governance makes Good Business sense

• Surveys showed:– Governance at the heart of investment decisions– Put on a par with financial indicators when

evaluating an investment decision– An overwhelming majority of investors are prepared

to pay a premium for companies exercising high governance standards

– Companies with good governance produce more sustainable and better long term results than those that don’t

The premium investors would pay for a well-governed company varies by country and region

RegionCountry

22 2116 14

12 11

3022 22

14 13

MOR RSA JPN ITL USA UK CAN

EE/AFRL AM ASIA WEUR NAM

New in 2002

Decrease 2002

Increase 2002

Premium in

2002

Average premiums of those investors willing to pay premium

“If a country does not have a reputation for strong governance, capital flows elsewhere”

“If investors are not confident with the level of disclosure, money will flow elsewhere”

“If a country opts for lax accounting and reporting standards, capital will flow

elsewhere”

Arthur LevittArthur Levitt

Foreign Direct Investment

“If a country is over regulated making it difficult rather than simple for enterprise to flourish,

capital will flow elsewhere”

“If a country’s rates of tax are too high, capital will flow elsewhere”

“If crime and corruption are at unacceptable levels, capital will flow elsewhere”

Tony DixonTony Dixon

Foreign Direct Investment

Solutions

• Proudly South African

• King II – This is how we do business

• Zero tolerance – non compliance

• Let entrepreneurs do what they do best

Last Six Months Successes• G8 - US$ -50 Billion• Gauteng Rail - 148 000 jobs• Barclays Bank – R30 Billion - FDI• Bond Investments – Jan to June R12.5 Billion• Junk Bonds – Cell C – Foodcorp - R 6.5 Billion• JSE Index over 16 000 Ist time ever (12 657 Jan

2005) -23% growth in 8 months – FTSE 9%• Soccer World Cup• Mini Budget – Oct 2005 – extra R78 Billion

Infrastructure

Other Issues That Need Addressing

• Non Exec Directors Vital to Economy– In National Interest

– Legislation chasing them away (Companies Act amendment bill)

– Becoming selective – avoiding risk – Co’s that need their support are unable to obtain it

– Eg PFMA/ MFMA - Gauteng Municipality

– Limitation of Liability to multiple of fees earned

Other Issues That Need Addressing

• More Competent Directors– Don’t let unlicensed drivers drive on roads – yet people driving

our economy not properly trained.– IoD’s main aim and objective to raise the bar of director

performance – skills , expertise, knowledge and professionalism.– In UK and other countries every time new director registers with

CIPRO equivalent is recommended that join a body such as the IoD or equivalent where they can receive suitable training.

– Every newly appointed director should attend at least an induction programme eg AltX.

– UK Chartered Director – Iod South Africa wants to do something similar

Institute of Directors in 

Southern Africa