|“Steinhoff”. Just mentioning the name these days is enough to send shivers down the spine of even the hardiest investor. Take into account also the ravages seemingly wrought on our state companies by state capture, and the reputational damage to global icons like KPMG and McKinsey, and we have a clear warning of what can happen when we don’t ensure good corporate governance at all levels.
Let’s have a look at the principles involved in achieving good governance, at how our communities and companies are intertwined, at how being a good “corporate citizen” benefits everyone, and at how we rank in the “Compliance Complexity Index” survey of 84 countries around the world.
Events have moved swiftly in recent years. One of the largest South African conglomerates, Steinhoff, has virtually collapsed amidst allegations of dubious structures and transactions. Some of our largest state companies have it seems been ravaged by state capture whilst global icons such as KPMG and McKinsey have suffered serious reputational damage.
A failure of governance links these entities together and there has been renewed interest in business ensuring that their organisations are well governed.
What to do to achieve compliance
It’s not a question of poor governance being practiced by the business community as a whole – the vast majority want to do the right thing and make every effort to achieve compliance throughout their organisations.
There is no surprise therefore that there has been resurgence in interest in the King IV Report on Corporate Governance. King IV applies to all businesses and is a statement of principles based on strong ethical leadership which results in:
- An ethical culture
- Successful trading
- Control over the organisation.
Shareholders versus stakeholders
One of the frequent criticisms of the free market system is the primacy of shareholder interests. These interests are often prioritised at the expense of other stakeholders as shareholders want to see the maximisation of profit. King IV talks of adopting an inclusive stakeholder approach in which business creates value for society. It recognises that business and the community are, in the long term, intertwined. Being a good corporate citizen is not just good for business but is a key part of obtaining legitimacy.
How easy is it to be compliant in South Africa?
A Compliance Complexity Index was recently compiled to see how easy or difficult it is for countries to achieve compliance – 84 countries were surveyed. South Africa came in the last quartile. Generally, countries where corporate law is based on the common law fared the best. Thus, Ireland is rated the easiest country for compliance and countries where more complex laws are incorporated in their legal systems fared worst.
The onus is on our authorities to simplify compliance for its citizens and businesses.