Purco SA Conference 28 October 2016 Presented by Mervyn E King SC CORPORATE GOVERNANCE Purco SA Conference 28 October 2016 Presented by Mervyn E King SC

ORGANISATION No mind of its own Sovereign – juristic person Immortal Owner of Higher Education entity? Organisation owner of its assets & liabilities

CORPORATE GOVERNANCE How is an organisation directed and controlled? – standard definition Organisation directed by its mortal leaders How do these leaders direct or steer? How is the business of an organisation managed and governing bodies’ decisions implemented? About quality not quantity

PRACTICES AND ENTERPRISE Governance about practices, principles and outcomes Enterprises – strategic Risk for reward – business judgment calls Good governance and judgment error Acceptable Bad governance – error – scandal Not acceptable

THE GOVERNANCE EQUATION Unified Governance Enterprise and principles and business judgment best practice calls (strategy) BJR

THE GOVERNANCE REGIME Incapacitated entity Licence to operate Framework of governance Inclusive stakeholder centric governance model approach Laws and regulations The duties of councillors Rules vs principles King IV

COMPLIANCE Mindless quantitative compliance? Is that good governance? Compliance officer? Councillors must apply their minds A practice not suitable for the organisation Do not apply it – use alternative Market ultimate compliance officer Stakeholders support or flee

DUTIES OF THE COLLECTIVE DIRECTING MIND Good faith Care Skill Diligence

INCAPACITY Human being Best interests, care, skill, diligence Decent thing to do Organisation a juristic citizen Incapacitated Director – heart, mind and soul

WHO IS THE LEADER OF A HIGHER EDUCATION ORGANISATION? Separate legal entity Owner of assets On appointment duty to the organisation Boss of council – direction – chairman the leader Boss of operations – implementation – vice chancellor - report to Minister No leader of the organisation

TO WHOM IS THE COUNCIL ACCOUNTABLE? Accountable to the organisation Through organisation to stakeholders Not to stakeholders Accountable to everyone – accountable to no one Take account of the sources of value creation including the legitimate and reasonable needs, interests and expectations of stakeholders

REGULATIONS FOR REPORTING Adopt RAFT principles Foundation I H Accountable have to be understandable The six capitals Stakeholders’ NIEs Integrated thinking Integrated reporting theiirc.org

All organizations depend on a variety of resources and relationships for their success. These resources and relationships can be conceived as different forms of “capital”. Source: Incite Sustainability 2.0: A Guide to Competing in a Changing World

THE SIX CAPITALS Financial Manufactured Human Intellectual Social Natural

AN ORGANISATION’S VALUE CREATION PROCESS

STAKEHOLDER RELATIONSHIPS Have to be managed Agenda item at each governing body meeting Critical in integrated thinking Who relates to stakeholders? - CSRO Management time and eye off the ball?

INTEGRATED THINKING Understanding, knowing and then planning: How the organisation achieves its purpose? How the organisation will sustain value creation in the long term? Board should determine, inputs, how, products, outcomes

INTEGRATED THINKING Every organisation dependent on relationships and resources Mindset change at governing body & senior management level Symphony Knowledge of stakeholders’ legitimate NIE’s Greater stakeholder expectations Agenda: Inputs to outcomes

THE REPORT To be accountable you have to be understandable “If I had more time…”

AN INTEGRATED REPORT A concise communication about how an organisation’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term.

STRATEGY Strategy no longer stops at output Governing body needs to be informed of stakeholder relationships Governing body needs to be informed of resources used Governing body needs to be informed of how the organisation makes its money Governing body needs informed oversight Agenda item: inputs to outcomes – King IV

DIGITAL STRATEGY Should every organisation have a digital strategy? Rather there must be a long term strategy in a digital world Agenda item: IT Governance and security – King IV (PwC)

ORIGINAL THINKING Inclusive stakeholder centric model Basic good governance principles To achieve four outcomes Regimen of apply and explain Parity of sources of value creation Through the prism of the six capitals

STEPPED APPROACH 3 _______________ Governance outcomes 2 (Intended benefits) 2 ________________ Principles (Objectives) 1 Practices

APPLY AND EXPLAIN 75 principles in King III Application register 16 principles in King IV plus one Apply and explain Explain how achieved or striving User draws inference on quality And on achieving the outcomes

FOUR OUTCOMES Ethical culture and effective leadership Performance and value creation in a sustainable manner Adequate and effective controls Trust, good reputation and legitimacy

ETHICAL CULTURE Principle 1.1: The governing body should set the tone and lead ethically and effectively. Principle 1.2: The governing body should ensure that the organisation’s ethics are managed effectively Principle 1.3: The governing body should ensure that the organisation is a responsible corporate citizen.

PERFORMANCE AND VALUE CREATION Principle 2.1: The governing body should appreciate that strategy, risk and opportunity, performance and sustainable development are inseparable elements of value creation. Principle 2.2: The governing body should ensure disclosure and reporting that enables stakeholders to make an informed assessment of the performance of the organisation and its ability to create value in a sustainable manner.

EFFECTIVE CONTROL (1) Principle 3.1: The governing body should serve as the focal point and custodian of corporate governance in the organisation. Principle 3.2: The governing body should comprise a balance of power and command the skills, experience, diversity, independence and knowledge as is appropriate to the organisation so that it is able to effectively discharge its role and responsibilities.

EFFECTIVE CONTROL (2) Principle 3.3: The governing body should delegate to assist with the effective discharge of its responsibilities without abdicating accountability. Principle 3.4: The governing body should appoint a chairman, the Chief Executive Officer and a senior manager responsible for corporate governance to contribute to an effective system by which authority is exercised.

EFFECTIVE CONTROL (3) Principle 3.5: The governing body should ensure that the performance evaluation of board structures and individual role players results in improved performance and effectiveness.

EFFECTIVE CONTROL (4) Principle 4.1: The governing body should govern risk and opportunity so that it supports the organisation achieving its strategic objectives. Principle 4.2: The governing body should govern technology and information so that these support the organisation achieving its strategic objectives.

EFFECTIVE CONTROL (5) Principle 4.3: The governing body should govern compliance with laws and ensure consideration of adherence to non-binding rules, codes and standards. Principle 4.4: The governing body should ensure that the organisation remunerates fairly, responsibly and in a transparent manner that promotes the creation of value by the organisation in a sustainable manner.

TRUST, GOOD REPUTATION AND LEGITIMACY Principle 5.1: The governing body should ensure that a stakeholder inclusive approach is adopted and that stakeholders’ legitimate and reasonable needs, interests and expectations are taken into account in the best interests of the organisation. Principle 5.2: The governing body should ensure that the organisation exercises its rights, obligations, legitimate and reasonable needs, interests and expectations in another organisation or entity responsibly.

KING IV CONCEPTS (1) Independent director (councillor, parent) Variable remuneration Performance targets Tax policy Governing body - must act in the best interests of organisation

KING IV CONCEPTS (2) Organisation and governing body Responsible citizen Strategy and sustainable value creation Report to enable informed assessment Diversity and composition appropriate to the organisation

KING IV CONCEPTS (3) Delegate, interrogate being accountable Shareholders appoint directors and audit committee. Minister representative shareholder No split of authority and responsibility Members of governing body appoint chairman Governing body appoints CEO Evaluation to lead to more effectiveness

KING IV BASICS I C R A F T Incapacity Good faith, care, skill, diligence Essence of corporate ethics – acting with intellectual honesty in the best interests of the incapacitated organisation of which the governing body is its heart, mind and soul

CONCEPTS Humankind and nations – concept of limited liability Integrated reporting Helen Keller: “The only thing worse than being blind is having sight and no vision” We have the light Why grope in the dark?

THANK YOU Prof Mervyn E King SC