1. 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

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

3. 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

4. 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

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

6. 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

7. 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

8. DUTIES OF THE COLLECTIVE DIRECTING MIND
Good faith
Care
Skill
Diligence

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

10. 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

11. 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

12. 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

13. 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

14. THE SIX CAPITALS Financial Manufactured Human Intellectual Social
Natural

15. AN ORGANISATION’S VALUE CREATION PROCESS

17. 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?

18. 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

19. 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

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

21. 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.

22. 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

23. 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)

24. 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

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

26. 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

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

28. 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.

29. 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.

30. 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.

31. 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.

32. 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.

33. 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.

34. 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.

35. 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.

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

37. 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

38. 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

39. 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

40. 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?

41. THANK YOU
Prof Mervyn E King SC