1. Challenges of Governance in South Africa and Abroad ISACA and Network Finance 23 July 2008 Presented by: Prof Mervyn E King SC

2. MEK Corporate Consultants Changed world of governance 1855 limited liability 1855 limited liability Wealthy families Wealthy families Latter half of 20 th Century Latter half of 20 th Century Shareowner revolutions – politicians Shareowner revolutions – politicians ICT – borderless world ICT – borderless world Exclusive/inclusive Exclusive/inclusive Created and destroyed Created and destroyed Scandals Scandals

3. MEK Corporate Consultants Reaction Comply or else – Sarbanes-Oxley Comply or else – Sarbanes-Oxley Guidelines Guidelines Comply Comply Explain Explain The South African Companies Bill? The South African Companies Bill? Hybrid Hybrid

4. MEK Corporate Consultants The company today Company larger than governments Company larger than governments Integral to society Integral to society Civil economy Civil economy Reports – preparers and users Reports – preparers and users After quality of product After quality of product Building trust in company Building trust in company Agents for change Agents for change

5. MEK Corporate Consultants Governance about process Processes to discharge and for directors to be seen to be discharging their responsibilities Processes to discharge and for directors to be seen to be discharging their responsibilities Enterprise – strategic Enterprise – strategic Risk for reward – failure Risk for reward – failure Good governance and failure Good governance and failure Acceptable Acceptable Bad governance – failure – scandal Bad governance – failure – scandal Not acceptable Not acceptable

6. MEK Corporate Consultants A director’s duties - responsibilities Good faith Good faith Care Care Skill Skill Diligence Diligence 150 years of jurisprudence 150 years of jurisprudence The Companies Bill The Companies Bill

7. MEK Corporate Consultants Incapacitated person Human being Human being Best interests, care, skill, diligence Best interests, care, skill, diligence Decent citizen thing to do Decent citizen thing to do Company an artificial citizen Company an artificial citizen Incapacitated Incapacitated Director, heart, mind and soul Director, heart, mind and soul

8. MEK Corporate Consultants Multi-national companies Operating in 150 countries Operating in 150 countries Function of board? Function of board? Court’s realisation Court’s realisation National, lingual, cultural, legal National, lingual, cultural, legal

9. Internal Audit

10. MEK Corporate Consultants Internal audit Effective IA function necessary Effective IA function necessary IA planning informed by strategy IA planning informed by strategy Key contributor to achieving strategy Key contributor to achieving strategy Objective provider of assurance Objective provider of assurance

11. MEK Corporate Consultants Assurance of what? Adequate controls Adequate controls Quality of corporate information Quality of corporate information Identify risks that may impede goals Identify risks that may impede goals Identify opportunities to realise goals Identify opportunities to realise goals Timeous and assessed adequately Timeous and assessed adequately

12. MEK Corporate Consultants Strategy Board responsible, but developed by management Board responsible, but developed by management IA included in strategy development process IA included in strategy development process Better understand risks and opportunities Better understand risks and opportunities Assurance that management oversight, risk management and adequate controls act in a coordinated manner Assurance that management oversight, risk management and adequate controls act in a coordinated manner

13. MEK Corporate Consultants Accountable Assessment of adequacy of controls Assessment of adequacy of controls Assessment of the three elements in tandem Assessment of the three elements in tandem Audit Committee to consider Audit Committee to consider Audit Committee to report to board Audit Committee to report to board Board signs adequacy of controls Board signs adequacy of controls Audit Committee to appoint and dismiss CAE Audit Committee to appoint and dismiss CAE Access to board chairman Access to board chairman

14. MEK Corporate Consultants Assessment Should express clearly : Should express clearly : Evaluation criteria Evaluation criteria Scope Scope Period Period Who has responsibility for what Who has responsibility for what

15. MEK Corporate Consultants Internal Audit relationship Right arm of the board Right arm of the board Communication skills Communication skills Credibility Credibility Boardroom presence Boardroom presence Challenge effectiveness of risk management Challenge effectiveness of risk management Fulfil regulatory requirements Fulfil regulatory requirements

16. MEK Corporate Consultants Attributes Chameleon – risk changes means scope of IA has to change Chameleon – risk changes means scope of IA has to change Leadership skills Leadership skills Communicator Communicator Strategic mindset Strategic mindset Networker Networker

17. MEK Corporate Consultants Corporate world Changed in last five years Changed in last five years Sustainability issues are risks Sustainability issues are risks IA/risk management relationships IA/risk management relationships Included in IA functions Included in IA functions

18. MEK Corporate Consultants Assurance needs Strategy Strategy Controls Controls Compliance Compliance Treasury Treasury CR & S CR & S Health and safety Health and safety

19. MEK Corporate Consultants IA has to be intellectual IA has to be intellectual

20. Alternative Dispute Resolution

21. MEK Corporate Consultants Disputes Resolution Resolution ADR in contracts ADR in contracts Cross border Cross border Management tool Management tool

22. MEK Corporate Consultants Relationships In business circle In business circle Build relationships Build relationships Dispute/litigation Dispute/litigation Destroys relationship Destroys relationship Duty to resolve/preserve Duty to resolve/preserve

23. MEK Corporate Consultants ADR and the company Dispute with company Dispute with company Officers Officers Investors Investors Suppliers/customers Suppliers/customers Regulators Regulators Communities Communities

24. MEK Corporate Consultants Management of relationships A business relationship A business relationship Company and major customer Company and major customer CalPERS CalPERS Ford and Firestone Ford and Firestone

25. MEK Corporate Consultants Mediation advantages Novel Novel Quicker Quicker Less expensive Less expensive Confidential Confidential Preserves relationships Preserves relationships Cost of executive time saved Cost of executive time saved Dilution of focus when litigate Dilution of focus when litigate

26. MEK Corporate Consultants ADR a mechanism A value add A value add To a commercial relationship To a commercial relationship Mechanism to manage Mechanism to manage Cost and time Cost and time Duties and efficiency Duties and efficiency

27. MEK Corporate Consultants Contracted mediation ADR framework in place at beginning ADR framework in place at beginning Parties owners of process – attuned Parties owners of process – attuned Conflict prevention Conflict prevention Communication Communication Build trust Build trust Value of immediate knowledge Value of immediate knowledge

28. MEK Corporate Consultants Questions by a board? System of early case assessment System of early case assessment Mechanisms addressing employee dispute Mechanisms addressing employee dispute Critical procurement contracts Critical procurement contracts Agreed cross-border mechanisms Agreed cross-border mechanisms

29. MEK Corporate Consultants Upfront in the constitution Administered ADR Administered ADR Upfront collaborative solver Upfront collaborative solver Between stakeholders Between stakeholders And the company And the company IFC IFC

30. MEK Corporate Consultants Legal recognition Ireland Ireland Germany Germany Canada Canada World bodies World bodies The disappearing civil trial The disappearing civil trial

31. MEK Corporate Consultants Obstacles Constitutional right of access to courts Constitutional right of access to courts Rights not absolute Rights not absolute Limitations Limitations Enforce good faith? Enforce good faith? Time, languages, place, etc? Time, languages, place, etc? Enforcing a process Enforcing a process

32. MEK Corporate Consultants Corporate governance check Have you got ADR with stakeholders? Have you got ADR with stakeholders? Decent citizen Decent citizen World is flat World is flat New constitution of commerce New constitution of commerce ADR a dual function ADR a dual function Build business trust – director’s duty Build business trust – director’s duty IOD/AFSA clause : IOD/AFSA clause : www.arbitration.co.za www.arbitration.co.za www.iodsa.co.za www.iodsa.co.za

33. Sustainable development as a business opportunity

34. MEK Corporate Consultants Business opportunity 100 largest economies 100 largest economies Pervasive change is sustainability Pervasive change is sustainability Philanthropy Philanthropy CSI CSI Added value – business opportunity Added value – business opportunity Alterantive energy resource boom Alterantive energy resource boom

35. MEK Corporate Consultants Market capitalisation Not equal to book value – assessment Not equal to book value – assessment Brand and goodwill Brand and goodwill Reputation of management and board Reputation of management and board Quality of governance and management Quality of governance and management Sustainability of the business Sustainability of the business Strategic direction Strategic direction Non-financial aspects, so-called Non-financial aspects, so-called

36. MEK Corporate Consultants market value $ 105,586 mil 30/09/03 13% Book value $ 13,560 mil 30/09/03 20 % ? 67% Brand value $ 70,453 mil (Interbrand) source: SAM Measuring company’s economic value

37. MEK Corporate Consultants Intangible assets Reputation Reputation Brand Brand Quality of management and board Quality of management and board Sustainability issues Sustainability issues Procter & Gamble Procter & Gamble Coca Cola Coca Cola Anglo American Anglo American

38. MEK Corporate Consultants Stakeholders Financial information Financial information Backward looking Backward looking Forward looking information Forward looking information First priority – product First priority – product Second priority – trust and confidence Second priority – trust and confidence

39. MEK Corporate Consultants

40. IT governance

41. MEK Corporate Consultants Legislation? Legislate – Cobit ITIL? Legislate – Cobit ITIL? Care and diligence – one size fits all? Care and diligence – one size fits all? Pervasive – CIO or service provider? Pervasive – CIO or service provider? Confidential information outside company Confidential information outside company

42. MEK Corporate Consultants IT security Napoleon – the wax seal Napoleon – the wax seal Unauthorised Unauthorised Use Use Access Access Changes Changes Cryptography – decryption Cryptography – decryption Legislation Legislation

43. MEK Corporate Consultants Independence of directors Ten year “rule” Ten year “rule” ASX abandoned it ASX abandoned it Critical bystander – perception Critical bystander – perception Assess independence annually Assess independence annually

44. MEK Corporate Consultants Sarbanes-Oxley Sarbanes-Oxley 404 difficulties 404 difficulties As5 amelioration by SEC As5 amelioration by SEC Legal? Legal? Rigidity and flexibility Rigidity and flexibility Adopt or explain Adopt or explain

45. MEK Corporate Consultants Reporting Reporting Preparers and users Preparers and users “How has the company positively and negatively affected the economic life of the community in which it operates?” “How has the company positively and negatively affected the economic life of the community in which it operates?” “How does the company intend to enhance the positive aspects and eradicate or ameliorate the negative aspects in the year ahead?” “How does the company intend to enhance the positive aspects and eradicate or ameliorate the negative aspects in the year ahead?”

46. MEK Corporate Consultants Director’s liability D&O insurance D&O insurance Business judgment rule Business judgment rule No financial interest No financial interest Objectively all the facts Objectively all the facts Rational business decisions at that time Rational business decisions at that time Hindsight and foresight Hindsight and foresight

47. MEK Corporate Consultants A journey Cadbury, etc and the Combined Code of the UK Cadbury, etc and the Combined Code of the UK King I, II and III King I, II and III Every day you may make progress. Every step may be fruitful. Yet there will stretch out before you an ever-lengthening, ever-ascending, ever- improving path. You know you will never get to the end of the journey. But this, so far from discouraging, only adds to the joy and glory of the climb.” Sir Winston Churchill

48. Thank You Prof Mervyn E King SC