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Can good corporate governance trump bad leadership?

SOEs under renewed scrutiny following release of State Capture Report.

JOHANNESBURG – The paradox was striking: On Tuesday the King IV report was launched, raising the bar for corporate governance practices among a broad spectrum of firms. On Wednesday, the former Public Protector, Thuli Madonsela’s report on State Capture raised serious questions about shortcomings in governance practices at power utility Eskom.

Madonsela said it appeared that the board of the power utility was improperly appointed and not in line with the spirit of the King III report.

State-owned enterprises (SOEs) have been a thorny issue within the broader South African economy, with the financial situation at South African Airways and Eskom in particular often a bone of contention due to the drain on state finances and its implications for the country’s fiscal situation.

King IV aims to make corporate governance more accessible and relevant to a wider range of organisations. The new code includes sector supplements, one specifically for SOEs, to make it easier to implement in the environment in which they operate.

Yolandi van Zweel-van Heerden, governance consultant at Statucor, says challenges at SOEs are often the result of poor governance systems.

Practices are not transparent and there may be external factors influencing the organisation to the extent that those at the helm may not act in the best interest of the organisation.

“I do believe that if a state-owned entity implements the governance principles as set out in King IV, it will make a tangible difference. I think there will be better control.”

While some SOEs have very good governance structures and committees, there are instances where they don’t receive the funding allocated to them, and they may find it difficult to execute their mandate, adds Ronelle Kleyn, governance consultant at Statucor.

Every SOE is part of a bigger, interrelated system and dependent on the proper functioning of the state, but there are “pockets of greatness”, she says.

Van Zweel-van Heerden concurs, but says the focus should be on accountability: “I don’t think people are held accountable in general for their actions.”

While King IV aims to shift the corporate governance landscape from a compliance-based mindset to a situation where it is seen as a catalyst for value-creation, Van Zweel-van Heerden says the existence of a very good governance report in all likelihood won’t make a difference if the leadership does not buy into the concept and is potentially driving its own agenda.

In these instances, normal citizens with a vested interest in those entities, political parties and auditor companies have to drive compliance.

Marcus Botha, head of corporate tax consulting at BDO, says the five levels of assurance (the board, management, risk and compliance officers, internal and external audit), as set out in King IV will probably be a “game changer”. With SOEs, the Auditor-General (AG) will become a separate line of assurance.

He says the AG will probably play the biggest role in this regard until a “governance culture” has been embedded in SOEs.

At a media briefing on Monday, Prof Mervyn King, chair of the King Committee on Corporate Governance in South Africa, said the protocol on corporate governance for state-owned enterprises “encapsulates” the principles of the King II report.

National Treasury and the Department of Public Enterprises also sit on the King Committee.

King said the Public Finance Management Act was rigorously examined with regard to external audit, but on the question of corporate behaviour, SOEs, SOCs (state-owned companies) and Chapter 9 institutions were governed by the protocol on corporate governance issued by Cabinet in 2003, which encapsulates King II published in 2002.

The intention was to get leaders to catch up and to get the protocol changed from King II to King IV. It was “ridiculous” that King II was the standard of behaviour when governance has moved on globally, he said.

The Auditor-General indicated that it would respond on Friday. Its response will be added as soon as it is received.

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ALL Corporate Governance can be summed up in two words: DON’T STEAL.

But stealing is now ubiquitous. So why are we going down this road???

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