Leadership Seminar Brief introduction: Governance, Risk & Compliance from a business perspective

1. CGF Research Institute (Pty) Ltd Reg. No. 2004/000744/07 + 27 11 476 8264 / 1 / 0 + 27 82 373 2249 tbooysen@cgf.co.za www.cgf.co.za www.corporate-governance.co.za Leadership Seminar Brief introduction: Governance, Risk & Compliance from a business perspective presented to 07 October 2010 Leriba Lodge

2. P r e a m b l e • The role of ethics in public life is changing in all 4 sectors of democratic society • public sector • private sector • non governmental sector • large social institutions & government “Good governance is essentially about effective leadership. Leaders need to rise to these challenges if there is to be any chance of effective responses. Leaders need to define strategy, provide direction and establish the ethics and values that will influence and guide practices and behaviour with regard to sustainability performance”. King III

3. What is corporate governance? • Corporate governance can be described as: • “the system by which companies are directed & controlled” • Good corporate governance is about: • 'intellectual honesty’ – effective leadership • not just sticking to rules & regulations Judge Mervyn King

4. . . . shareholder expectations vs. management . . .

5. . . . some believe it’s about relinquishing control . . .

6. International agencies are advocating more effective corporate governance (OECD, World Bank, IMF, EU, CACG) • Shifting dimensions Shareholder focus Stakeholder focus Private sector focus Public sector focus “One size fits all” “One value set fits all” Source: Bob Garret (OECD) Organisation for Economic Co-operation & Development (CACG) Commonwealth Association of Corporate Governance

7. . . . it should not be a case of over regulation & over prescription . . .

8. . . . but balancing the related concepts . . . Good corporate citizenship (ethical company) Shareholder protection (Before) serving their interests Stakeholder protection (After) Sustainability (longevity) Triple bottom line (performance & reporting)

9. . . . some differences at a glance Source: Mervyn King

10. . . . it’s not about curbing entrepreneurship, but rather curbing rogue directors & management . . .

11. The sobering thought of running a company - from a fiduciary officer’s perspective Directors: Standards of conduct • As a director or as a sub-committee member when gathering information or preparing to act as such, you have: • FIRST FIDUCIARY RESPONSIBILITY • Duty to exercise the degree of care, skill & diligence: • exercised by a reasonably diligent individual • reasonably be expected of an individual • the knowledge, skill & supervision of that director • objectivity must prevail & consider all the facts at hand • decisions must be rational

12. The sobering thought of running a company - from a fiduciary officer’s perspective Directors: Standards of conduct • As a director or as a sub-committee member when gathering information or preparing to act as such, you have: • SECOND FIDUCIARY RESPONSIBILITY • Duty to “act honestly & in good faith & in a manner the director reasonably believes to be in the best interests of & for the benefit of the company”

13. Similar to the US, our laws are moving company officers toward more litigious liability in our personal capacities • Personal liability • Increasingly, company officers will find it more & more difficult to hide behind their companies when they do something wrong • Personal liability • Name: Bernard Madoff • DOB: April 29, 1938 (age 71) • Previous occupation: Former stock broker, financial adviser & chairman of NASDAQ • Charges: Securities fraud, investment advisor fraud, mail fraud, wire fraud, money laundering, false statements, perjury, false filings with the SEC, theft from employee benefit plan • Penalty: 150 years imprisonment & forfeiture of $170 billion • Scheduled date of release: 11-14-2139 (age 201) Federal inmate # 61727-054

14. Understanding the “G” with GRC . . . 1. “At its most basic level, corporate governance is the interaction of a company’s management, its board directors, and its shareholders to direct and control the firm, and to ensure that all financial stakeholders (shareholders and creditors) receive their fair share of the company’s earnings and assets.” Extract: Governance and Risk: George Dallas (Standard & Poor’s) 2. “Governance is the result of those processes implemented by the organisation which contributes towards providing assurance to stakeholders that organisational capabilities & resources (time, effort, assets & money) are applied in such a manner that objectives are achieved effectively & efficiently in an agreed ethical environment, with careful consideration of the social, economical & environmental implications.” Dr CL Pieterse 2006

15. Understanding the “R” with GRC . . . • 1. “Risk management . . . • is a continuous process, which should be linked to shareholder value and embedded in the organisation. Assurance should be provided as to the effectiveness of its operation and the validity of the findings of risk management reporting . . . • should be reviewed and updated regularly . . . • covers all risks - operational, physical, human resources, technology, business continuity, credit, etcetera . . .” • Extract: The Company Director’s Handbook • 2. “As business is the undertaking of risk for reward, the identification of risk in a business is essential. Risks take various forms; namely, strategic, operational, financial, non-financial and compliance.” • Extract: The Corporate Citizen

16. Understanding the “C” with GRC . . . • 1. Compliance means complying with laws and regulations, policy, practice codes, standards & business contractsrelevant to the business . . . • Extract: The Corporate Citizen (Adapted) • 2. Compliance generally implies the organization's adherence to: • internal rules(e.g. restrictions, guidelines, standards & policies) • external regulations(e.g. King II, ECT Act, SOX) • 3. The board must have adequate reports (quantitative / qualitative) that informs the company’s compliance with regard to all laws and regulations relevant to the business of the company • 4. The Audit Committee provides assurance in terms of inter alia; the company’s financial reporting as well as compliance with the current regulatory environment; legal & statutory

17. Combining the GRC to make business sense (value creation) C complying with laws & regulations, policy, practice codes, standards & contracts adequate reports relevant to the business of the company provides assurance compliance with the current regulatory environment; legal & statutory G interaction of a company’s management direct and control the firm all financial stakeholders receive their fair share of the company’s earnings and assets result ofthose processes implemented contributestowards providing assurance objectives are achieved effectively & efficiently in an agreed ethical environment careful consideration of the social, economical & environmental implications R a continuous process linked to shareholder value embedded in the organisation assurance should be provided effectiveness of its operation validity reviewed & updated regularly all risks - operational, physical, human resources, technology, business continuity, credit, etcetera identification of risk in a business is essential, namely strategic, operational, financial, non-financial & compliance + + Conformance = compliance with conventions, rules, or laws

18. Key SADC downgrades - 2009 • Zimbabwe (8 icons) • Congo DRC (7 icons)

19. Before you take the plunge, ensure that all the belts & braces are in the correct place . . .

20. Thank you Terry Booysen CGF Research Institute (Pty) Ltd + 27 82 373 2249 + 27 11 476 8264 / 1 0 tbooysen@cgf.co.za www.cgf.co.za www.corporate-governance.co.za