Corporate Governance Training & Capacity Building

1. Presentation by Bernard Mhango, Group Corporate Secretary, DBSA Third Annual DFI Corporate Governance Conference 21 October 2008 Corporate Governance Training & Capacity Building

2. Index • Context • Capacity Building Challenges of DFIs in SADC • DBSA Strategies & Approaches • Some Lessons • Discussion

3. DBSA Corporate Governance Evolution (Pre-1994) • Operated in a protected environment/international sanctions due to apartheid regime (closed economy) • Breadth and scope of mandate • Government subsidies and legal protection/immunity • Exemption from tax • No credit rating requirement • Captive market/customers

4. Corporate Governance Evolution (Post -1994) • Democratic dispensation after 1993 • Termination of Government subsidies as part of SOE policy reform • Demands of financial sustainability vs increased development impact • Had to raise funding on capital markets and consequently subscribed to first credit rating agencies – 1994 • King I Report on CG standards issued – Nov 1994 • Government review of South African DFS as part of public sector reform 1996 • Mandate/region refocused: infrastructure funding/ SADC -1996 (DBSA reconstituted) • Increased competition from commercial banks

5. Office of the President Governance Board Committee Structure Credit, Finance, Audit, Risk, ALCO, Human Capital, Knowledge Management DBSA Leadership Group (Exco, MG-Net, MRM) MONITORING/MANAGING DEVELOPMENT RISKS • STRATEGIC PROJECTS • (Catalyst behaviour) • Sustainable • Communities • Soccer 2010 Support • Local Investment • Agency • LED Fund • Institutional & human • capacity failure/weakness • (key focus areas) Market failure/weakness (key focus areas) Core operations SA OPS International Ops CDD R&I Vulindlela Agencies Dev. Fund Research Information Advisory Finance Treasury Risk Human Capital Info. Tech. Facilities Admin. Strategy, Communication & Marketing Enablers Enabling processes and systems

6. Strategic Thrusts on Capacity Building • Support human and institutional capacity building in municipalities and entities in South Africa and the rest of Southern Africa region • To leverage external stakeholder relationships and forge smart and strategic partnerships • Harness internal synergies to main stream corporate governance into core operations of the DBSA. Use CG as part of investment decision criteria • Strengthen the capacity of investee entities and RECs with an appropriate combination of finance and Knowledge Products (TA, Capacity Building, Project Preparation assistance to prepare for bankability)

7. Some Challenges of DFIs • Business strategy & planning capacity • Ownership entity influence in operations and lending decisions • Professionalism and independence of boards • No formal board performance evaluations • Limited financial product offering/ diversified portfolios • Performance management systems (clarity on targets, measurement and reporting) • Upgrading of core processes and systems • Financial controls

8. DBSA Approaches & Strategies • Strategy advocates for five roles: financier, partner, advisor, implementor, and integrator of infrastructure projects • Internal Training • Externally Focused training • Technical Assistance Window • Strategic partnerships and collaborative interventions

9. Internal Training • Must start at the top (Board) • For affected staff personal development plans to include CG training as part of performance management system • Relevance and tailoring of training: Local content and case studies • Mainstreaming CG training into operations • Mandatory appraisal guidelines include CG considerations • Challenge: measurement of quality and impact of training

10. External Training Interventions • Established training institute (Vulindlela Academy: offers accredited CG courses for public sector clients and public officials) • Have developed a programme on ethics and whistle blowing for public officials • Nominee directors: agreement with the Institute of Directors of SA to provide director development training • Policy and guidelines developed for nominee directors (compulsory annual training) • Conflict of interest for employee nominee directors vs contracting out

11. Technical Assistance • Project/investment linked Technical Assistance (can be recovered as part of loan terms and conditions) • Following appraisal of investment proposals CG weaknesses identified as part of institutional assessment • Aimed as a mitigation of credit risk and in the long run to enhance client profile and bankability of project • A corporate governance development plan negotiated with client and periodically monitored and reported on • Non-project linked TA, knowledge products aimed at enhancing institutional capacity, e.g. secondments, internships, staff exchange programs

12. Collaboration & Partnerships • SADC Development Finance Resource Centre (DFRC) • May 2008: First SOE Network on Corporate Governance for Southern Africa (with OECD). Next meeting in February 2009 • Development of local case studies (OECD) • Coordinating with OECD iro dissemination of Transparency Guidelines for SOEs • Institute of Directors : coordination on research and training • World Bank: case study

13. Some Lessons • Capacity building interventions must be considered within overall business strategy of recipient (should not be add-ons) • Quality of capacity building plans determines the organisation’s ability to benefit • Need for intervention at appropriate level for optimal impact (government policy formulation, board, management, staff) • Strong learning culture, but lack of local qualified or accredited corporate governance service providers

14. Some Lessons (cont’d) • Most of CG training is targeted at private sector institutions • Investment in customized CG training vs short term gains of generic training programmes • Dedicated institutional capacity to measure, monitor, impact of training and CG interventions • Training seen as additional burden on frontline business due to pressure of targets. Linking training to PM system/ mandatory? • External training: demonstrable commitment from recipient’s management as a pre-requisite