12 November DIRECTORS’ SENTIMENT INDEX™ REPORT: 5TH EDITION – CGF’S OBSERVATIONS FROM A GOVERNANCE PERSPECTIVE (2020-11-12) November 12, 2020 Corporate Governance Framework®, General, Governance Framework governance, Corporate Governance Framework®, governance framework, iodsa, Institute of Directors in South Africa, IOD’s Directors’ Sentiments Index By Glen Talbot (CA)SA and Terrance Booysen and peer reviewed by Jené Palmer CA(SA) A review of the Institute of Directors in South Africa (‘IoDSA’)’s recently released report for 2020 raises some interesting observations from a governance perspective. It should be noted that the study was concluded prior to the nation-wide lockdown and national state of disaster due to the Corona virus (‘Covid-19’) pandemic. It is likely that the sentiments expressed by respondents may have been significantly more pessimistic had the study been concluded in the second half of 2020. The findings of the report illustrate the views of 454 South African directors and track the changes in business sentiment over the past 5 years across various categories, comprising Economic, Business, Governance and Directorship factors. The Governance category, although ranked highest of the 4 categories, shows a steady downward trend from a score of 3.6 in 2014 to 3.3 in 2020, out of a possible maximum score of 5. Responses to the question in the Governance sector: “What do you consider to be the three main governance challenges currently facing your business?” included a variety of responses by some of the respondents which is provided in the table below. As a recognised thought leader and governance solutions provider in South Africa, CGF has reviewed these questions and their related responses from the perspective of having implemented a Corporate Governance Framework® for various organisations. QUESTION: “What do you consider to be the three main governance challenges currently facing your business?” RESPONSE CGF’s RESPONSE None. My business is not challenged by any governance factors It is interesting to note that 34% of respondents indicated that their business is not challenged by any governance factors. Based on CGF’s interactions with directors over recent years, a response of this nature may be a case of “you don’t know what you don’t know”. When organisations have been asked by CGF what their organisation’s governance framework entails, many would offer their organogram, board charter, delegation of authority or company secretary’s job description as a response. From these responses it is clear that these organisations do not have a thorough understanding of the GRC status for every area of their business. As such, the Board of Directors (and therefore the organisation) will be unnecessarily exposed to unforeseen and unanticipated risks. A well implemented Corporate Governance Framework® can assist the Board in ensuring that the organisation has identified and is mitigating important “governance factors” well beyond the afore-mentioned documents. Lack of sustainable thinking Visionary leaders appreciate the importance of the Corporate Governance Framework® in nurturing organisational sustainability by driving values-based decision-making to “play the long game”. The framework helps to break down siloed thinking and promotes decision-making which is aligned to the organisation’s corporate vision. It is important to ensure that the organisation’s Corporate Governance Framework® addresses sustainability issues and highlights the effective and efficient deployment of all resources, as contemplated under the 6 capitals model, on a balanced and coordinated basis. In this way, integrated thinking is promoted such that the longer term impact of the organisation’s actions can be carefully considered and monitored. Too cumbersome and time consuming Too many organisations (and indeed directors) view governance as just an additional layer of bureaucracy, not truly appreciating that governance speaks to the way in which an organisation is directed and controlled. The Corporate Governance Framework® is a useful management tool which supports strategic value by strengthening performance and optimising the governance of the organisation’s people and processes. The objective is to improve efficiencies and productivity in the long term interests of the legitimate stakeholders. Lack of understanding (King IV™) The Corporate Governance Framework® should be aligned to the legislation, rules, policies and codes of best practice applicable and relevant to the organisation. As such, it provides a meaningful and practical understanding of how and where the organisation either meets or falls short of the applicable local and/or international GRC prescripts, including the requirements of King IV™ as may be necessary. Unethical behaviour (bribery and corruption) The implementation of a Corporate Governance Framework® strengthens the organisation’s combined assurance approach in that it introduces thirty-two lines of defence supported (or not) by organisational evidence. The segregation of duties in performing governance assessments in the framework while recognising the inter-connectivity between different areas of the business further underpins the usefulness of this tool in driving transparent and ethical behaviour. Moreover, ethics as an organisational discipline lies at the heart of the Corporate Governance Framework®. As such, the framework assists business leaders (management and the board) in assessing whether a rules-based mentality permeates the organisation or whether a culture of accountability and “speaking up” is being inculcated within the organisation. Lack of understanding the overall benefits Based on interactions with directors over the years, CGF can attest to this response highlighted by the survey. Against the backdrop of a complex and evolving business environment, the implementation of a Corporate Governance Framework® enables boards to become more purposeful and agile in their decision-making while better appreciating the risks facing the organisation. Moreover, a real-time GRC dashboard provided by a Corporate Governance Framework® promotes a common understanding of the organisation’s GRC maturity and assists in prioritising areas for improvement. Too costly or the perception of being too costly This response begs the question: can the organisation afford the cost of failed governance? The evidence and dire outcomes of failed governance processes are very evident in the South African public and private sectors. The cost of such failed governance is yet to be determined. CGF would argue that the benefits of implementing and maintaining a Corporate Governance Framework® far outweigh the costs. The implementation of a Corporate Governance Framework® drives organisational resilience by supporting evidence-based decision-making to drive accelerated strategy implementation. The business intelligence gained from performing the governance assessments required by the framework leads to a more engaged workforce, integrated thinking, increased productivity and quicker execution. The return on investment is evident. The above highlighted outcomes of the IOD’s Directors’ Sentiments Index, underline CGF’s concerns about the general lack of understanding of governance and the critical role it plays in ensuring that an organisation is able to sustainably and responsibly deliver on its strategic mandate. The board’s ability to direct and control an organisation can be simplified by implementing a Corporate Governance Framework®. In this way, the board will truly understand that good governance is a business enabler, rather than a business inhibitor. ENDS Words: 1,086 For further information contact: Glen Talbot (CGF Lead Independent Consultant) - Cell: +27 (0)82 545 4425 / E-mail: [email protected] Terrance Booysen (CGF: Chief Executive Officer) - Cell: +27 (0)82 373 2249 / E-mail: [email protected] Jené Palmer (Lead Independent Consultant) - Cell: +27 (0) 82 903 6757 / E-mail: [email protected] CGF Research Institute (Pty) Ltd - Tel: +27 (0)11 476 8264 / Web: www.cgfresearch.co.za Follow CGF on Twitter: @CGFResearch Click below to read more... Attached Files 20201112-Directors Sentiment Index(TM) Report-5th Edition-CGF-s observations.pdf 354.85 KB Related Articles TANGIBLE BENEFITS OF A CORPORATE GOVERNANCE FRAMEWORK® Article by Jene’ Palmer Forward-thinking organisations have realised that corporate governance does not merely fall into the portfolio of the Company Secretary. Indeed, the draft King IV Report on Corporate Governance for South Africa 2016 (‘King IV’), describes corporate governance as “the exercise of ethical and effective leadership by the governing body” of an organisation. Why then is corporate governance still viewed by many organisations as a process which increases bureaucracy and drives a ‘tick box’ exercise? Perhaps the explanation lies in not understanding and appreciating the value which can be unlocked by implementing a purpose-built Corporate Governance Framework® which is tailored to the organisation. Empirical research supports the fact that good corporate governance translates into tangible and sustainable benefits for the organisation. Some of these benefits are set out below. THE COMPANY SECRETARY: FROM COMPANY ADMINISTRATOR TO GOVERNANCE LEADER (2018-06-19) The role of a company secretary is broad and onerous to say the least and, if this post is not occupied by a competent person who has the appropriate knowledge and skills; the consequences can be the cause of significant organisational friction. The requirements and reporting lines of the position -- by their very nature -- give rise to potential conflict situations, and it is for this reason in particular, that the person appointed to the position must have the necessary maturity, experience and independence to properly carry out their duties and responsibilities, while being objective, impartial and independent. MEASURING THE ORGANISATION’S GOVERNANCE EFFORTS (2022-04-21) For many years corporate governance has been a sensitive topic for many boardrooms. In reality, despite the writing of the various codes of corporate governance, the business and state environments remain littered with examples of failed governance. Given that the South African business landscape still finds itself in deep trouble, one may argue that the introduction of the latest King IV™ Report on Corporate Governance for South Africa 2016 and its outcomes-based reporting has still not had the desired impact in driving governance change. SOUTH AFRICA’S PATH TO DIGITAL GOVERNANCE: A GOVERNANCE FRAMEWORK FOR CHANGE IN THE GLOBAL SOUTH (2025-01-27) Confronting the challenges at home South Africa finds itself at a critical crossroads, grappling with deep-rooted governance challenges, corruption, and a lack of accountability in its state entities. Notwithstanding these frustrating challenges there is an opportunity for President Ramaphosa to leverage South Africa’s G20 presidency to demonstrate how governance reform -- driven by digital tools -- can create a more inclusive, accountable, and efficient system of directing and controlling organisations - especially within state managed entities. DIGITISING GOVERNANCE: HOW PROFESSIONAL BODIES, TECHNOLOGY AND LEADERSHIP CAN DRIVE SOUTH AFRICA’S RECOVERY (2025-02-04) In the face of escalating governance challenges in South Africa’s State-Owned Enterprises (SOEs) which include Eskom, Denel, Transnet, PRASA and SABC to mention a few, there has never been a greater need for urgent reform, and it’s critical that we begin to take appropriate action. Time and again, we hear leaders admit, “We know we have a governance problem, but we do not know how to fix it, or where to start.” A DIGITISED GOVERNANCE FRAMEWORK SUPPORTS A DECENTRALISED AUTONOMOUS ORGANISATION (DAO) (2024-04-10) Traditional governance reporting With the age of digitalisation firmly entrenched -- and a global economy on the cusp of the Fifth Industrial Revolution -- forward-thinking organisations worldwide have embraced the notion of equipping their workforce for greater meaning and purpose. Considering how organisations have the technological means to streamline their business processes, which often has negative implications upon mundane and/or highly repetitive job functions, these organisations understand the importance of a more ‘human-centered’ approach to conducting their business which is fundamental to their future and sustainability. Given the focus on human empowerment -- being one of the 6-capitals cited by the King Report IV™ for Corporate Governance -- the importance of collective governance assessments made by a much broader stakeholder group of the organisation could not be more important. Comments are closed.