Parliamentary Committee Institute of Directors in Southern Africa
Jan 05, 2016
Parliamentary Committee
Institute of Directors in
Southern Africa
Corporate Governance
Why
Corporate
Governance
is
vital to
South Africa
Corporate Governance
• Alleviate key problems of housing, health, education and unemployment
Need growth rate of 6% per annum
Foreign Direct Investment
• FDI - Pivotal to SA Growth Targets
• “Every Government in Africa that betrays the principles of Good Governance betrays Africa”
- Tony Blair – G8 – July 2005
Foreign Direct Investment
• FDI – 2004
• Global US$ 65O Billion
• Africa US$ 18 Billion – 3%
• South Africa US$ <1 Billion - 0.1%
(Under 1 Billion for last 8 yrs)
Foreign Direct Investment
• 7 million - homeless• 5.6 million - HIV/AIDS• 12 million - school pupils• 580 000 - University / Technikon• 14 million - economically active• 30% - of population unemployed• 45 million - total population
Head Start
• Powerhouse of Africa
GDP GDP – Africa - US$ 700 (420) billion– South AfricaSouth Africa - US$ 234 (113) billion– Nigeria - US$ 50 (62) billion– Zimbabwe - US$ 8 (9) billion– Australia - US$ 518 (368) billion
Africa - Perception
• UnstableUnstable
• CorruptCorrupt
• Crime riddenCrime ridden
• Susceptible to despotic ruleSusceptible to despotic rule
• South Africa contaminated by this South Africa contaminated by this perception of poor Governanceperception of poor Governance
• Stable economy• Sound macro economic policy• Outstanding constitution• World class infrastructure• Banking system top 10 in the world• Cellular networks ?• Sasol oil from coal• Excellent Corporate Governance
South Africa Reality
Corporate Governance
• Good governance
• Good business sense
• McKinseys & Deutsche Bank
Good Governance makes Good Business sense
• Surveys showed:– Governance at the heart of investment decisions– Put on a par with financial indicators when
evaluating an investment decision– An overwhelming majority of investors are prepared
to pay a premium for companies exercising high governance standards
– Companies with good governance produce more sustainable and better long term results than those that don’t
The premium investors would pay for a well-governed company varies by country and region
RegionCountry
22 2116 14
12 11
3022 22
14 13
MOR RSA JPN ITL USA UK CAN
EE/AFRL AM ASIA WEUR NAM
New in 2002
Decrease 2002
Increase 2002
Premium in
2002
Average premiums of those investors willing to pay premium
“If a country does not have a reputation for strong governance, capital flows elsewhere”
“If investors are not confident with the level of disclosure, money will flow elsewhere”
“If a country opts for lax accounting and reporting standards, capital will flow
elsewhere”
Arthur LevittArthur Levitt
Foreign Direct Investment
“If a country is over regulated making it difficult rather than simple for enterprise to flourish,
capital will flow elsewhere”
“If a country’s rates of tax are too high, capital will flow elsewhere”
“If crime and corruption are at unacceptable levels, capital will flow elsewhere”
Tony DixonTony Dixon
Foreign Direct Investment
Solutions
• Proudly South African
• King II – This is how we do business
• Zero tolerance – non compliance
• Let entrepreneurs do what they do best
Last Six Months Successes• G8 - US$ -50 Billion• Gauteng Rail - 148 000 jobs• Barclays Bank – R30 Billion - FDI• Bond Investments – Jan to June R12.5 Billion• Junk Bonds – Cell C – Foodcorp - R 6.5 Billion• JSE Index over 16 000 Ist time ever (12 657 Jan
2005) -23% growth in 8 months – FTSE 9%• Soccer World Cup• Mini Budget – Oct 2005 – extra R78 Billion
Infrastructure
Other Issues That Need Addressing
• Non Exec Directors Vital to Economy– In National Interest
– Legislation chasing them away (Companies Act amendment bill)
– Becoming selective – avoiding risk – Co’s that need their support are unable to obtain it
– Eg PFMA/ MFMA - Gauteng Municipality
– Limitation of Liability to multiple of fees earned
Other Issues That Need Addressing
• More Competent Directors– Don’t let unlicensed drivers drive on roads – yet people driving
our economy not properly trained.– IoD’s main aim and objective to raise the bar of director
performance – skills , expertise, knowledge and professionalism.– In UK and other countries every time new director registers with
CIPRO equivalent is recommended that join a body such as the IoD or equivalent where they can receive suitable training.
– Every newly appointed director should attend at least an induction programme eg AltX.
– UK Chartered Director – Iod South Africa wants to do something similar
Institute of Directors in
Southern Africa