TOPIC 1 Some Notes On Corporate Governance

Topics: Corporate governance, Board of directors, Non-executive director Pages: 11 (1133 words) Published: May 3, 2015
Lecturer responsible for AUE2602:
Topic 1: Corporate Governance
Ms Nicolene Coetzee
Contact details:
AUE2602@unisa.ac.za

CORPORATE GOVERNANCE
What does CORPORATE GOVERNANCE mean:
It is the system or process whereby companies are directed or controlled.

It follows then that:
Healthy, honest, open, competent and responsibly controlled
companies will improve the quality of modern society.

CORPORATE GOVERNANCE
Key aspects of King III:
Effective leadership
* Ethical values of responsibility
* Fairness

* Accountability
* Transparency

Sustainability
* Inclusivity of stakeholders
* Innovation, fairness and collaboration
* Social transformation

Corporate citizenship
* Consider not only financial performance
* Consider impact of operations on society and environment
* Protect, Enhance and Invest in well-being of society, environment and economy

APPLY OR EXPLAIN
WHY?
• Cost/benefit ratio
• One size does not fit all
• Attention to performance
• Therefore: Apply King III Principles and if not,
Explain why not.

BOARD OF DIRECTORS
• Chairman
Independent non-executive director (principle 2.16).
CEO of the company not chairman of the board (principle 2.16). Must be a formalised appointment
Performance to be assessed annually

• Membership
The board should comprise a balance of power
with a majority of non- executive directors.
Majority of non-executive directors should be independent (principle 2.18).

• Members
Minimum of two executive directors - CEO and CFO (principle 2.18). ⅓ to be rotated annually

• Meetings
Meet at least four times a year (principle 2.1.2).

EXAMPLE - BOARD COMPOSITION
• XYZ Ltd’s board of directors consists of 8 directors
How should the board be structured in order to comply with the requirements of King III?

BOARD OF DIRECTORS

Example - Board Composition (Continued)

Executive

Non-executive

Example - Board Composition (Continued)

Executive

Minimum: CEO and Finance

Non-executive

Example - Board Composition (Continued)

I am independent!!!!

Executive

Non-executive

Example - Board Composition (Continued)
Chairman

Executive

Non-executive

INDEPENDENT NON-EXECUTIVE DIRECTOR
• Is not a representative of a shareholder who has the ability to control or significantly influence management.
• Does not have a direct or indirect interest in the company which is material to the director or the company. (A holding of 5% or more is considered material) • Has not been employed by the company in any executive capacity for the preceding three financial years.

• Is not a member of the immediate family of an individual who is, or has been during the previous three financial years, employed by the company in an executive capacity.
• Is not a professional advisor to the company
• Is free from any business or other relationship which could be seen to interfere materially with the individual’s capacity to act independently. • Does not receive remuneration contingent upon the performance of the company.

King III Quiz 1
• Would the following individuals qualify as independent non-executive directors in terms of the King III Report? Justify your answer.
– a partner in the law firm that acts as legal advisors to the company; – the company’s auditor;
– the company’s recently retired chief executive; and
– a shareholder who holds 3% of the company’s shares.

BOARD – ROLES AND FUNCTIONS









Focal point for custodianship of corporate governance
Effective leadership based on ethical foundation
Ensure company is and seen to be responsible corporate citizen Company’s ethics are managed effectively
Company has effective and independent audit committee
Governance of risk
Governance of information technology
Act in the best interest of the company

BOARD COMMITTEES
Chairman

Audit committee

Remuneration committee

Independent non-executive
director (principle 3.3).

Independent...
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