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The Origins of governance

Lecture at the Graduate School of Business – UCT Governance – a practical perspective 4 November 2010 Maria Ramos. The Origins of governance. The ability of an organisation to regulate itself and manage its risks for the benefit of its various stakeholders.

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The Origins of governance

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  1. Lecture at the Graduate School of Business – UCT Governance – a practical perspective4 November 2010 Maria Ramos

  2. The Origins of governance The ability of an organisation to regulate itself and manage its risks for the benefit of its various stakeholders. The word “governance “derives from the Greek verb κυβερνάω [kubernáo] which means to steer . The World Bank defines governance as “the exercise of political authority and the use of institutional resources to manage society's problems and affairs.” Corporate Governance is the system by which companies are directed and controlled…” Cadbury Report (UK), 1992 “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders ..also the structure through which objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.” Preamble to the OECD Principles of Corporate Governance, 2004

  3. A modern philosophy of corporate governance Mechanism for the application of common sense, honesty and integrity. • A modern philosophy of corporate governance • Self - regulation • Risk management • Adequate controls • Input from others • Escalation of issues • Reporting of outcomes • Substance over form

  4. A modern philosophy of corporate governance cont … • The philosophy is elegantly captured in King III • Leadership • Sustainability • Corporate citizenship • It is however the build-up to reporting that is the more important aspect to governance

  5. The Prevailing Regulatory Environment The golden thread : Long-term sustainability of the global financial and economic system • Regulatory environment – industry specific (Banks Act, Pension Fund Act, Occupational Health and Safety legislation, etc) • Multi-jurisdictional legislation • Local legislation (Companies Act, Consumer Protection) • King III

  6. King III – a focus on integrated reporting Ethical Leadership and Corporate Citizenship • Good corporate governance is essentially about effective leadership • Responsible leaders build sustainable business • Responsible leaders reflect the role of business in society • Responsible leaders do business ethically IT governance • Ensure IT is on the agenda • Have a IT Charter and IT policies • IT internal control framework • Independent assurance on effectiveness of IT controls • Align IT to performance and sustainability objectives • Stakeholders • Appreciate that stakeholder perceptions effect reputation/ need to manage this risk • Identify important stakeholders • Delegate responsibility to management to deal with stakeholder relationships • Mechanisms and processes for constructive engagement of stake holders • Integrated reporting • Business Sustainability more broadly defined • How what we do today will keep us in business • No more ivory tower – integrated and organic • Business / society / planet • Engrained in our DNA Business / society / planet What is good for one is good for the others

  7. From Theory to Practice Quality of leadership and values • The basic building blocks • Most large organisations have the features of governance • Board Charter, Sub-Committee terms of reference, Organograms,Frameworks, and Handbooks • Leadership will impact how these features become living and breathing documents and processes • High dependence on the quality of leadership and their ability to align their values with those of the organisation • Translation into methodologies, processes, behaviour and accountability.

  8. A “licence” to do business • The nature of a bank • Maintaining public trust • Taking of deposits • Safeguarding assets : custodial • Physical and electronic transfer of monies • Underpins the social fabric of our communities • Provider of employment and supporter of communities • Various stakeholders (customer, people, shareholder, community, government and regulators) Disciplined execution is the enabler: 24 : 7 : 365

  9. Setting objectives and monitoring them Governance : across the length and breadth of the organisation • Setting standards vs. monitoring them • Practical and logistical implications • Defined governance structures to support the board mandate. • Exco, • Exco sub-committees, and • other Risk governance and control committees, for every large business; and for the Group as a whole

  10. The Role of Governance and Control Committees It is the notion of independent non-executives ; applied to executives • Move from back–office function to an end-to-end practice with executive oversight • Introduction of the principle of independent members • understand the business being discussed • actively participate • challenge the status quo • identify key risks before they materialise

  11. Traction Governance = Self Regulation + Risk Management for all stakeholders Governance is gaining traction Global economy Globalisation Regulatory reforms Consistency and predictability across regions

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