Corporate governance in owner-managed business

The recent corporate scandals that have rocked South Africa, and in particular the role that auditors have played in not preventing these scandals, is a cause for concern for all business in South Africa.
The KPMG involvement in both the Gupta businesses and the SARS “rogue unit” report, the “capture” of audit firm Nkonki and Deloittes’ role in preventing (or not preventing) the Steinhoff fraud must surely have left the public questioning the relevance and future of the audit profession. As a Chartered Accountant myself, I know that our profession needs to take a good long look at itself. It is perhaps useful to point out to the general public the difference between a Chartered Accountant (CA) and a Registered Auditor (RA). Not all CAs are RAs, but every RA needs to attain the CA qualification before he/she is permitted to be registered as an auditor.

Both the South African Institute of Chartered Accountants (SAICA) and the Independent Regulatory Board for Auditors (IRBA), the body that regulates auditors and their conduct, are currently carrying out extensive reviews into the conduct of those members in these scandals. I have no doubt that the great majority of members of both bodies are ethical, upright businessmen and women. One needs only look at the number of CAs occupying roles on the boards of our listed companies to see the huge role and value they add to South African business. It is a small minority of individuals that, driven mainly by greed and ego, have damaged the profession. As a member of a number of professional groupings and network, I have seen how angered our members are at the way a limited few have damaged the reputation of one of the proudest business brands in South Africa – that of the CA(SA). SAICA and IRBA need to act swiftly, transparently and decisively to demonstrate that they have the ability and the will to weed out the few rotten apples.

Having said all of the above, the responsibility for ethical business does not lie with the regulators and the external accountants and auditors alone. They are not the perpetrators of corporate fraud and accounting scandals. It is the management within the organisations that initially conceives of and commits these actions and thereafter seeks to deceive the auditor. As sad as it is to see the Sunninghill branch of Nkonki (one of our few prominent black-owned audit firms) going into voluntary liquidation, one has to question the internal processes within the Auditor General (AG) for allowing this one branch to become so dependent on one source of revenue. The point I am trying to make is that the entire business community, and in particular the business owner, needs to collectively take a strong stance to help re-establish business morality in South Africa. I am in particular now focussing on the role of business owners and management within privately owned companies in our country. We need to set the example. Trying to fiddle taxes because the government is corrupt (a justification I hear more and more these days) is not setting the example. Staff are influenced by the behaviour of those in management. If they see the MD cutting corners, so too will they. This is often to the detriment of the business and its owner.

In business, money and morality never stand far apart. The temptation to give up the tension between the two and choose the former over the latter is the classical grey zone of business decision-making. It needs to be kept in check by both individuals and decision-making bodies. Granted, human beings are fallible, but ethical failures in business can be prevented. The question is how? Beloved and trusted business brands are built on practices that are lawful, ethical, responsible and sustainable. Businesses that do this well enjoy the loyalty and respect of employees, customers, suppliers, shareholders and communities. However, to maintain such love and trust from stakeholders demands hard work and constant moral vigilance.

Many private company business owners believe that corporate governance standards play out largely in the domain of listed corporate business and therefore do not have a role in their world. This is not the correct thinking. Many small and medium SA enterprises are owned and controlled by individuals and family members. Therefore good corporate governance is not necessarily about the relationship between boards and external shareholders. It is about establishing a framework of company processes and attitudes that add real value to the business, helping build its reputation and ensuring its long-term survival and success.

So how can this be achieved? Here are a few things to consider when setting up your governance structure:
  • Creating and delegating authority. When making any important decisions, it’s important to have the right person making them. By setting up and communicating clear lines of authority, an owner manager can guide employees to recognise the decisions that they can and cannot make on their own.

  • Developing clear policies and procedures. Written policies and procedures are essential for creating planned business outcomes. The best policies are clear, concise, and easy to understand, and should reflect your brand, your business goals as well as your approach to risk. Once developed, make your policies and procedures available to all staff, and review them periodically to ensure they’re up to date, especially as your business grows.

  • Managing employees and ensuring accountability. With policies and procedures in place, everyone can be more accountable and comfortable about the decisions they make. Accountability is important as it can help reward or discipline staff, as well as providing a mechanism for constructive feedback to ensure better decisions are made in the future.

  • External board members. A key step in the development of unlisted company governance is the decision to invite external directors or advisers onto the board or become part of the management team. Its effect on boardroom and director behaviour and culture should not be underestimated.
With a good governance structure, your team is enabled to take on more responsibility. As the business owner, you can then focus more on other core management activities that can help make your business grow. Good governance can also play a crucial role in gaining the respect of key stakeholders (customers, suppliers, employees, etc.) as the business’ reputation will benefit from increasing transparency and accountability.

Putting sensible structures in place will allow you to ensure that the business runs smoothly with minimal confusion about responsibilities. If you’re looking to grow your business, establishing systems and processes will ensure that your growth occurs smoothly and that important decisions are made quickly. This, plus clear high-ground moral leadership from the MD, will assist in making sure that private companies play their part in restoring business morality in South Africa.

29 May 2018 13:23


About Glen Bresler

Director at Meredith Harington

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