Lately, there have been various
discussions about the values of the African philosophy in many aspects as it
relates to issues of human relationships, business ethics and corporate
governance. As a governing philosophy, the African is inclusive in nature as it
considers all members of the community (organisation) as one entity aiming at
achieving one purpose. There have been assertions that the ultimate success of
any organisation operating in an African environment is premised on this African framework. This study aimed at
establishing corporate governance approach as practiced by organisations within
an African context. When governments are not democracies and are not accountable to their citizens, nongovernmental organizations (NGOs), and international, multilateral organizations and institutions represent possible
sources of change because they function outside of the recipient state’s bureaucracy. To the extent
that corruption exists in these countries, both the government
and the private sector contribute to it. Thus, although states may be un- able,
or unwilling, to force corporations to change, NGOs
have been successful in pressuring corporations to adopt codes of con- duct and various other standards of responsibility.
Corporate governance in South
Africa was not stimulated by any significant crisis in the corporate sector as
in the case of a few other countries, but by concerns of competitiveness
following the re-admission of South Africa to the global economy following its
transition to a fully-fledged democracy with the collapse of apartheid.
Corporate governance has been well developed since the establishment of the
King Committee on Corporate Governance (“King Committee”) in 1992, at the
instigation of the Institute of Directors of Southern Africa (“IoD”) and the
release of the first King Report in November 1994. Apart from the requirement
that organisations should run their operations in the most economical,
efficient and effective manner possible to increase performance, today, there
is an increasing insistence on the need for organisations to be ethical as
well. Within the business framework, there is a clear relationship between
corporate activities and other stakeholders within and outside the organisation
(Khomba, 2011).
In general, much of the scholarly commentary on comparative corporate governance
has focused on issues
of convergence, on whether corporate governance systems in different countries are becoming more similar to one another.The
basic point of comparison is the Anglo-American system,
and the basic thesis is often that this system provides a model to which other countries are slowly assimilating. Because this scholarship focuses primarily on Europe and Asia,9
it does not adequately capture the dilemmas
of developing countries in sub-Saharan Africa
and other parts of the world.
The first King Report drew
attention to the importance of a properly functioning board of directors as a
key ingredient of good corporate governance. While it advocated many of the
standards and principles common to several Commonwealth countries, following
the release of the Cadbury Report in the United Kingdom in 1992, it was perhaps
distinguished by its integrated approach to good governance in the interests of
a wide range of stakeholders with regard to good financial, social, ethical and
environmental practice. The word African
is derived from a Nguni (isiZulu) aphorism: Umuntu Ngumuntu Ngabantu, which can
be translated as “a person is a person because of or through others” (Moloketi,
2009; Tutu, 2004). African can be
described as the capacity in an African culture to express compassion,
reciprocity, dignity, humanity and mutuality in the interests of building and
maintaining communities with justice and mutual caring (Khoza, 2006; Luhabe,
2002; Mandela, 2006; Tutu, 1999).The World
Bank provides two different kinds of support concerning the commercial environments
in member countries.First,
it exerts pressure on governments to promote an environment conducive to business.Second, it provides
direct support to companies seeking to do business in developing countries. South
Africa’s GDP is by far the largest on the African continent, at US$160 billion,
but is a fraction of the global GDP of approximately US$36 000 billion – making
South Africa the 29th largest global economy in GDP terms.
Subsequent to 1994, South
Africa’s financial system has emerged as a sophisticated and well developed
sector of the economy, with similarities to major financial centres of the
developed world. In terms of size to GDP, private sector lending and the equity
market ranks as one of the deepest in the world. The increasing importance of
financial services to the economy and the role it plays in the asset allocation
process, has increased pressures for market reforms to improve transparency and
efficiency.
An inclusive corporate governance
regime under the African African philosophy signifies that an organisation has
an explicit commitment to serve the interests of both shareholders and
non-shareholding stakeholders. Such an organisational commitment to a
stakeholder-centred approach towards corporate governance is partly influenced
by African socio-cultural values. The African African philosophy emphasises the importance
of community, solidarity, coexistence, and the inclusion of community members
(Broodryk, 2005; Mangaliso, 2001; Mbigi and Maree, 2005).
The first King Report offered to
companies, and State-owned enterprises, a coherent and disciplined governance
framework relevant to local circumstances and practical in its guidance. The
King Committee has no official mandate, unlike nearly all other similar
initiatives globally, and thus its recommendations are self-regulatory in
nature. It no doubt has made an important contribution to the significant
progress by South Africa in its corporate governance reform since the political
transition in the mid-1990’s. The breadth and sophistication of these reform
measures must surely place South Africa in the top ranks of emerging market
economies, and in some cases even alongside some of the more developed markets.
Although corruption in law-making
is significant in preventing change in a country’s
governance structure and in maintaining
the dominance of the existing elite, bribing government officials to
obtain precious government access is the
largest area of corruption in developing
countries.Because businesses need access to obtain export permits or business licenses,
they may feel coerced into bribing the appropriate official.Additionally, in many developing countries where civil service positions are poorly (if at all) compensated jobs, government employees
may feel justified in accepting bribes for
their services. Furthermore, it has been observed that the African inclusive
governance approach could also be a result of strong support of developmental
activities on the African continent (West, 2009). Finally, such an inclusive
approach in Africa is also partly influenced by the strong presence of
state-owned enterprises that pursue both social and economic agendas. In the
inclusive nature of the African society, the recent King III Report on
governance for South Africa “seeks to emphasize the inclusive approach to
governance” (Institute of Directors in Southern Africa, 2009).
The second King Report came about
following an assessment of the developments that had taken place in the South
African economy and in the global markets since 1994. Again, it was not driven
by any major crisis in the corporate sector. However, as it so happened,
coincident with this review a number of crises came to light, in both private
and public sector companies, that provided stimulus to this second review. Furthermore,
studies reveal that in an Asian society, informal external corporate governance
through societal norms, practices and values are often more influential than
the formal external corporate governance mechanisms of laws and regulations
(Rossouw, 2009).
The preceding literature analysis
of both the African and Asian ethics reveals that society and other external
stakeholders have more influence on the internal governance of corporations
than statutes and regulations do. This picture differs from that in America and
Continental Europe. A leaning towards a stakeholder- centred approach is
discernable in both the Asian and African perspectives. Therefore, employing
the American exclusive shareholder-centred approach to corporate governance
within an African framework would be a total mismatch towards an inclusive
nature of the African society.
The IMF estimated
that less than two percent of all government spending in the Congo
during the year 2000 was expended
through normal government budgetary procedures. Instead, the Central Bank spent
money without the Treasury Department’s
knowledge or input.Thus,
corporations operate in a context
where there is little public fiscal accountability, and an environ- ment that is conducive to corruption. When paying the government, either directly or in the form
of bribes, companies may believe that they are not responsible
for ensuring that government revenues are fairly spent, or in ending the abuse of government power that results in bribes.
The Congo, which
is about the size of the United States to the east of the Mississippi
River, is a country rich
in natural re- sources. It exports diamonds, cobalt, copper,
coffee, and oil and has vast deposits of coltan, a critical component of
cell phones and other technological equipment.But the country
has a long history
of corruption.
A particular emphasis in the
second King Report was on the qualitative aspects of good corporate governance.
In other words, the second King Report was not designed as a regulatory
instrument but was really developed to identify core areas of good practice for
boards, directors and companies, which extended beyond the existing legal and
regulatory framework to embrace a number of aspirational issues. The review
reinforced guidelines acknowledging the societal obligations of companies, indirectly
emphasising the expectations of government and the wider community with respect
to the contribution of the corporate sector to the country’s transition and
development. Given the difficulties of applying the guidelines across the
entire South African economy, the guidelines contained in the second King
Report focus primarily on companies quoted on the Johannesburg securities
exchange (“JSE”), banks and financial institutions, and public sector
enterprises and agencies at the national and provincial levels. These fall
within a structured and more readily regulated environment, against which the
standards of corporate governance can be more easily identified and measured.
It is also more likely that public interest issues and investor rights and
interests would be impacted by the behaviour of these particular categories of
organisations. The King II Report is notable for explicitly adopting an
inclusive stakeholder-centred approach to corporate governance that has its
roots in the stakeholder theory, in opposition to the model of shareholder
primacy maintained in the UK and USA (West, 2009). The South African
imperatives were reinforced in the passing of the Broad-based Black Economic
Empowerment Act, No 53 of 2003 (South Africa, 2003), which established a formal
structure to reward companies meeting certain criteria, usually related to the
level of black ownership, employment and procurement practices. Another
development was the inclusion of the international financial reporting
standards (IFRS) into corporate reports. The international
financial reporting standards
have been officially adopted within the corporate governance reporting systems
in South Africa and most African countries.
The King II Report was reviewed
in response to the new company legislation, and this culminated in a new
corporate governance report, the King III Report. The key theme of the King III
Report is an even greater focus on sustainability and ethical reporting systems
that should be adopted by corporations
(Du Plessis and Prinsloo, 2010). In general, the King III Report adopts the
same overall stance as the King II Report, encouraging companies to take a
stakeholder approach while maintaining formal structures with a shareholder orientation.
The board is identified as the
focal point of the corporate governance system and is ultimately accountable
and responsible for the performance and affairs of the company. This calls for
a unitary board structure, common to countries falling broadly-speaking under
the Commonwealth system of law, requiring a balance of executive and
non-executive directors on the board with a majority of the non-executive
directors preferably independent of management.
Independence has been given a
wide definition, largely driven by the more rigorous tests used by
international investors, and was directed at the tight-knit nature of the South
African business community historically and the need for boards to consider a
wider pool of candidates. This has given particular emphasis to issues of
diversity, both in terms of gender and race, highlighted as a strategic
imperative for companies wishing to remain relevant in the South African
business environment Today, the Congo may be emerging from a long civil
war.
The death toll is over
three million, including not only soldiers,
but also civilians who died from starvation
and disease.The ille- gal exploitation of
the Congo’s natural resources, particularly gold and diamonds,in addition to coltan, cobalt, and timber, funded
the Civil War.There were virtually no barriers to money- laundering. Indeed,
the abuses of natural
resources were so egregious
that the United Nations issued a special report recommending that twentynine companies be subjected
to financial restrictions, including a freezing of
assets and a suspension
of banking abilities.
The current Congolese president, Joseph Kabila, who
took office in 2001 after his father was killed by a bodyguard, has agreed to hold elections
within the next several years.There are four vice-presidents representing the differing former combatant parties as well
as the nascent political parties, and thousands
of peace-keepers from the United Nations throughout the country.
The European Union is conducting an evaluation of
the entire judicial system to suggest reforms. In a survey conducted, The
majority of respondents report that their external corporate reporting systems
take into account the triple bottom line as recommended by the King III Report (Institute
of Directors in Southern Africa, 2009). A total of 63.1% agreed (36.7% “agree
and 26.4% “strongly agree”), while 15.7% disagree and 21.2% “somehow agree”
with the statement.
The above analysis indicates that
whilst many companies have embraced the triple bottom line reporting system,
some are not fully adhering to the triple bottom line reporting requirements,
signifying the transitional nature of triple bottom line reporting system
within corporate reporting and governance systems.Open disclosure of wealth
distribution to stakeholders
The study aimed at ascertaining
whether or not organisations are open in distributing their wealth to different
stakeholders through corporate reporting systems, as recommended by Szwajkowski
(2000). A vast majority (80.9%) of respondents agree (46.0% “Agree” and 34.9%
“Strongly agree”) that they deploy open resource allocation disclosure. Only
3.1% disagree, while 16.0% “somehow agree” with the preceding statement. This
analysis demonstrates that most organisations prefer open disclosure of
resource allocations which is in line with good corporate governance
principles. Disclosure of wealth distribution would ultimately encourage
participation by different stakeholders in the overall business activities and
corporate sustainability in the long term.
The roles of chairman and chief
executive officer are required to be separate, which has since been reinforced
by the JSE, banking and financial markets regulators, and regulations governing
public sector companies. Furthermore, the position of chairman should be held
by an independent non-executive director, and steps have been taken by
companies across a wide spectrum to address this requirement.
The length of executive director
service contracts is restricted to a maximum term of three years and should be
the subject of shareholder confirmation if longer, while extensive disclosure
of individual director (executive and non-executive) remuneration and benefits
is now enforced by a number of the regulators.
Detailed guidelines have been
provided in relation to the requirements for audit, remuneration and nomination
committees with a strong emphasis on the role of independent non-executive
directors in this process. Board committees, too, are required to undergo
regular independent evaluation.
Extensive disclosure is now
called for in terms of the requirements of the second King Report and it is
clear that directors are much more concerned about their ability to fulfil
their obligations and are more diligent towards the implications of accepting invitations
to serve as a director.
The current Congolese president, Joseph Kabila, who
took office in 2001 after his father was killed by a bodyguard, has agreed to hold elections
within the next several years.There are four vice-presidents representing the differing former combatant parties as well
as the nascent political parties,76 and thousands
of peace-keepers from the United Nations throughout the country.
Practically and on moral grounds,
all stakeholders as part of the organisational community are supposed to be
included in organisational settings and systems. Stakeholders should have a
share in terms of information disclosure and wealth distribution. The inclusive
stakeholder-centred approach towards governance would therefore ensure continued
interdependence and coexistence of all stakeholders and hence the entire
corporate and eco-systems system. It is envisaged that the inclusive
stakeholder-centred approach towards corporate governance guarantees corporate
sustainability for future business operations and profits as well as
sustainability of future generations. Therefore, such an inclusive approach
towards corporate governance should be deployed by all organisations operating
within an African framework.
Effective risk management and
internal control systems are essential in a successful corporate governance
system. On this score, clear-cut guidelines are provided and which emphasises
the board’s responsibility for the total process of risk in the business.
The guidelines provided by the
second King Report further assigned to the board the requirements to develop
risk strategy policies, set the company’s risk tolerance level, and assess the
company’s risk profile on the basis of various risk categories including credit
risk, market risk, operational risk, human resources risk, regulatory and legal
risk, etc. Boards are also required to ensure an appropriate whistle blowing
process in the company, supplementing legislation recently introduced in this
regard.
Companies quoted on the JSE are
required to provide a comprehensive annual statement on risk and internal
control. Although this has been a feature of the banking and financial sectors
for some time, these requirements have been further enhanced, while in the
public sector rigorous provisions are now also in force.
In developing the Chad-Cameroon Pipeline
Project, the World Bank attempted to create
a structure that would result in better government practices, more responsive corporations, and benefits provided
to the affected communities.The $3.7 billion
Pipeline is the largest privately financed
project in Africa, and has been controversial
from the time of its initiation.The Pipeline is being built with the World Bank’s help,103 but it also includes the governments of Chad and Cameroon, as well as
a
consortium of transnational corporations, with the bulk
of shares held by Exxon, Chevron, and Petronas (the Malaysian state oil company)
The World Bank
approved a loan for the project in June 2000,
and construction of the Pipeline
began in October 2000, with the presidents
of both Chad and Cameroon on hand.The project involves three hundred oil wells and a pipeline
that stretches 1,070 kilometers.The first oil began flowing from the
Pipeline in July 2003.
Controversy over the project
has resulted from a number of factors. First, the governments of Chad and Cameroon have various human rights and corruption troubles. For example, members of the Chadian
Parliament who opposed the Pipeline were jailed. Second,
the project has had a significant environmental impact on forests and
other natural habitats. Indeed, the route of the Pipeline was changed to protect some indigenous communities and environmentally
sensitive areas although problems remain.
