Lately, there have been variousdiscussions about the values of the African philosophy in many aspects as itrelates to issues of human relationships, business ethics and corporategovernance. As a governing philosophy, the African is inclusive in nature as itconsiders all members of the community (organisation) as one entity aiming atachieving one purpose. There have been assertions that the ultimate success ofany organisation operating in an African environment is premised on this African framework. This study aimed atestablishing corporate governance approach as practiced by organisations withinan African context.
When governments are not democracies and are not accountable to their citizens, nongovernmental organizations (NGOs), and international, multilateral organizations and institutions represent possiblesources of change because they function outside of the recipient state’s bureaucracy. To the extentthat corruption exists in these countries, both the governmentand 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 SouthAfrica was not stimulated by any significant crisis in the corporate sector asin the case of a few other countries, but by concerns of competitivenessfollowing the re-admission of South Africa to the global economy following itstransition to a fully-fledged democracy with the collapse of apartheid.Corporate governance has been well developed since the establishment of theKing Committee on Corporate Governance (“King Committee”) in 1992, at theinstigation of the Institute of Directors of Southern Africa (“IoD”) and therelease of the first King Report in November 1994. Apart from the requirementthat organisations should run their operations in the most economical,efficient and effective manner possible to increase performance, today, thereis an increasing insistence on the need for organisations to be ethical aswell.
Within the business framework, there is a clear relationship betweencorporate activities and other stakeholders within and outside the organisation(Khomba, 2011).In general, much of the scholarly commentary on comparative corporate governancehas focused on issuesof 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,9it does not adequately capture the dilemmasof developing countries in sub-Saharan Africa and other parts of the world.The first King Report drewattention to the importance of a properly functioning board of directors as akey ingredient of good corporate governance.
While it advocated many of thestandards and principles common to several Commonwealth countries, followingthe release of the Cadbury Report in the United Kingdom in 1992, it was perhapsdistinguished by its integrated approach to good governance in the interests ofa wide range of stakeholders with regard to good financial, social, ethical andenvironmental practice. The word Africanis derived from a Nguni (isiZulu) aphorism: Umuntu Ngumuntu Ngabantu, which canbe translated as “a person is a person because of or through others” (Moloketi,2009; Tutu, 2004). African can bedescribed as the capacity in an African culture to express compassion,reciprocity, dignity, humanity and mutuality in the interests of building andmaintaining 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 providesdirect support to companies seeking to do business in developing countries.
SouthAfrica’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 – makingSouth Africa the 29th largest global economy in GDP terms.Subsequent to 1994, SouthAfrica’s financial system has emerged as a sophisticated and well developedsector of the economy, with similarities to major financial centres of thedeveloped world. In terms of size to GDP, private sector lending and the equitymarket ranks as one of the deepest in the world.
The increasing importance offinancial services to the economy and the role it plays in the asset allocationprocess, has increased pressures for market reforms to improve transparency andefficiency.An inclusive corporate governanceregime under the African African philosophy signifies that an organisation hasan explicit commitment to serve the interests of both shareholders andnon-shareholding stakeholders. Such an organisational commitment to astakeholder-centred approach towards corporate governance is partly influencedby African socio-cultural values. The African African philosophy emphasises the importanceof community, solidarity, coexistence, and the inclusion of community members(Broodryk, 2005; Mangaliso, 2001; Mbigi and Maree, 2005).The first King Report offered tocompanies, and State-owned enterprises, a coherent and disciplined governanceframework relevant to local circumstances and practical in its guidance.
TheKing Committee has no official mandate, unlike nearly all other similarinitiatives globally, and thus its recommendations are self-regulatory innature. It no doubt has made an important contribution to the significantprogress by South Africa in its corporate governance reform since the politicaltransition in the mid-1990’s. The breadth and sophistication of these reformmeasures must surely place South Africa in the top ranks of emerging marketeconomies, and in some cases even alongside some of the more developed markets.Although corruption in law-makingis significant in preventing change in a country’s governance structure and in maintainingthe dominance of the existing elite, bribing government officials toobtain precious government access is the largest area of corruption in developingcountries.
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 employeesmay feel justified in accepting bribes fortheir services. Furthermore, it has been observed that the African inclusivegovernance approach could also be a result of strong support of developmentalactivities on the African continent (West, 2009). Finally, such an inclusiveapproach in Africa is also partly influenced by the strong presence ofstate-owned enterprises that pursue both social and economic agendas. In theinclusive nature of the African society, the recent King III Report ongovernance for South Africa “seeks to emphasize the inclusive approach togovernance” (Institute of Directors in Southern Africa, 2009).
The second King Report came aboutfollowing an assessment of the developments that had taken place in the SouthAfrican economy and in the global markets since 1994. Again, it was not drivenby 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 privateand public sector companies, that provided stimulus to this second review. Furthermore,studies reveal that in an Asian society, informal external corporate governancethrough societal norms, practices and values are often more influential thanthe formal external corporate governance mechanisms of laws and regulations(Rossouw, 2009).The preceding literature analysisof both the African and Asian ethics reveals that society and other externalstakeholders have more influence on the internal governance of corporationsthan statutes and regulations do. This picture differs from that in America andContinental Europe.
A leaning towards a stakeholder- centred approach isdiscernable in both the Asian and African perspectives. Therefore, employingthe American exclusive shareholder-centred approach to corporate governancewithin an African framework would be a total mismatch towards an inclusivenature of the African society.The IMF estimatedthat less than two percent of all government spending in the Congo during the year 2000 was expendedthrough normal government budgetary procedures. Instead, the Central Bank spentmoney without the Treasury Department’sknowledge or input.Thus, corporations operate in a contextwhere 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 responsiblefor ensuring that government revenues are fairly spent, or in ending the abuse of government power that results in bribes.The Congo, whichis about the size of the United States to the east of the MississippiRiver, 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 ofcell phones and other technological equipment.
But the countryhas a long history of corruption.A particular emphasis in thesecond King Report was on the qualitative aspects of good corporate governance.In other words, the second King Report was not designed as a regulatoryinstrument but was really developed to identify core areas of good practice forboards, directors and companies, which extended beyond the existing legal andregulatory framework to embrace a number of aspirational issues. The reviewreinforced guidelines acknowledging the societal obligations of companies, indirectlyemphasising the expectations of government and the wider community with respectto the contribution of the corporate sector to the country’s transition anddevelopment.
Given the difficulties of applying the guidelines across theentire South African economy, the guidelines contained in the second KingReport focus primarily on companies quoted on the Johannesburg securitiesexchange (“JSE”), banks and financial institutions, and public sectorenterprises and agencies at the national and provincial levels. These fallwithin a structured and more readily regulated environment, against which thestandards of corporate governance can be more easily identified and measured.It is also more likely that public interest issues and investor rights andinterests would be impacted by the behaviour of these particular categories oforganisations. The King II Report is notable for explicitly adopting aninclusive stakeholder-centred approach to corporate governance that has itsroots in the stakeholder theory, in opposition to the model of shareholderprimacy maintained in the UK and USA (West, 2009). The South Africanimperatives were reinforced in the passing of the Broad-based Black EconomicEmpowerment Act, No 53 of 2003 (South Africa, 2003), which established a formalstructure to reward companies meeting certain criteria, usually related to thelevel of black ownership, employment and procurement practices. Anotherdevelopment was the inclusion of the international financial reportingstandards (IFRS) into corporate reports.
The internationalfinancial reporting standardshave been officially adopted within the corporate governance reporting systemsin South Africa and most African countries.The King II Report was reviewedin response to the new company legislation, and this culminated in a newcorporate governance report, the King III Report. The key theme of the King IIIReport is an even greater focus on sustainability and ethical reporting systemsthat should be adopted by corporations(Du Plessis and Prinsloo, 2010). In general, the King III Report adopts thesame overall stance as the King II Report, encouraging companies to take astakeholder approach while maintaining formal structures with a shareholder orientation.The board is identified as thefocal point of the corporate governance system and is ultimately accountableand responsible for the performance and affairs of the company. This calls fora unitary board structure, common to countries falling broadly-speaking underthe Commonwealth system of law, requiring a balance of executive andnon-executive directors on the board with a majority of the non-executivedirectors preferably independent of management.
Independence has been given awide definition, largely driven by the more rigorous tests used byinternational investors, and was directed at the tight-knit nature of the SouthAfrican business community historically and the need for boards to consider awider pool of candidates. This has given particular emphasis to issues ofdiversity, both in terms of gender and race, highlighted as a strategicimperative for companies wishing to remain relevant in the South Africanbusiness 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 starvationand disease.The ille- gal exploitation ofthe Congo’s natural resources, particularly gold and diamonds,in addition to coltan, cobalt, and timber, fundedthe Civil War.There were virtually no barriers to money- laundering.
Indeed,the abuses of natural resources were so egregiousthat the United Nations issued a special report recommending that twentynine companies be subjected to financial restrictions, including a freezing of assets and a suspensionof banking abilities.The current Congolese president, Joseph Kabila, whotook office in 2001 after his father was killed by a bodyguard, has agreed to hold electionswithin the next several years.There are four vice-presidents representing the differing former combatant parties as well as the nascent political parties, and thousandsof 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, Themajority of respondents report that their external corporate reporting systemstake into account the triple bottom line as recommended by the King III Report (Instituteof Directors in Southern Africa, 2009). A total of 63.
1% agreed (36.7% “agreeand 26.4% “strongly agree”), while 15.7% disagree and 21.2% “somehow agree”with the statement.The above analysis indicates thatwhilst 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 systemwithin corporate reporting and governance systems.
Open disclosure of wealthdistribution to stakeholders The study aimed at ascertainingwhether or not organisations are open in distributing their wealth to differentstakeholders 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. Only3.1% disagree, while 16.0% “somehow agree” with the preceding statement.
Thisanalysis demonstrates that most organisations prefer open disclosure ofresource allocations which is in line with good corporate governanceprinciples. Disclosure of wealth distribution would ultimately encourageparticipation by different stakeholders in the overall business activities andcorporate sustainability in the long term.The roles of chairman and chiefexecutive officer are required to be separate, which has since been reinforcedby the JSE, banking and financial markets regulators, and regulations governingpublic sector companies. Furthermore, the position of chairman should be heldby an independent non-executive director, and steps have been taken bycompanies across a wide spectrum to address this requirement.
The length of executive directorservice contracts is restricted to a maximum term of three years and should bethe subject of shareholder confirmation if longer, while extensive disclosureof individual director (executive and non-executive) remuneration and benefitsis now enforced by a number of the regulators. Detailed guidelines have beenprovided in relation to the requirements for audit, remuneration and nominationcommittees with a strong emphasis on the role of independent non-executivedirectors in this process. Board committees, too, are required to undergoregular independent evaluation.
Extensive disclosure is nowcalled for in terms of the requirements of the second King Report and it isclear that directors are much more concerned about their ability to fulfiltheir obligations and are more diligent towards the implications of accepting invitationsto serve as a director. The current Congolese president, Joseph Kabila, whotook office in 2001 after his father was killed by a bodyguard, has agreed to hold electionswithin the next several years.There are four vice-presidents representing the differing former combatant parties as well as the nascent political parties,76 and thousandsof 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 beincluded in organisational settings and systems. Stakeholders should have ashare in terms of information disclosure and wealth distribution.
The inclusivestakeholder-centred approach towards governance would therefore ensure continuedinterdependence and coexistence of all stakeholders and hence the entirecorporate and eco-systems system. It is envisaged that the inclusivestakeholder-centred approach towards corporate governance guarantees corporatesustainability for future business operations and profits as well assustainability of future generations. Therefore, such an inclusive approachtowards corporate governance should be deployed by all organisations operatingwithin an African framework.Effective risk management andinternal control systems are essential in a successful corporate governancesystem.
On this score, clear-cut guidelines are provided and which emphasisesthe board’s responsibility for the total process of risk in the business. The guidelines provided by thesecond King Report further assigned to the board the requirements to developrisk strategy policies, set the company’s risk tolerance level, and assess thecompany’s risk profile on the basis of various risk categories including creditrisk, market risk, operational risk, human resources risk, regulatory and legalrisk, etc. Boards are also required to ensure an appropriate whistle blowingprocess in the company, supplementing legislation recently introduced in thisregard.
Companies quoted on the JSE arerequired to provide a comprehensive annual statement on risk and internalcontrol. Although this has been a feature of the banking and financial sectorsfor some time, these requirements have been further enhanced, while in thepublic sector rigorous provisions are now also in force.In developing the Chad-Cameroon PipelineProject, the World Bank attempted to createa structure that would result in better government practices, more responsive corporations, and benefits providedto the affected communities.
The $3.7 billionPipeline is the largest privately financedproject in Africa, and has been controversialfrom 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 Bankapproved a loan for the project in June 2000, and construction of the Pipelinebegan in October 2000, with the presidentsof both Chad and Cameroon on hand.
The project involves three hundred oil wells and a pipelinethat stretches 1,070 kilometers.The first oil began flowing from thePipeline in July 2003.Controversy over the projecthas 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 ChadianParliament 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 environmentallysensitive areas although problems remain.
