17 November USING THE CORPORATE GOVERNANCE FRAMEWORK® IN TIMES OF GREAT UNCERTAINTY (2021-11-17) November 17, 2021 Board of Directors, Corporate Governance Framework®, General, Governance Framework, Risk Corporate Governance Framework®, board of directors, assessment tool, risk, governance, fraud, crime By Terrance M. Booysen and peer reviewed by Jené Palmer CA(SA) Whilst most corporations across the world have had to make drastic changes to their business operations as a result of the Covid19 pandemic, many business leaders believe that the disruptions caused by the pandemic have inadvertently introduced more advantages than disadvantages. However, are the odds actually stacked against the organisation? Besides the obvious health risks and workplace social distancing requirements, research conducted by McKinsey & Company in February 2021 (The Future Of Work After COVID 19) estimate that more than 100 million employees in the eight countries surveyed will probably switch occupations by 2030. Moreover, that a hybrid remote work-from-home (WFH) model is likely to continue well beyond the pandemic, with 20%-25% of employees in advanced economies working from home 3-5 days a week, and about 10% doing the same in emerging economies. In the same research, new trends suggest that the concentration of jobs in the world’s largest cities and in traditional offices, are reversing. With greater numbers of employees choosing to work from home, the geography of work -- including office vacancy rates -- has seen significant changes across major cities since 2020. For instance, San Francisco has seen office vacancies dropping by as much as 91%, Edinburgh 45%, London 32% and Berlin 27%. With such dramatic changes to the traditional workplace, it is necessary for organisations to consider whether their existing risk management policies and procedures are still appropriate. The new ‘unstructured’ work environment is likely to introduce new strategic and operational risks onto boardroom agendas. To exacerbate this perturbing situation, the multiple economic pressures may now lead stressed employees to commit fraud or other commercial crime and this is sure to show marked increases across the world in the months ahead. Notwithstanding a 17% reduction amongst South African companies who have experienced economic crime -- as reported in PwC’s 2020 Global Economic Crime and Fraud Survey -- South Africa’s rate of reported economic crime (currently at 60%) continues to remain significantly higher than the global average of 47%. In these uncertain times, we are reminded of the great Nobel Prize winner – Marie Currie (1867-1934) – who said, "Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less." Given the profound work-life altering changes we are experiencing, accompanied by the critical need to reduce economic crime, now is the time -- more than ever -- for a more scientific and analytical approach to the manner in which we understand, manage, measure and compare the governance practices within and across organisations. As the world, and indeed South Africa, marks the International Fraud Awareness Week (14-20 November 2021), it is imperative for organisations to adopt a comprehensive Corporate Governance Framework® which provides the board of directors with greater oversight over the strategic and operational functions of the organisation. By clearly depicting the strategic and operational areas within the organisation -- and indeed its supply chain -- where governance, risk and compliance ('GRC’) vulnerabilities exist, the board is provided with early warning signs of impending trouble. Boards can no longer afford to play “catch-up”. The effective deployment of a Corporate Governance Framework® enables the organisation to inter alia; proactively analyse GRC trends; identify areas of business which require further investigation or independent assurance reviews; highlight policies which are outdated or not in place; rapidly determine business processes which are not delivering value; investigate conflicting information or messages; and promote cohesiveness and common purpose amongst the management team itself as well as between the management team and the board. These outcomes can be used by the board and management to not only initiate further action, but also make decisions about the importance and urgency of reallocating resources to mitigate risks on a case-by-case basis. The advances of the Fourth Industrial Revolution (4IR) have enabled (and compelled) organisations to rapidly deploy smarter technology solutions and review their business processes to optimize their value creation activities. The Corporate Governance Framework® is a useful assessment tool which assists boards and management to sustainably improve the way in which they govern the organisation and complements the organisation’s existing business and risk management systems by integrating their critical outputs. In this way the Corporate Governance Framework® strengthens the organisation’s combined assurance processes and helps to protect the interests of the organisation. Notably, PwC’s 2020 Global Economic Crime and Fraud Survey reported that South African companies have seen an increase (from 15% in 2016 to 34% in 2020) in instances of senior management perpetrating fraud. The Corporate Governance Framework® recognises the interdependencies of different areas of the business and as such, assists in identifying possible areas of collusion and override. Boards of directors inherently have to deal with the changing dynamics of risk which is a fundamental part of their boardroom duties. To borrow some of Marie Currie’s sharp thinking of fear; the pandemic may have struck some fear, and even raised concern within the organisation’s leadership vis-à-vis their unpreparedness in these volatile times. However, this is certainly no time for panic -- nor fear -- especially considering the many challenges we may still face ahead. The board, together with the organisation’s executives, will need to become even more agile and embrace the challenge of governing these new unprecedented risks arising from Covid19 and its impact on business. Objective and reliable information about the state of governance within the business will be essential in ensuring that boards and management can tackle this “new norm”. ENDS Words: 934 SOURCE REFERENCES: The future of work after COVID-19 (2021) https://www.mckinsey.com/~/media/mckinsey/featured%20insights/future%20of%20organizations/the%20future%20of%20work%20after%20covid%2019/the-future-of-work-after-covid-19-executive-summary-vf.pdf?shouldIndex=false Global Economic Crime and Fraud Survey 2020 https://www.pwc.co.za/en/assets/pdf/global-economic-crime-survey-2020.pdf For further information contact: Terrance M. Booysen (CGF: Chief Executive Officer) - Cell: +27 (0)82 373 2249 / E-mail: email@example.com Jené Palmer (Lead Independent Consultant) - Cell: +27 (0)82 903 6757 / E-mail: firstname.lastname@example.org CGF Research Institute (Pty) Ltd - Tel: +27 (0)11 476 8264 / Web: www.cgfresearch.co.za Follow CGF on Twitter: @CGFResearch Click below to read more... Attached Files 20211117-Using-the-cgf-in-times-of-great-uncertainty.pdf 184.56 KB Related Articles TANGIBLE BENEFITS OF A CORPORATE GOVERNANCE FRAMEWORK® Article by Jene’ Palmer Forward-thinking organisations have realised that corporate governance does not merely fall into the portfolio of the Company Secretary. Indeed, the draft King IV Report on Corporate Governance for South Africa 2016 (‘King IV’), describes corporate governance as “the exercise of ethical and effective leadership by the governing body” of an organisation. Why then is corporate governance still viewed by many organisations as a process which increases bureaucracy and drives a ‘tick box’ exercise? Perhaps the explanation lies in not understanding and appreciating the value which can be unlocked by implementing a purpose-built Corporate Governance Framework® which is tailored to the organisation. Empirical research supports the fact that good corporate governance translates into tangible and sustainable benefits for the organisation. Some of these benefits are set out below. BOARDS THAT CREATE VALUE: CORPORATE GOVERNANCE FRAMEWORK® By Jene’ Palmer and reviewed by Terrance M. Booysen It has been painful to watch the likes of Lance Armstrong, Mike Tyson and Hansie Cronje sabotage their futures through poor decision-making. Similarly, many organisations and their boards have failed to demonstrate strong and responsible leadership qualities to motivate and drive their organisations to success. Awareness, decisiveness and accountability are some of the business leadership qualities required to achieve remarkable performances. The ‘buck’ stops with the board of directors and it is the board of directors who are ultimately held accountable for the success of the organisation. However, with the business landscape changing at an accelerating rate, risk management and decisive decision-making are becoming more challenging and business failures more prominent. A recent Harvard Business Review reports the failure rate for mergers and acquisitions to be between 70% and 90%. According to the United States Small Business Administration, only 44% of new businesses are still in existence after four years. Against this backdrop, how does a board create a sustainable organisation in what are clearly turbulent times? DO YOU REALLY NEED A CORPORATE GOVERNANCE FRAMEWORK®? By Jene’ Palmer and reviewed by Terrance M. Booysen We know that both local and international organisations are continuously having to adapt to operate in uncertain business environments. Locally, the release of the Preferential Procurement Regulations 2017, which places stronger emphasis on ‘radical transformation’, against the backdrop of persisting low economic growth rates are only some of the elements giving rise to further uncertainty. Internationally, the business and regulatory implications of the election of President Donald Trump and the vote in favour of Brexit and how these events will impact on local markets and businesses, is still unfolding. It therefore comes as no surprise that recent governance, risk and compliance (‘GRC’) surveys all indicate an increasing need to improve risk oversight and to balance opportunity management with risk management. The challenge lies in being able to achieve these objectives! DIRECTORS’ SENTIMENT INDEX™ REPORT: 5TH EDITION – CGF’S OBSERVATIONS FROM A GOVERNANCE PERSPECTIVE (2020-11-12) A review of the Institute of Directors in South Africa (‘IoDSA’)’s recently released report for 2020 raises some interesting observations from a governance perspective. It should be noted that the study was concluded prior to the nation-wide lockdown and national state of disaster due to the Corona virus (‘Covid-19’) pandemic. It is likely that the sentiments expressed by respondents may have been significantly more pessimistic had the study been concluded in the second half of 2020. COVID-19: ADDRESSING DEBILITATING RISKS REQUIRES A ROBUST GOVERNANCE FRAMEWORK (2020-04-17) The times we are currently living in are unprecedented. Covid-19 has once again highlighted the reasons why governance -- good governance -- is a critical function in a democratic country. SUSTAINABILITY DEPENDS ON A STRONG GOVERNANCE FRAMEWORK Article by Terrance M. Booysen Corporate governance is one of the key elements many investors consider when they reflect upon the organisation’s success, as well as when deciding upon their investment choices. But when the organisation’s governance system shows signs of stress or failure, not only do astute investors understand the unsettling impact it has upon the organsation’s supply chain, they also become wary about its sustainability which may give rise to them re-considering to ‘weather the storm’ or ‘bail out’ so to speak. Over the years so much has been written about failures of corporate governance within organisations, including the financial, social and political consequences which are typically found in its trail. Yet in spite of numerous regulation to improve the overall conduct of organisations, including the various King Codes of Corporate Governance written in South Africa, even more organisations are becoming affected by poor governance. Comments are closed.