10 August FAILED GOVERNANCE IN STATE ORGANISATIONS IS NOT A SIMPLE BAILOUT! (2023-08-10) August 10, 2023 Corporate Governance Framework®, General, Governance Framework, Leadership, Praefectus™ state organisations, Corporate Governance Framework®, governance failures, governance framework, good governance, leadership By Terrance M. Booysen (CGF Research Institute: Chief Executive Officer) Given the multiple governance failures seen across South Africa, and mostly within the public sector, there is no doubt that this fragile situation is a national disaster. The costs of these governance failures are far worse than the actual monetary losses reported to date. Earlier this year the Reserve Bank estimated that the country’s energy crisis alone is causing losses to the SA economy of approximately $51 million (approximately R942 million) every day. Alarmingly, the “hidden” costs of the widespread state organisational dysfunction are not easily quantifiable; where citizens are subjected to more heinous crimes, systemic corruption, growing unemployment with escalating living costs, extreme levels of poverty and inequality, as well as increasing disinvestment. Against a backdrop of a BB- grade (junk status) rating, a greylisting and low expectations of real growth in South Africa in the foreseeable future, it comes as no surprise that 115 leading SA corporations have agreed to roll up their sleeves and get involved as part of a collective effort to assist the government in rebuilding the country. Business has recognised that drastic action is required to arrest the downward trajectory of South Africa’s state of governance. However, it is important that the enormity of the task at hand is not underestimated. Some critical questions need to be addressed upfront to ensure that this public-private ‘partnership’ achieves its desired objectives. What will be the rules of engagement between the business leaders and the state-appointed board members of the state-owned entities being targeted for improvement and assistance? The pledge states: “As South African business leaders, we firmly believe in the immense potential of our country. We are committed to building it and have come together to address the current challenges with the aim of achieving sustainable, inclusive economic growth. Through strategic partnerships and focused interventions, we have the power to make a significant and positive impact on our nation, creating hope for all South Africans. We are resolutely committed to being a force for good”. Source: South African CEOs from over 115 companies pledge commitment to building the country (27 July 2023) Ultimately, the state-appointed board members will still be held accountable for acting in the best interests of their organisations. With this in mind, what will happen if these board members are not prepared to take advice from the well-meaning business leaders? This scenario is not unlikely given the power struggles already evident in the public sector. It is therefore important that the terms and conditions of engagement be agreed in advance. A unified vision and strategy are required. In this regard, there is no time to waste, and egos will have to take a back seat as agile thinking and decision-making is needed to turn around failing state entities and to reignite economic growth in South Africa. The reality is that the public sector processes and systems do not currently lend themselves to the concept of agility. As such, approving effective platforms for engagement and delegations of power will be critical to ensuring success. Furthermore, a clinical approach will be required when determining the best course of action to sustainably optimise service delivery and performance. This begs the question of whether opposing ideologies will impede and/or render ineffective (necessary) solutions before they can even be implemented. To what extent will the role of government and the role of business need to be congruent? A change of mentality will be needed from both public and private representatives with the focus being on teamwork to achieve a common goal. No doubt a shared set of values will be necessary to ensure that the divide between capitalism and socialism can be bridged in a meaningful and sustainable manner for the long-term benefit of the nation. Sounds easy in theory, but definitely more difficult in practice. On the other hand, this presents both public and private sector leaders with an opportunity to unequivocally demonstrate that South Africa’s broad and diverse knowledge, experience and cultures can indeed be nurtured to build a cohesive and productive nation. As with any goal, success will need to be clearly defined and objectively measurable. Transparently communicating progress against pre-determined objectives will be essential in building trust amongst all of South Africa’s stakeholders. Ideally, those involved in overseeing the improvements being implemented within the affected state-owned entities should be able to track the evolving state of governance within these entities and across the spectrum of entities being revitalised. Governance frameworks for measuring success and identifying areas for improvement will need to be considered and consistently applied to deliver timely data to facilitate informed decision-making. The nation has a vested interest in supporting these efforts of this public-private ‘partnership’ and in positively contributing to resolving the challenges facing South Africa. However, to build momentum in these efforts, government must make good governance tangible to all. ENDS Words: 729 For further information contact: Terrance M. Booysen (CGF: Chief Executive Officer) - Cell: +27 (0)82 373 2249 / E-mail: [email protected] Jené Palmer (CGF: Director) - Cell: +27 (0)82 903 6757 / E-mail: [email protected] CGF Research Institute (Pty) Ltd - Tel: +27 (0)11 476 8261 / Web: www.cgfresearch.co.za Follow CGF on Twitter: @CGFResearch Click below to read more... Attached Files failed-governance-in-state-organisations-is-not-a-simple-bailout-cgf-20230810.pdf 182.67 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. MEASURING THE ORGANISATION’S GOVERNANCE EFFORTS (2022-04-21) For many years corporate governance has been a sensitive topic for many boardrooms. In reality, despite the writing of the various codes of corporate governance, the business and state environments remain littered with examples of failed governance. Given that the South African business landscape still finds itself in deep trouble, one may argue that the introduction of the latest King IV™ Report on Corporate Governance for South Africa 2016 and its outcomes-based reporting has still not had the desired impact in driving governance change. 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. A DIGITISED GOVERNANCE FRAMEWORK SUPPORTS A DECENTRALISED AUTONOMOUS ORGANISATION (DAO) (2024-04-10) Traditional governance reporting With the age of digitalisation firmly entrenched -- and a global economy on the cusp of the Fifth Industrial Revolution -- forward-thinking organisations worldwide have embraced the notion of equipping their workforce for greater meaning and purpose. Considering how organisations have the technological means to streamline their business processes, which often has negative implications upon mundane and/or highly repetitive job functions, these organisations understand the importance of a more ‘human-centered’ approach to conducting their business which is fundamental to their future and sustainability. Given the focus on human empowerment -- being one of the 6-capitals cited by the King Report IV™ for Corporate Governance -- the importance of collective governance assessments made by a much broader stakeholder group of the organisation could not be more important. 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. 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! Comments are closed.