The Importance of Corporate Governance not lip service

scalplevelpastoralManagement

Nov 18, 2013 (3 years and 8 months ago)

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Atlantic Asset Management (Pty) Ltd

t

• +27 (0)21 913 8941 Physical: 1st Floor, Barinor’s Vineyard North, The Vineyards Office Estate

f

• +27 (0)21 913 9205



99 Jip de Jager Road, Bellville, 7530

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• info@atlanticam.com Postal: Suite 243, Private Bag X22, Tygervalley, 7536

w
• www.atlanticam.com

_____________________________________________________________________________________________________________________________
__________
__________________

DIRECTORS:


A Lawrenz • M Anderson •
R Sparks


H Jackson

• A Botha

REG NO: 2007/005723/07 FSP NO: 31756
AUTHORISED FINANCIAL SERVICES
PROVIDER












The Importance of Corporate Governance


not lip service

The recent demise of the First Tech Group and the attendant wrenching loss of jobs, stakeholder value and
reputations, brings into relief the tangible role of good Corporate Governance.

South Africa stands out as a global leader in the tenets of Corporat
e Governance. We have adopted King III, the
Code for Responsible Investing in South Africa (CRISA) and the Integrated Reporting Framework, and there has
been a strong drive by companies in South Africa to integrate good Corporate Governance practices. Y
et it is
sometimes difficult to convince naysayers that ‘doing the right thing well’ is congruent with maximising profits. Let’s
face it, the temptation for most corporate stakeholders, including executives, employees, creditors and
shareholders, is to pr
ioritise financial returns.

Too often Corporate Governance is outsourced as a compliance function


the ‘tick
-
box’ approach. To be truly
effective and sincere to its broader goals, Corporate Governance must follow both form and substance. Where
governance

offers only the pretence of form, without substance behind it, the integrity and ability to ensure that
good governance practices are willingly enshrined in legal contracts is undermined.

Governance, in form and substance, involves the alignment of intere
sts among all corporate stakeholders. In
function, it provides the structure through which corporations set and pursue their objectives, while reflecting the
context of the social, regulatory and market environment. Effective Governance structures will sp
ecify and monitor
the allocation of rights and responsibilities among different participants in the corporation (including the board of
directors, managers, employees, creditors, shareholders, auditors, and regulators).

However, in substance, we are remin
ded by Albert Einstein that “not everything that counts can be counted, and
not everything that can be counted, counts.” Corporate Governance at its essence is about triumphing over
conflicts and doing what is best for all stakeholders. As Mervyn King, Ch
airman of three King Reports said, “to set
aside one’s prejudices, one’s present needs, and one’s own self interest in making a decision as a director for a
company is an intellectual exercise that takes constant practice. In short, intellectual honesty is

a journey and not a
destination.”

In September 2012, the World Economic Forum (WEF) released its annual Global Competitiveness Index, where
South Africa ranked 52 out of 144 countries. Particularly impressive, according to the report, is South Africa’s
f
inancial market development, for which we rank 3
rd

overall, “indicating high confidence in South Africa’s financial
markets at a time when trust is running only slowly in many other parts of the world”. Contributing to this very high
ranking, are stellar
achievements ranking strongly for strength of auditing and reporting standards (1st), efficacy of
corporate boards (1st), protection of minority shareholders' interests (2nd), and efficiency of legal framework (17th).

These strengths in our corporate infra
structure have undoubtedly contributed to the positive track record in our
corporate bond market. Within the listed investment grade universe, there had never been a corporate bond
default. The First Tech default on Senior Secured Bonds (and rated BBB by

Global Credit Ratings) has now
tarnished this. Although we should declare that Atlantic Asset Management decided not to invest on behalf of our
clients into the First Tech Bond Issue, we are nevertheless deeply disturbed by the impact this default could
have
on our industry and are determined to learn any lessons possible.

We believe that a focus on Corporate Governance plays a central role in averting bad investments. In the credit
evaluation process, primary emphasis should be placed on Corporate Gove
rnance. This is because the greatest
risk to a company being unwilling or unable to repay its obligations is revealed in its governance structures and
practices. In a situation where a company (listed or unlisted) does not comply with King III, alarm bell
s should ring.
In a company where the chairman is also executive and the ‘effective Financial Director of the Group’ and ‘solely



Atlantic Asset Management (Pty) Ltd

t

• +27 (0)21 913 8941 Physical: 1st Floor, Barinor’s Vineyard North, The Vineyards Office Estate

f

• +27 (0)21 913 9205



99 Jip de Jager Road, Bellville, 7530

e

• info@atlanticam.com Postal: Suite 243, Private Bag X22, Tygervalley, 7536

w
• www.atlanticam.com

_____________________________________________________________________________________________________________________________
__________
__________________

DIRECTORS:


A Lawrenz • M Anderson •
R Sparks


H Jackson

• A Botha

REG NO: 2007/005723/07 FSP NO: 31756
AUTHORISED FINANCIAL SERVICES
PROVIDER














responsible for the financial affairs of the Group’ as Mr Wiggill was attested to be by the First Tech CEO, Mr
Bertulis
, alarm bells should have rung.


The role of management is pivotal to a company’s performance and thus its credit quality. But analysis involves
more than just evaluating executive integrity. It also involves the level of risk taking in an entity, levels

of
aggressiveness of management and the effects of checks and balances that keep decision making focused on
what is good for the company, the environment and the surrounding community.

We are fortunate to have excellent Corporate Governance infrastructur
e in South Africa. It is in our best
professional and social interests to give legs rather than lip service to integrating this fully in our financial
institutions. We have an international reputation to uphold!

“Regard your good name as the richest jewel

you can possibly be possessed of
-

for credit is like fire; when once
you have kindled it you may easily preserve it, but if you once extinguish it, you will find it an arduous task to
rekindle it again. The way to gain a good reputation is to endeavour t
o be what you desire to appear.”
-

Socrates
(398 BC)


Heather Jackson

Atlantic Asset Management



Atlantic Asset Management (Atlantic) (
www.atlanticam.com
) is an asset management house specialising in fixed income related
investments.


















Atlantic Asset Management (Pty) Ltd t

• +27 (0)21 913 8941

w

• www.atlanticam.com




_____________________________________________________________________________________________________________________________
____________________________

DIRECTORS:

A Lawrenz • M Anderson • R Sparks • H Jackson • A Botha

REG NO: 2007/005723/07

FSP NO: 31756 AUTHORISED FINANCIAL SERVICES PROVIDER


3





















































Atlantic Asset Management (Pty) Ltd t

• +27 (0)21 913 8941

w

• www.atlanticam.com




_____________________________________________________________________________________________________________________________
____________________________

DIRECTORS:

A Lawrenz • M Anderson • R Sparks • H Jackson • A Botha

REG NO: 2007/005723/07

FSP NO: 31756 AUTHORISED FINANCIAL SERVICES PROVIDER


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