Friday, December 09, 2005

Corporate governance vs Operational/Financial Management

This ariticle was origanally posted on Rugga World(http://ruggaworld.blogspot.com), but OORB requested me to post it here as well. This is not the beginning and the end of corporate governance, but my views to where it could have gone wrong within the SA Rugby circles. It is not a a witch hunt towards certain members at SA Rugby, but rather my impressions from what I picked up in media reports.

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I got the impression over the past year that this new buzz word “Corporate Governance” is sometimes misunderstood as to what it really entails. I decided to write a few pieces on it, based on what is stated in the King II report and my opinion there on. I will also relate this back to the structures and doings of the the South African Rugby Union to just see why this all of a sudden has become the buzz word in rugby.

Introduction

The impression I get is that quite a few people believes that corporate governance is the same as operating/financial management. This is not true in a certain sense. Why, because of the level at which the responsibility for these functions lie. In short, you can have bad corporate governance, but with good operating/financial management the institution will still be able to survive and even turn out good results.

Corporate Governance casts its web much further than just operational/financial management. It includes a big variety of functions which I will discuss seperately in articles. Please remember to always keep the complete picture in mind and see the concept of Corporate governance.

One can go and read the whole King II report, but in essence it is summarised on page 22 of the report :” …successful governance in the world of the 21st century requires companies to adopt an inclusive approach that takes the community, its customers, its employees and its suppliers into consideration when developing the company strategy. This inclusive approach requires that the purpose of the company is defined and that the values by which it will operate are identified and communicated to all stakeholders. The relationship between company and its stakeholders must be mutually beneficial. The company must be open to institutional activism and there must be greater emphasis on the non-financial aspects of its performance. Boards must apply the test of fairness, accountability, responsibility and transparency in all acts or ommissions and be accountable to the company but responsive and responsible to the company’s identified stakeholders. The correct balancebetween conformance and performance must be struck.”

What does this entails? Corporate governance is the responsibility of the board of the company /institution. In my opinion it can be summed up in one word: integrity.

Responsibilities of the board of directors

1. Effective control over the company/institution. This means that the ultimate responsibility stays with the board. They cannot delegate the reponsibility, only the accountability.
2. The board determines the strategic plans for the entity and appoints the CEO who will brings these plans to execution.
3. They should setup a code of conduct, the value system to be implemented and procedures whereby they can seek independent advice.
4. They should monitor the implementation of all the abovementioned.
5. They should strive to be innovative and entrepreneurial while still functioning within their law and governance requirements.
6. They are responsible for evaluating business units, demographics of the company, and the risks within the company aswell as the external risks.
7. They have to monitor the performance indicators and assess the non-financial aspects that is influenced by the company or that can have an influence on the company.
8. They should ensure that all communication, internal and external, are effective with regards to the value system and the strategic plans.

I have read literature where the writers includes the monitoring of the internal controls and information systems. I believe that this is the responsibility of the CEO. He is the one who is running the show and reports to the board. It is not the responsibility of the chairperson to run the company, but to lead the board, formulate their work plan and be responsible for the public relations with the shareholders/interested parties.

I trust that you now understand my argument surrounding the bad governance vs good operational controls.

SA Rugby

You can apply these responsibilities to SA Rugby yourself, but here is my thoughts on it.

Applying the above to the situations, one can actually say that it is very unfair just to blame Brian van Rooyen for the bad corporate governance. The whole board is responsible for this, unless it can be proven that he acted maliciously and without their consent. Not one of the members can walk away and point a finger at him, except the ones who brought it into the open, being Markgraaff and Stofile. My impression however is that they only used the buzz word and did not really understand the meaning or their ultimate responsibilty towards the whole concept of corporate governance.

There has been no reports of bad financial management form the SARU side, but this does not mean Prinsloo was doing his job. In accordance with what information is offered to the public in comparison what is expected by corporate governance, he has failed along with the board or presidents’ council (call it what you want). Being in that position, he should be aware of these requirements and if the board did not request him to comply, he should have advised them on the issue.

Where we must give Prinsloo credit is that nowhere did we hear about financial problems at SARU. We did hear how money was wasted by the board on ridiculously expensive lunches, but other than that things seems to be running smoothly on the financial side. This was a waste of money, but not necessarily bad financial management.

On the operational side however, there was major issues that come to mind and that is the contract negotiations with the Springboks, the late determining of the CC venues and the now infamous debacle over the fifth S14 franchise. Here I do have a big problem to decide who I will blame for the fiascos. Some of these were obviously not in Prinsloo’s hands, but again he needed to take control (in absence of Van Rooyen – he was by his own admission focussing on Labat) and advised the board. From the little information we do get, I have come to the conclusion that Prinsloo is not a leader. My problem is that he doesn’t seem to be a do-er either.

The reason for the problems over the past year within SA Rugby can, in my opinion, be summed up as:
1. The chairman/president (whatever) was not focussed on the job he was elected to do. This resulted in people being able to critisize him and focus on his mistakes and thus play their own political game.
2. The board has not realised their own responsibility towards corporate governance and was keeping themselves busy with infighting and politics. The result was that the sport so many people love, was neglected for personal gain.
3. A CEO who did not understand his responsibilities and seems to be more focused on this own problems than the job at hand.

The only solution I can offer is that we return to a corporate setup in a similar mould to that which Rian Oberholser used when he was in charge, but without window dressing positions. The people need to work towards the furthering of rugby and not focus on their personal interests. Dedicated people who can pull their weight and add value to the organisation. Being a corporate will force corporate governance to be complied with and take the loophole under which SARU is operating out of the system.

The sponsors of SA Rugby will need to strengthen their representation of the board and the appointment of Ali Bacher has already been a step in the right direction. I only hope and trust that the rihgt people will be appointed in SA Rugby and that the only news we hear in SA Rugby in future is not only how strong our Springboks is, but also how strong the integrity of our administration leadership is.

Till next time

Comments:
Thanks Donner

Ons salmiskien die Vrystaters moet opvoed oor King II- en dat dit niks met kingKeo te doen het nie, maar dit is 'n great arti
 
I found this site on corporate governance with 600+ resource links all about corporate governance and boards.
 
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