Governance matters even more than you think

Management and finance must set the tone for governance to penetrate all through the business.

The conversation around governance needs to shift – and management must lead the way through their actions as well as policies.

This according to Charles Nel – of the Institute of Internal Auditors South Africa (IIA SA) – and McDonalds CFO Zaf Mohamed, speaking during a session in the “Governance, Risk and Compliance” stream at the Finance Indaba on 4 October 2018. 

Entitled “Why governance matters more than you think”, the talk was well-attended, and took the form of an interactive presentation that offered an engaged audience plenty of opportunity to offer thoughts and debate the principles. 

Zaf set the theme immediately, opening with the statement that “governance is not a separate part of a business, but integral to business itself.” 

It is critical that management lead the way, but that every single employee embrace the role of risk manager, said Charles. 

He stated: 

“Every level of employee must understand the risk they bring into and deal with in the business. South Africa has lacked this accountability for many years, and now we’re reaping what we sowed.” 

This finds its way into nearly every aspect of our economy today, including our unemployment issues, according to Charles – because irregularities and unmanaged risk and flouting governance regulations can have profound ramifications.

The two speakers – in conjunction with audience input – worked their way through several recent local and international risk and governance examples that are finding their way into the headlines – from Uber and Tesla Inc, to Steinhoff and African Bank. “Disruption in industries also can contribute to major changes in governance structures,” says Charles.

Said Zaf: 

“The big risks right now are the ones you can’t see coming, and they will have real impact.” 

 

This is why governance needs to be taken seriously and integrated across the business: from the simplest example (like McDonalds executives paying for their own meals when they do branch visits) to systemic change (creating a culture built on values). According to these experts, a parallel can be drawn between governance and black economic empowerment: It is possible to comply simply, checking the boxes, but if we really want to transform the economy, we must embrace the spirit of the codes and not merely the letter of the law.

Zaf said:

“Ethical behaviour and culture is important. Adopting this strengthens your compliance and governance, more than a score card or anything. Ethical behaviour starts with self. Where you see it, you must stand up against it or exit the organisation if necessary.”

Charles had two further ‘tips’ for financial professionals:
1.    Be wary of charismatic leaders, or at least don’t get caught up in the cult of a personality. “If you are a finance professional, your first responsibility is to the financial assets of the company, not your charismatic CEO.”
2.    Auditors must embrace friction: If you are doing your job well, there will always be a degree of friction between internal audit (IA) and management. IA must ask the hard questions, and push back when necessary.

Charles concluded: 

“Very often, the leadership deems the assets of the company as theirs to use as they like. But what is your role as a leader? You need to make sure that you provide not just for shareholders, but for stakeholders including your staff.”