The 2022 IIA SA CGI comparative report provides a comprehensive evaluation of SA listed companies' corporate governance practices.
The IIA SA Corporate Governance Index (CGI) comparative report for 2022 provides a comprehensive evaluation of South African listed companies' corporate governance practices. It shows that South African companies have made remarkable progress in their governance since 2020, with the average CGI score rising by 2.7 points out of four and 65 percent of companies receiving higher scores compared to the previous year. However, the report also identifies areas where companies need to continue to focus their efforts to ensure that they are meeting the needs of all stakeholders and promoting long-term success.
Corporate governance is a critical component of harnessing firms for economic growth and addressing the development challenges faced by the continent. It involves the mechanisms by which a business enterprise, organised as a limited liability corporation, is directed, and controlled, with a focus on holding corporate managers accountable for their conduct and performance. It is not to be confused with business management and corporate responsibility, although they are related.
Due to its grasp of the organisation's culture, operations, and risk profile, an effective internal audit activity is a significant resource for management, the board or its equivalent, and the audit committee. Internal control, risk management, and governance activities within an organisation can benefit considerably from the objectivity, expertise, and experience of competent internal auditors.
The information gathered from the survey information is subjected to rigorous validation and analysis by the esteemed Department of Auditing at the University of Pretoria. The survey questions are thoughtfully designed to align with the King IV Codes of Good Governance and cover seven key governance dimensions, namely Ethics, Compliance, Leadership, Performance, External Risk, Operational Risk, and Assurance.
These dimensions are then thoughtfully evaluated on a scale from zero to four, with zero representing the lowest and four representing the highest level of governance performance. The Chief Audit Executives, who possess a comprehensive and informed perspective on corporate governance practices, answer the survey questions.
The CGI report identifies the top three emerging risks that organisations should be aware of: cybersecurity, political interference, and fraud detection. The report also focuses on unethical behaviour, corruption, and the protection of whistle-blowers, which are critical in the current governance environment of volatility, uncertainty, complexity, and ambiguity.
One of the areas of improvement identified in the report is board independence, with the number of companies having independent directors on their boards increasing significantly over the past year. Independent directors play a crucial role in ensuring that all stakeholders' interests are considered in decision-making processes, leading to an 8 percent increase in audit performance since 2020.
The report also highlights the importance of disclosure and transparency, with companies becoming more transparent in their reporting practices and making more information available to stakeholders. Increased transparency helps build trust and confidence in companies, which is essential for long-term success.
Technology, including AI, robotics, and cognitive technology, has been transformative in reducing operational risk and improving risk management. These technologies have been instrumental in detecting risks, mitigating against risks, and implementing control measures, including advanced analytics, digital reasoning, machine learning, and natural language processing.
Another area of improvement identified in the report is risk management, with many companies still struggling to effectively manage risks, which can have a negative impact on their business. Companies need to ensure that they have efficient risk management systems in place to identify and mitigate risks and promote long-term stability.
The CGI report provides valuable insights and recommendations into the state of corporate governance in South Africa and serves as a benchmark for companies to improve their practices.
The following insights and recommendations by The Institute of Internal Auditors South Africa (IISA) function as a compass to guide the ethical practices and the adoption rate of governance principles internally and make a small contribution to South Africa’s economic structures.
- Improved overall Corporate Governance ratings.
- There have been notable improvements in the Agriculture, Defence, Wholesale/Retail and Mining sectors.
- The CGI report can be used as a measurement tool in the industry and economic sectors.
- More emphasis needs to be placed on internal controls from a Leadership point of view.
- Compliance is very well maintainedand ethical practices need to be monitored more closely.
By focusing on board independence, disclosure and transparency, technology, and risk management, companies can build trust and confidence in their business, ensuring long-term success.
The Institute of Internal Auditors South Africa (IIA SA) helps internal auditors by providing training, resources, and support to assist them in their professional development and in the performance of their auditing duties. The IIA SA provides its members with access to a variety of educational opportunities, including conferences, seminars, and online training programs.
Additionally, the Institute offers a range of resources and tools to help internal auditors stay up-to-date on industry trends, regulations, and best practices. The IIA SA also provides a platform for members to network and share knowledge and experiences with their peers. Through these efforts, the IIA SA helps to promote the growth and development of the internal audit profession and to ensure that internal auditors have the skills and knowledge necessary to provide high-quality auditing services.
