AUE 2602 EXAM PACK
2014
EXAM: 15 MAY 2014
AUE2602 Page 1
UNIT 1
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Unit 1 – Corporate Governance and statutory matters.
Study Unit 1.1 – The background to corporate governance in South Africa
Define corporate governance and briefly explain why is important to society that co...
,Unit 1 – Corporate Governance and statutory matters.
Study Unit 1.1 – The background to corporate governance in South Africa
Define corporate governance and briefly explain why is important to society that companies
operate within the frame work of good corporate governance.
Corporate governance is a system or process whereby companies are directed or controlled. It is about
companies being good corporate citizens and all that this entails. Companies are integral part of the
modern society and it therefore follows that healthy, honest, open, competently and responsible
controlled companies will improve the quality of modern society.
Key aspects of the King III report
1. Leadership
2. Sustainability
3. Corporate citizenship
Three important aspects of sustainability
1. Inclusivity of stakeholders
2. Innovation, fairness and collaboration
3. Social transformation
Application of the code
King III applies to all entities regardless of the manner and form of incorporation. However the size
and nature of the company will determine how the entity applies the reccomnadtions. Further it is
recommended by King III that an entity discloses the practices/principles they chose not to apply and
explain why.
Study unit 1.3 – The King report and code on governance in South Africa
No ‘one size fits all’
Entities and stakeholders will have to develop a deeper understanding of governance issues. This will
enhance their ability to decide how governance principles and practices should be implemented. The
‘one size fits all’ approach will not work.
The challenges will be deciding the optimal level of application required, balancing the costs and
benefits to all stakeholders and being able to disclose such principles and practices in a fair and clear
manner.
Ethical leadership and corporate citizenship
The board should provide effective leadership based on an ethical foundation
Four ethical values underpinning good corporate governance
1. Responsibility – the board should assume responsibility for the assets and actions of the
company and should take corrective action to keep the company on its correct path.
2. Accountability – the board should be able to justify its decisions and actions to all
stakeholders.
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, 3. Fairness – in its decisions and actions, the board should ensure it gives fair consideration to
the interest of all stakeholders.
4. Transparency – the board should disclose information in a manner that enables all
stakeholders to make informed analysis of the company’s performance.
The board should ensure that the company is and is seen to be a responsible corporate citizen
consider not only on financial performance but also the impact of the company’s operations on
society and the environment;
protect, enhance and invest in the wellbeing of the economy, society and the environment;
ensure that the company’s performance and interaction with its stakeholders is guided by the
Constitution and the Bill of Rights;
stakeholder interaction is very important and the company reporting on its triple bottom line:
o economic aspect relates to financial and non financial information
o environment aspect include the effect of the company’s activities, products and services
on the environment
o the social aspect embraces the values, ethics and relationships with the stakeholders
Board of directors
The board should act as the focal point for and custodian of corporate governance
have a charter setting out its responsibilities;
meet at least four times per year;
monitor the relationship between management and the stakeholders of the company
The board should appreciate that strategy, risk, performance and sustainability are inseparable
inform and approve the strategy;
ensure that the strategy is aligned with the purpose of the company, the value drivers of its
business and the legitimate interests and expectations of its stakeholders;
The board and its directors should act in the best interests of the company
The board must act in the best interests of the company.
Directors must adhere to the legal standards of conduct.
Directors or the board should be permitted to take independent advice in connection with
their duties following an agreed procedure.
Real or perceived conflicts should be disclosed to the board and managed.
The board should consider business rescue proceedings or other turnaround mechanisms as soon
as the company is financially distressed as defined in the Act
The board should ensure that the solvency and liquidity of the company is continuously
monitored;
The board should elect a chairman of the board who is an independent non executive director. The
CEO of the company should not also fulfil the role of chairman of the board
The chairman should be:
Appointed on an annual basis
Independent and not conflicted
The role of the chairman should be formalised.
The chairman’s ability to add value, and his performance against what is expected of his role
and function, should be assessed every year.
Focus on social, sustainability and transformation issues
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