Blue Chip Issue 90

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BLUE CHIP FINANCIAL PLANNING | Legislation Corporate governance: a compliance or business issue? As highlighted in one of my previous articles, the Conduct of Financial Institutions (COFI) Bill is founded on culture and governance. Where a previous article focused on culture, this article puts the spotlight on corporate governance. It will show how, contrary to popular belief, it is not a compliance issue but a business issue. Sadly, as a result of the wave upon wave of onerous rulesbased regulatory reform that has challenged the financial services industry since the turn of the century, the concept of governance has left a stain of compliance in the minds of many industry stakeholders, instead of a set of best practice principles and guidelines. It may be a good idea to test your attitude towards governance. If your first response is to associate corporate governance with compliance, it may prevent you from seeing governance as your friend instead of an enemy. If that is the case, one of the first things you will have to do is to adopt an attitude of best practice, not compliance. Generally, compliance drags you down, but the desire to be the best inspires you to succeed in every possible way. Replacing a compliance mindset with a best-practice mindset will go a long way to preparing your business for success. What is corporate governance? Corporate governance is the system of principles, best practices, rules and processes by which a company is directed, controlled and managed. It essentially involves balancing the interests of a company’s many stakeholders, which can include shareholders, directors, senior management, employees, customers, suppliers, lenders, government and the community. Corporate governance includes practically every aspect of management. In his book, The Corporate Citizen, Prof Mervyn King defined good governance as fairness, accountability, responsibility and transparency on a foundation of intellectual honesty. In his view, in arriving at their decisions, directors have to thoroughly understand the duties of good faith, care, skill and diligence 1 . According to King, it is not good governance when a compliance officer reports to a board that a company has complied with the code and the rules of governance, without the board applying its mind as to how the company should be governed. 2 “Governance is about judgement calls and process.” – Mervyn King 3 The benefits of good corporate governance Corporate governance is of fundamental importance to any business, big or small, simply because good corporate governance leads to sustainable business success that can benefit all stakeholders, while bad governance can lead to scandal and ruin. There are many, many examples of failed enterprises globally that confirm this fact. There can be no doubt that sound corporate governance is good for business and that it lays the foundation for the sustainability of any financial services provider. In reality, most successful businesses strive to have exemplary corporate governance. For many, if not most stakeholders, it is not enough for a company to be profitable; it also must demonstrate good corporate citizenship through ethical behaviour; sound policies, procedures and corporate governance practices as well as environmental awareness. Corporate governance guides the leadership of firms to align the interests of clients, shareholders, directors, management and employees, and it helps to build trust between all the stakeholders. Corporate governance can give all stakeholders a clear idea of a company’s direction and business integrity. It promotes long-term financial viability, opportunity and returns. It serves as a sound foundation to facilitate the raising of capital, if needed. Good corporate governance can translate to rising share prices and it can reduce the potential for financial loss, risks and corruption. It lays the foundation for resilience and long-term sustainable success as well as increased shareholder value. Good corporate governance can translate to rising share prices. How can the legislation help providers to succeed? If you have a compliance mindset, you will probably only see the rules and obligations, as highlighted below, and not the sound, guiding principles that will assist you as a business to be competitive at the highest level in our industry. Hopefully, the comments in the next section of the article will help you to see how these principles, captured in the legislation, will help you to establish best-practice principles in your business that will give you a sustainable competitive advantage. Obligations of governing body Section 15. 4 (1) The governing body of a financial institution is accountable for: Best practice: Where there is no accountability, there is no leadership responsibility, and where there is no leadership responsibility, scandal and ruin usually follow. (a) Compliance with the requirements of this Act; 5 76 www.bluechipdigital.co.za
FINANCIAL PLANNING | Legislation BLUE CHIP Best practice: Every game has its rules aimed at competing safely and fairly for the benefit of all. Every business must have a defensive strategy, which is equally important to an offensive strategy. Compliance with legislation usually reduces risk to all stakeholders. (b) Approval of the governance arrangements referred to in section 16; Best practice: The process before approval will serve as an opportunity to plan, consider, strategise, deliberate and agree on the best-practice principles that will enable your business to compete in a very tough and onerous industry. Approval will confirm the company policy and must be communicated to all the internal stakeholders. When you consider your governance arrangements from a best-practice point of view, you will comply with the legislation by default in most cases. If you approach it by asking, “What do I have to put in place to be the most honourable and fierce competitor in the marketplace?” you will set yourself up for success and comply at the same time. (c) Overseeing the establishment, implementation, subsequent review of, and continued compliance with, the governance arrangements referred to in section 16. Best practice: Approval of the best-practice governance arrangements without ensuring that the arrangements are properly implemented, maintained and reviewed from time to time will be meaningless. Governance arrangements Section 16: 6 1. A financial institution must document, establish, implement, monitor and review the effectiveness of governance arrangements that are reasonably necessary to ensure compliance with the requirements in this Chapter and any related conduct standard or joint standards. Best practice: To document conduct standards and governance arrangements that are reasonably necessary to ensure compliance with the requirements in this Chapter and any related standards can serve as a business manual for all the stakeholders – a common point of reference. It can also serve as a sound training manual for management, representatives and support staff. 2. The governance arrangements referred to in subsection (1) must: (a) Promote accountability of key persons and address roles, responsibilities and duties of the governing body and key persons; Best practice: Again, where there is no accountability, there is no leadership responsibility, and where there is no leadership responsibility, scandal and ruin usually follow. It is just a matter of time. (b) Ensure that key persons possess the necessary skills, knowledge and expertise, and have appropriate resources, to fulfil their functions, and perform those functions in a manner consistent with Part 1; www.bluechipdigital.co.za 77
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BLUE CHIP 0.5 CONTINUOUS PROFESSION
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Professional Financial Planning and
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Indexation: Anything but Passive. I
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CONTENTS ISSUE 90 FEB/MAR/APR 2024
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BLUE CHIP FPI UPDATES | CEO message
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BLUE CHIP On the money Making waves
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BLUE CHIP On the money Making waves
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BLUE CHIP COLUMN How to get the yea
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BLUE CHIP COLUMN Social media in fi
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INVESTMENT | Leadership BLUE CHIP C
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INVESTMENT | Leadership BLUE CHIP F
Page 27 and 28: INVESTMENT | Economy BLUE CHIP Top
Page 29 and 30: INVESTMENT | Innovation BLUE CHIP d
Page 31 and 32: Annual Refresher 2024 Cape Town 27
Page 33 and 34: FPI | Financial Planner of the Year
Page 35 and 36: Young Financial Planners Organisati
Page 37 and 38: FPI UPDATES | Awards BLUE CHIP In a
Page 39 and 40: FPI UPDATES | Awards BLUE CHIP The
Page 41 and 42: FINANCIAL PLANNING | Retirement BLU
Page 43 and 44: FINANCIAL PLANNING | Retirement BLU
Page 45 and 46: INVESTMENT | Exchange-traded produc
Page 47 and 48: STRAPLINE BLUE CHIP www.bluechipdig
Page 49 and 50: Financial Planning Institute of Sou
Page 51 and 52: INVESTMENT | ETFs BLUE CHIP Kingsle
Page 53 and 54: PRACTICE MANAGEMENT | Technology BL
Page 55 and 56: PRACTICE MANAGEMENT | Technology Be
Page 57 and 58: INVESTMENT | Economy BLUE CHIP The
Page 59 and 60: INVESTMENT | Hedge funds BLUE CHIP
Page 63 and 64: USE AI FOR EFFORTLESS AGENDAS & MIN
Page 69 and 70: CLIENT ENGAGEMENT | Coaching BLUE C
Page 71 and 72: CLIENT ENGAGEMENT | Behavioural fin
Page 73 and 74: PRIVATE CLIENT HOLDINGS IS AN AUTHO
Page 75 and 76: FINANCIAL PLANNING | Legislation BL
Page 77: DEVELOPMENT | Internships BLUE CHIP
Page 81 and 82: FPI | Certification BLUE CHIP Next
Page 83: Partner with us, become an FPI Appr
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Blue Chip Issue 90

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