To much is a bad thing...

Catherine Entwistle, director of specialist services at Alexander Forbes Risk Solutions, says that caution needs to be given to creating an over-regulated business environment in South Africa and one which encourages companies to consider delisting, due t

Entwistle says excessive regulation creates challenges for small and medium sized enterprises (SMME’s) and could potentially derail South Africa’s endeavours to foster SMME’s and promote economic growth and job creation.

“The actual cost of compliance should be weighed against the value of complying and a company’s willingness to take risk. Although compliance should be considered a ‘must have’ rather than a ‘nice to have’ for all companies, both listed and unlisted, large corporates and SMME’s, if it stifles business performance then careful consideration needs to be given to its value versus its cost to the organisation.

“Companies need to strike a balance between conformance and performance and aim to maximise the value of corporate governance and minimise the cost and risk of implementing corporate governance,” says Entwistle.

While company law states how to communicate any conflict of interest, corporate governance principles stipulated in King II Report gives substance to the law by providing practical guidelines to the implementation of the law.

In light of King II, the Company Law Committee will debate the institution of legislation that will hold an entire company responsible for mismanagement of anyone of the individual directors. This will substantiate the view that the law reflects good governance and demonstrates how the two elements underpin each other.

Through JSE regulations, the King II Code of Corporate Governance Report has become what is referred to as ‘soft law’ for listed companies.

To assist in the implementation of the 345 paged King II report on corporate governance, and changes in company law such as the Municipal Finance Management Act, Public Finance Management Act or other relevant Acts specifically relevant to the company, many South African companies are employing fulltime compliance officers or corporate governance consultants to ensure they comply with these laws.

In time, corporate governance guidelines need to penetrate a company’s culture and become a way of doing business rather than a compliance issue. In effect, a company’s culture is the foundation for all risk management efforts.