Corporate governance in South African companies resembles a Swiss cheese – full of holes and rather odorous.
This according to Amir Lubashevsky, director of Magix Integration, who says almost all local companies are actively practicing complacency when it comes to corporate governance. In addition, he notes this complacency is equally observable across all industries.
“This is totally irresponsible leadership,” Lubashevsky says. “In the banking industry, for example, the Basel II specifications have been available for years and it is unthinkable that a CEO could leave compliance to the last minute. There are serious penalties for non-compliance, yet it happens more often than we would like to believe.
“It seems many business leaders think compliance is just another report they can run at the click of a mouse. They are unaware of the magnitude of the task.”
Naturally there are companies that have started compliance projects, but these seem to get bogged down in their own processes and achieve little. Bureaucracy and internal politics hinder them as people try to protect their turf.
And then there’s the question of money. Compliance is avoided because it is not cheap, as many companies that were listed on one of the US stock exchanges and subsequently went private or switched their listing to Europe will testify.
“Here again, delaying to save money is like trying to drink oneself sober,” explains Lubashevsky. “The longer a company waits, the harder the compliance process becomes and the more expensive it will be.”
As to why this state of affairs exists in South Africa when internationally companies are rushing to comply with the many regulations in effect, he says there are three basic reasons.
The first is that complacency seems to be par for the course in South Africa. For years companies didn’t bother to backup critical data or design a disaster recovery plan because of the “it will never happen to me” attitude. Something has to happen before people suddenly react in a panic.
The second reason is the lack of compliance regulations applicable to South Africa. King 2 was released some time ago and King 3 is due for release soon, but these are merely corporate governance recommendations that are not enforceable. Unfortunately, without someone standing over them with a big stick, local companies are not going to react.
Finally, many companies do the minimum and come up with a compliance framework, thinking their job is over. In reality, all they have is a weak skeleton with no meat on the bones. The basics are all there, but an integrated, company-wide approach to and acceptance of compliance is not.
“All these issues are easily dealt with if someone in the company has the authority and the drive to ensure the compliance process is enforced,” concludes Lubashevsky. “The problem is finding someone to take ownership of the project who has the knowledge, the drive and most importantly, the authority to enforce acceptance and adherence to the changes that will be implemented.”