There has been a lot of media coverage in the past couple of years devoted to directors’ duties under the new Companies Act of 2008, and the fact that directors can potentially be held personally liable if they breach those duties. The effect can be fear and uncertainty – but the basic principles are easy to understand and live by.  There are five things every director should know:

 

1.     What exactly is a “fiduciary duty” anyway?

“Fiduciary” comes from the same Latin word for faith and trust that’s given us “fidelity” and “confidence” (it’s also why there’s a tradition of calling dogs Fido). Basically, if someone places their faith and trust in you – for example by giving you their money to invest or their company to manage – you have a duty not to betray that trust. You have to be loyal and act in their best interests, not your own. It’s really that simple. The moment you find yourself thinking in terms of what’s best for you personally, take a deep breath and think again.

 

2.     What is a “duty of skill and care”?

As a director, you don’t only have to act in good faith – you have to know what you’re doing. The expection is not that you should be an expert, or never make a mistake – but you should have the skills that can reasonably be expected of someone in your position, and apply those skills. You can’t, for example, approve a deal because it feels right in your gut or the other person is in your church and you’re sure you can trust them. You need to do all the due diligence required to make sure it will benefit the company.

 

3.     It doesn’t matter how big or small the company is

These duties apply equally to directors of small companies, large listed companies and non-profits. It gets more scary and complicated the more of other people’s money is at stake, but your basic duties and responsibilities to your shareholders remain the same.

 

4.     It doesn’t matter what it says on your business card

You don’t have to carry the name of Director to bear these responsibilties. The law puts it in more complicated terms, but basically: If it looks like a duck, and walks like a duck, and quacks like a duck, it’s a duck. So if you act like a director (by attending board meetings, making important management decisions, signing off on deals and doing other things that directors do), the law will regard you as a director. You can’t avoid the responsibility by steering clear of the name.

 

5.     When in doubt, always opt for more transparency

The law is absolutely clear that you may not use your position to make any kind of secret profit, whether the company loses out or not. If you set up your own new company to take advantage of a major opportunity offered by a client, that’s a clear breach of your duties. But things that seem more innocuous can also be breaches: What if a major supplier offers you a discount when you renovate your house? Even if there’s no expectation of reward, this could still breach your duties. Honesty, as always, is the best policy: Disclose material interests to the board and let them decide.

 

In many ways, the Companies Act just codifies in law what most people regard as basic ethics and common sense. If your habit is to act in good faith and care, you’re unlikely to have any problems. But anytime you’re in doubt, seek advice - - it’s always better to know what you’re getting into.

Most accountants and auditors know the “fraud triangle”, the combination of incentive, opportunity and rationalisation that creates a risk that an employee will attempt to defraud their company.

 

But the fraud triangle alone isn’t enough. In the wake of Enron and other high-profile corporate disasters of the past decade, there has been a new focus on how factors at the organisational level, not just the individual level, can increase the risk of fraud. Chief among these is that nebulous thing called “organisational culture”.

The latest report investigating individuals at UK-based Barclays Bank regarding the rigging of the LIBOR rate (London interbank offered rate), which controls the rate of home loans, credit cards and other financial transactions, cites the company’s flawed culture as a primary reason for its demise.

 

The report reveals that the subsequent high-earnings paid to top executives was only possible if management ignored the culture of its workforce.  Bob Diamond, the star investment banker and CEO of the bank worth over an estimated $350 trillion globally, was forced to resign after being implicated in the scandal.

 

According to Tjaart Minnaar, MD of OIM International, a leading business consultancy firm, an organisation’s culture is now more relevant than ever to ensure sound risk and performance management. This is in light of the scale of global woes experienced against the backdrop of the financial crisis.

 

“An organisation’s culture relies on high levels of transparency, corporate governance and accountability – all standards required by investors and society in order for a business to function effectively. This puts pressure on boards and executives to take and create responsibility for the organisational culture that reflects a company’s values and ethics.

 

“The test of how serious a company is about maintaining its values occurs when a key player does not live or adhere to the values of an organisation.  Are we happy to make an exception to the values of our organisation to not lose a key player’s contributions, or just turn a blind eye in order to reap the profits without adherence to the ethics and culture depicted by our business?”

 

Minnaar argues that it’s easy to use an organisation’s values as part of a conversation to steer a poor performer in the right direction.

 

“The problem comes in when a star performer does not adequately reflect an organisation’s culture, which comes about when there is something to gain and a person is tempted. The collective ethos of a business is more important than the individual and so tough decisions are required when star players don’t live the organisation’s values. Sound leadership requires the values of an organisation to be upheld, and calls for transparency when poor decision-making leads a star performer to misrepresent the organisation,” he says.

 

A company should consider such a situation as part of its risk management portfolio.  Company management should be able to identify the internal risks their company faces, and properly evaluate, communicate and address them, as part of a preventable risk category. A preventable risk exists within a company as, for example, fraud, corruption or bribery. This can be best managed through active prevention, putting monitoring operational mechanisms in place and guiding people’s behaviours towards that which fits the company’s culture. 

 

Minnaar believes a good example of responsible leadership includes the decision by the English cricket team to drop its best performer, Kevin Pietersen, from its team. Pietersen, a South African-born English cricketer, was implicated in a texting scandal when he messaged South African Proteas players, criticising his own team mates and coaching staff. He was subsequently dropped, but will be starting a reintegration process back into the English cricketing team.

 

Minnaar explains that an organisation’s values are set by the standards upheld by the organisation’s leaders, and that regular, consistent and constant communication and feedback will allow for transparency and accountability to occur at top level management. 

 

Senior management, as the custodians of an organisation's culture, need to clearly communicate the values and its meaning. By unpacking the values and practices and ensuring consistent application thereof, instilling regular feedback mechanisms and providing channels for transparency and accountability, leaders will exemplify the culture of the organisation.

 

Minnaar points to a recent example whereby BHP Billiton executive, Marius Klopper, decided to forfeit his bonus due to poor investment decisions made by the company, demonstrated a leader willing to set the example of accountability. In political circles, the ANC expelled the ANC Youth League leader Julius Malema after criticising its parent-body, the ANC. These moves, Minnaar adds, demonstrate sound leadership, as the leaders upheld the values of their organisations. 

 

Minnaar believes that entrenching an organisation’s values is a vital cog in the wheel that will enable a company to guard against a flawed culture.

 

“Business managers need to understand that an organisation’s culture and brand is to be upheld in order to protect its integrity.  Companies need to ensure that the values reflecting its brand personality are defined and clearly communicated throughout a participative process involving internal and external stakeholders.  

 

“The second tier to communicating and defining the values involves making sure that all stakeholders understand and are able to apply them in their respective roles. By unpacking the values in behaviours relevant to the type and level of work people do, as well as ensuring regular conversation about the company’s code of conduct and how this plays out in each person’s role in teams and in one-on-one meetings, will empower each employee to live the company’s values. 

 

Minnaar adds that regular communication, assessments and continuous feedback ensure the entrenchment of an organisation’s values.

“Assessment can occur through individual and team feedback and also through culture surveys. Other feedback channels such as an ethics telephone hotline where irregular behaviour can be reported by employees have also proven to be very useful.

 

“Lastly, developing the organisation’s values means taking feedback into account and building it into the leadership development of the organisation. Incorporating constructive criticism and appropriate comments when hiring and making succession decisions, will go far in safeguarding the values, and the culture, of an organisation.

 

It is widely acknowledged that ERP solutions deliver significant benefits, including improved productivity and business insight, improved process standardisation, efficiency, and adaptability and reduced risk. However ERP operations are not a core strength for the majority of organisations. In order to leverage the true value from ERP solutions and services, it makes sense to outsource these to a professional provider that understands the intricacies and has the breadth of experience from working with multiple clients that all experience different scenarios and challenges.
Outsourced application operations for ERP solutions enable organisations to gain access to high quality ERP services tailored to their business requirements, as well as access to a pool of specialist skills and resources to draw on when necessary. This also ensures that organisations are always up to date with the latest technology, and provides greater flexibility with regard to cost structures.
ERP environments can be enormously complex to run, entailing much more than simply provision of infrastructure. These environments consist of several layers, from infrastructure to basic operations, products and provisioning to application management services and system integration services. This often requires additional services to ensure smooth operations and consistent service provision. ERP application operations can enable organisations to outsource any or all of these layers to ensure they are getting the most out of their ERP solution.
An outsourced ERP solution should always include as a first step a governance model, which clearly defines touch points between the customer and the outsource provider. Services should be ITIL compliant, and all processes and procedures should be underpinned by best practice methodology. Once this is in place, the various layers of an ERP environment can be considered in a modular or holistic approach depending on requirements.
Underlying ICT infrastructure should be run on an open, industry standard platform that supports all operating systems. This infrastructure includes all aspects of ICT, from fire protection systems and backup power generators to air conditioning, racks, servers and processors. Network services, desktop services, mobile device integration, storage on demand services and firewall services should also be included to ensure that a comprehensive infrastructure-centric solution is offered.
Operations consist of all computing activities carried out in conjunction with the provisioning and operation of an ERP environment. These include IT infrastructure service such as consulting, configuration, installation, start-up and monitoring. Key tasks that can be outsourced here include hosting, storage and database management as well as ERP services. By outsourcing these aspects organisations can gain access to highly trained specialists who will be responsible for monitoring, reporting, adherence to Service Level Agreements (SLAs) and provision of second and third level support.
The ERP applications layer is one which is quite commonly outsourced, both in terms of technical infrastructure and software, with a view to cutting costs and enabling organisations to focus on their core business. Application operations provide organisations with the ability to become more flexible and agile with their ERP applications in regard to changing requirements. Outsourcing this service enables organisations to leverage the specialist skills required to modify applications to meet dynamic business conditions. These skills are often too expensive to maintain in-house, as application modification is not often a full-time requirement and is not a core business function for most organisations.
On top of these layers it is also possible to outsource application management and modernisation (AMM) and system integration services, which include application development, upgrading, maintenance and modernisation of existing applications. Consulting services are another commonly outsourced area, helping organisations to optimise their ERP operations and system configurations and update landscapes.
ERP, as with all ICT services, should be fully scalable in line with the dynamic and constantly changing modern business environment. This makes outsourcing an attractive option, as this model ensures that services and resources are supplied on demand, offering greater flexibility and value for money.
From a financial perspective, outsourced ERP applications operations have the potential to save organisations money on a sustained basis, turning CAPEX into OPEX and reducing the financial risk that is often associated with operating an ERP environment. Added to this the complexity of the ERP environment and the need for performance, security, transparency and cost-effectiveness, and the argument for outsourcing to a skilled and experienced partner is a compelling one.

In the perennial war for attracting and retaining talent, I believe knowledge, transparency and simplicity are key to managing the weight of expectations that comes with the responsibility of R200 billion in assets under management.
As an asset management business we are first and foremost a knowledge business - with our leaders themselves leading the learning game.
Conducting over 250 asset manager visits a year, for example, provides unparalleled insight into global markets. This is knowledge that very few South African, or even global, organisations have. Using this knowledge to successfully manage the expectations of all those who have trusted their funds and assets to our care is how we deliver trust.
In my previous roles as both a corporate labour specialist and the executive director of a business I learned the importance of trust in a businesses' culture.
Since a key element of trust is transparency, learning is, again, paramount. Since simplicity, transparency and trust are essential to any business managing people's investments, savings and pensions, at Investment Solutions we'll use knowledge to empower, guide and enrich, creating simplicity out of the insecurity and confusion that, especially now, typifies markets.
As such, in this business, more than any other, adding value is trust based. Making the business approachable, both externally and internally, needs to be achieved through clarity and simplicity if trust is to permeate the business and all we do.
Yet making simplicity a lived reality within a company's culture is often anything but simple, ahead of my appointment at Investment Solutions, as a member of the Black Management Forum I took time to study and understand the existing culture of Investment Solutions.
Without doubt Investment Solutions is a knowledge-rich environment populated by highly passionate professionals contributing to an expert team. Attracting, retaining and developing this kind of talent is a challenge in itself. Yet these skills are not enough unless they are combined with a passion for improving people's lives.
After all, getting out of bed and delivering to the highest standards every day can't happen without that glint of passion that you see in so many people's eyes here. Belief in maintaining and developing the high levels of passion and commitment that the team currently displays is the higher purpose in this role.

To this end the often unnoticed woodpeckers that, chipping away at the Titanic, could cause it to sink. Or, in another analogy, in a high performance environment where most tend to see themselves as the strikers it is important to make sure that the goal posts are manned.
That said, there are no icebergs at Investment Solutions. Often though in highly passionate and innovative environments it's harder to identify and address the finer cracks and issues that, over time, develop into the kind of cultural weaknesses that, regardless of the best skills and expertise, can permanently hamper a business.
As such, finding the right skills and blending them into the right culture is larger than just recruiting seasoned players. Being able to learn and grow in an inspirational trust-based environment can develop a culture where a business grows more effectively from within, rather than trying to import ready-made professionals.
Given the current growth of the business this means planning now for succession and growth. Investment Solutions' skills set largely includes chartered financial analysts and actuaries. These skills are not cheap, hence the business case to grow these internally, by developing a pipeline of skills to manage growth from within. This can only happen if the business places a strong emphasis on learning - reinforced by trust that the business will allow people to grow. This is one of Investment Solution's strategic imperatives.
To this end I'm focused on developing a talent attraction and retention policy based on the identification of key value roles that support business sustainability through succinct succession management.
In such a scarce skills market, the strategy, simply, is to lessen attrition, retain skills, and make the business self attracting as a key learning organisation in a knowledge industry. The human management costs saved in getting this right can be used to grow more skills and knowledge, developing a virtuous cycle of learning and growth defined by trust and high engagement – the real key to maintaining a high performance organisational culture.

Part of the reason I am dedicated to producing technology that simplifies financial management and forecasting is because I enjoy order and structure. I am drawn to the unspoken rules, boundaries and balance of accounting, budgeting and corporate governance. Having said that, I cannot find fault with the laws, codes and guidelines that our government has put into place to enforce compliance with what must be the highest global ethical standards.

Arguably, any company with a growth plan needs to look at Africa as a potential business option, as it is one of the few places that are currently showing growth.  Business in the region is however very different.  The African business landscape is definitely more relationship-driven in addition to being extremely price-sensitive, and with more and more companies piling in, it is very competitive.

It is important to stay abreast of the legislative requirements of each country and also to understand the impact of foreign exchange fluctuations, which can impact profitability rapidly.  From our perspective, we ensure that our branches not only abide by legislation, but we also prefer to employ locals from each of the countries we operate in. Not only does this afford locals the opportunity to assist in the economic upliftment of their own country, but it also helps us to better understand and deal with local business issues.

Challenges

It is however crucial to do your research and to have solid financial controls in place before embarking on an African business venture.  The money trail is certainly a great deal harder to track in Africa as you don’t have agencies and companies that can readily do a credit check on a prospective client.  Business transactions can be very large, and companies often find that they will not be insured on a transaction for the full amount or not insured at all.  It is therefore of paramount importance to have an airtight financial management system in place.

Finding a balance between too rigid an approach to financial control systems and the building of a lasting relationship can be tricky though.  It literally boils down to having sufficient country knowledge on your side that needs to be supported by a strong ability to build lasting relationships and trust.  People in Africa are generally great to deal with and the cultural experience is fantastic, but it takes time and presence in a country to gain enough of a foothold to comfortably partner with prospective clients.

The logistics of doing business in Africa is a complex dynamic that needs to be considered.  By definition, you will be dealing with custom officials and varying country regulations on a regular basis, which in itself poses an element of risk.  Do you then deliver directly to the client or do the products become the property and responsibility of the client once it enters the country?  All of these logistical factors need to be considered and planned for when it comes to the establishment of a distribution network that works.

Keeping cash flow liquid in Africa is another challenge to contend with.  Financial transactions are a great deal more complex in Africa, but very rewarding.  Some countries are quite prompt with their payments whereas you can wait up to 90 days for payment from others, which diminishes your profits in the low-profit market quite significantly. We also find that the government and parastatals in each of the countries are big drivers of technological business.

The infrastructure within Africa is steadily increasing with connectivity improving a great deal.  Education standards, unfolding opportunities and the size of the economy in each of the countries act as a barometer to how Tech-savvy a country is.  All the countries are however growing with leaps and bounds from a technological point of view, which provides a perfect platform for businesses to expand its footprint on the African continent.

Those without financial forecasting or investment expertise easily liken the skill to being nothing short of clairvoyance – probably because so many wealthy and well-published business people have credited their “gut instincts” as the source of their success. The truth of the matter is far less mystical. I believe that there are 5 key steps to improving your company’s financial health.