- Leadership Lessons
- Instilling ethical leadership
- BPO the way to go?
- Integrated Reporting envelops the world
- The APC SAICA’s New ‘Part II’
Executives from innovative SA companies share how they lead upfront – and from behind.
The death of ex-British prime minister Margaret Thatcher spawned an outburst of debate on the qualities of leadership, primarily the question of whether a leader can be one-dimensional such as Thatcher is often perceived to be – or chameleon like, adapting their leadership style to suit present circumstances.
There are analysts dynamics who often comment that a leader should have a lifespan with one company of no more than seven years – implying a single leg of an economic cycle. They argue that a company needs a different leader for expansion, and one of a completely different character for the ‘tough decisions’ required of contraction, the much caricatured ‘hatchet man’.
Interviewing some of South Africa’s foremost financial leaders, typically having been in leadership roles for many years, reveals that they are quite comfortable leading well in all conditions, because they are more chameleon-like other than one dimensional. As a leader of a company you can directly influence how the public perceives your brand and the value. Steve Jobs cofounded Apple in his parents’ garage in 1976, was ousted in 1985, returned to rescue it from near bankruptcy in 1997, and by the time he died, in October 2011, had built it into the world’s most valuable company.
An analysis of Jobs indicates that the personality of a leader is integral to his way of doing business. They are typically passionate about what they do and with that sometimes comes an intolerance of others’ weakness. They can ride roughshod. It is part and
parcel of a desire for perfectionism. Reputation, innovation and the value of the organisation rank among the core values of leaders.
for which they shoulder responsibility, and which commonly flow from their personal values.
Andrew Hannington, CEO-elect of the newly merged Grant Thornton Johannesburg office, explains that the ethical and moral standards of his firm are core to its reputation and he believes these reflect his own personal values. “These values give one a certain standing in society and filter through the entire organisation.” “Just as an organisation has a brand, so does the individual – and it has to be carefully nurtured. No leader can afford to blow his personal reputation.”
Others take the view that ethics is something they won’t even list as a value – it is such a given that even to mention it implies the possibility of being unethical. Such is the view of Allon Raiz, CEO of Raizcorp, who runs a business that provides
incubation services to small businesses.
“My values are deliberately inculcated and entrenched in the business. We’re on a mission to change the world, and reputation has to flow from that. Hence, our values are to be always learning; taking personal responsibility for everything we do – no blaming – servicing our clients.” Nowhere is reputation more important than in banking, and in no industry in recent times have reputations been so shattered overnight.
Roland Sassoon, founder and CEO of Sasfin Bank, has headed the organisation through several periods of turmoil. It was one of the very few smaller banks to survive the 1990s second tier banking demise, and has also grown market share throughout the current banking crisis. “Keeping your nose clean is an essential minimum prerequisite to success in this industry.
My role is to lead by example in my personal capacity and in the direction I lead the organisation. We have consequently steered well clear of business segments such as microlending, where I see ample opportunity for sullying of reputations,” he explains.
Mike Lledo, MD of financial services firm Consolidated, adds to this that the reputation of a firm is not just its own values and image, but those of all its stakeholders – from suppliers to employees.
“For this reason, and looking at the reputational issues facing the intermediary industry in South Africa, I led our business further into the uncharted waters of a remuneration model based on charging for advice rather than commission; being independent in our advice and adopting professional practices. I believe that for this industry to survive, it has to be characterised by transparency – something which hitherto has not been incentivised in our industry. We’ve consciously gone against what our peers are doing – by challenging the way financial advice is given.”
Andrew Stark has had the experience of building a brand and business within the Flight Centre group, and consciously developed a reputation from the ground up: “Our view of reputation revolves around complete professionalism. We want employees who look forward to coming to work, who look smart and look after all aspects of their personal appearance. I lead the way in this respect – no matter how busy I am, I make sure I go to gym a minimum of three times a week.”
In his role as General Manager for Flight Centre’s business travel brand – Corporate Traveller – he also accepted personal responsibility for innovation, again from the ground up. “I looked at what the market was doing, spent a lot of time speaking to our people throughout our extensive global network. This was a fruitful source of cutting edge innovation, and these ideas I transported to a South African setting,” says Stark.
This conforms to the view of innovation of many other leaders – it is usually doing the same things a bit different. Hannington says that innovation is not a value usually associated with auditing, and yet he spends almost all his time on it. “It is a process of constant learning, talking to clients. I view myself as a business psychologist – I listen to clients’ business problems and look for more efficient ways of resolving them. We innovate problem solving.”
Sassoon adds: “Whatever banking application that crosses my desk, I look at it from the perspective of how a client’s business can be enhanced through new ideas, angles and technology. We have recently set up an energy renewable unit, and this is one of
the areas we advise clients on how they can adopt a sustainable energy policy.”
All agree time spent not talking to clients about how to do things differently and better is time wasted, especially in financial services where a unique business model is a prerequisite, says Sassoon.
Ben Kodisang, MD of Stanlib Asset Management, explains that the less real differentiator there is (such as in financial services) the more one has to create such difference. “My role involves being in tune with the needs of clients, gaining ideas from them and implementing them.”
A highly competent team
The single most important function is often crafting a highly competent team about them. While huge value may have been created at Apple under the tenure of Jobs, he was the first to acknowledge the role of his team in creating this value.
There’s no doubt it’s tougher to manage a team of smart executives who each have their own minds and are independent thinkers. No successful leader is surrounded by a team of yes-men. So how does one manage the smart-alecks?
The consensus says: lots of communication; be autocratic whenever necessary; and thereafter lead by letting others run with the idea. Kodisang explains his daily role as providing the vision and ensuring executives have a long-term view of what for them is often shorter-term objectives. “A collective decision-making body is only as fast as the slowest individual. My role is often similar to herding sheep – leading from the back, once I’ve given them that clear vision.”
An audit firm is very much a collective of equals, and Hannington explains that here a consultative style works best with decisions made by committees and boards. “However, I lead from the front because that is my personality. There’s no downplaying the
team nature of our work, because above all an audit firm is a training organisation. We take on 30-40 trainees every year, and a large part of what I do is keeping an eye out for the best people and handpicking them as future partners and directors. Seldom do we ever look outside the firm,” says Hannington.
Lledo says that managing strong-willed, qualified individuals tests one’s leadership skills to the limit. “I deal with financial advisers who are often highly successful in their own right because they are emotive people who develop high levels of empathy with their client base. Though I occasionally have to be autocratic, the most successful leadership style with such people is one of encouragement, confidence-building and empowerment.”
Managing teams appears to be easier in fast growing firms where there is plenty of opportunity for growth. Such is especially the case in Corporate Traveller and Raizcorp. Raiz says he has three roles as CEO, but all essentially dovetail into selling
(whether strategy, actual selling, or managing people). “I sell my ideas and concepts through the use of as much communication as possible. Still, with intelligent, opinionated people, it is always a challenge.”
One way of changing people’s minds, says Sassoon, is to approach it on a gradient “of easily digestible chunks”. However, he has learned that a leader cannot avoid the tough decisions where there is no obvious solution. “Business challenges have to be dealt with directly. They cannot be avoided.”
Sassoon says there is a time to be democratic and a time for autocracy and the art of leadership is knowing the time for each. Being firstly a banker and secondly the founder of his business, he believes he has the right to exercise his prerogative of decision-making, “even if occasionally undemocratic”.
“Being autocratic is the last choice, but I do so if a decision might put the organisation at risk. Risk is what banks are about, and a major part of my role is risk-mitigation, so I am quite prepared to dig in my heels against all objections.”
Stark has been at the helm of Flight Centre’s Corporate Traveller operation while it has grown from R4 million profit to R40 million, R400 million turnover to R1 billion, and 40 staff to 130.
He is in no doubt about his value to the business and attributes this to his style of complete openness: “I operate in a completely transparent manner, believing the more communication the better. I talk to people straight, but also make sure they’re adequately trained to have the emotional intelligence to accept such straight talk.”
In a fast growing business, he leads from the front into new business ventures: “and once the path is beaten, push from behind with
encouragement”. “I don’t have a single leadership style but adjust it to the circumstances. The trick is to get the timing right,” says Stark.
Raiz aims to ‘get his way’ by persuasion rather than being autocratic: “I lead from both front and back. I tend to go where others can’t. If I make a certain decision, even if the others reject my idea I still find ways of persuading them and resolving their issues on the decision. Once agreed, I tend to step back into a coaching role and let others take the lead.” He is frank about his level of success, saying it is too early to brand himself a success. “I’m not successful but succeeding.
My view of where I am is changing all the time. For example, I cannot view myself as a successful father because I don’t spend
enough time with my kids.”
Sassoon is proud of having achieved so much in an industry dominated by the Big Four banks. Never in a position to buy the very top skills, he believes he has crafted an A team that has been developed entirely internally: “We let our people grow, and the success of this policy is that the big banks are frequently trying to recruit our people.
The success of other aspects of our business style is that they seldom succeed in poaching. “While we pay our people well, we cannot always afford what other banks can offer, yet our executives remain with us because they recognise the career prospects of a smaller organisation and have often created their own businesses here,” says Sassoon.
The value of a mentor
Kodisang attributes his success to date to the belief and mentorship of others: “who recognised the potential in me”. A product of a ‘Gifted Child Programme’ and the perceptiveness of the Grey High School headmaster, he won a bursary and made the most of the opportunity. “I’ve been fortunate in the people around me, both as mentors and within my current team – there has been a lot of energy behind me, but I was also open to the opportunity,” he says.
Stark in turn attributes his success to landing up in the right firm: “There are plenty of other talented leaders out there who don’t succeed because they do not have a comfortable cultural fit with their employer. They may, for instance, have no autonomy. In my case, I relished the culture at Flight Centre, which offered me full accountability and responsibility and gave me the space to grow to
my full potential.”
Learning and mentorship is another characteristic of good leaders – in both directions. Each in turn has learned from great mentors and in turn mentor their executive teams – as well as many others within their organisations in more formal mentorship structures.
The most important tool Stark learned from mentors is that: “hands on knowledge gives you power among stakeholders, it gives you credibility”.
The values he represents and aspires to were learned from mentors: “You do have to be a chameleon to be a good leader. I can comfortably talk to all strata of society on their own terms. That’s because I espouse complete transparency and never have a hidden agenda. Though this makes for some uneasy conversations, the recipients typically profusely thank me afterwards.”
Raiz attributes a great deal to mentors over the years and has three serious mentors at present. His entire business model is to a large degree predicated on mentorship, and he is serious about it. Distilling his learnings from mentors, he says:” Always be true to who you are and be totally honest with your team, even if it leaves you vulnerable.”
As an example, he says: if a person has been unethical you have to get rid of them, even a top performer. No successful leader brands himself a ‘guru’. Indeed, Kodisang claims such as self-proclaimed individual is dying intellectually: “My greatest lesson from mentors has been to always be curious. No matter how much you know, or think you know, be open to new ideas and be actively seeking more knowledge. A guru is someone who is closed to learning.”
Hannington also advocates solid home truths as his greatest learnings: “Be honest, be open and hardworking, and above all have lots of conversations to achieve consensus.” He has had three strong mentors throughout his career, and says the single most important lesson he has learned is “how to not think as an auditor, but rather like an entrepreneur”.
Sassoon regards every meeting or conversation as an exercise in mentorship. He often has people attending meetings for no purpose other than to learn. As a result of his example, many other senior managers follow suit with their subordinates.
Mistakes and failures
As to where their weaknesses are or leadership mistakes, it is telling that most point not to poor deals or strategic missteps, but insufficient communication or poor executive appointments.
Indeed, Hannington says if he had his career all over again he wouldn’t change a thing: “My only misgiving is that I have often been too dedicated to technical production and left too little time for the people around me.”
Others admit to many mistakes, but in retrospect of little long-term impact. Stark says mistakes have to be viewed dispassionately as learning exercises. A mistake is only really a mistake when one learns nothing from it and repeats it. His mistakes have lead
him to introduce 360 degree surveys of each other among staff, to perform the role of a mirror – so that if people cannot see their own weaknesses at least others will be quick to tell them.
Kodisang describes his biggest failure as an instance of failing to take personal accountability for selling a proposal to London and rather relied on hierarchy by trusting those above him to do so: “This was a failure on my side in that I relied on others to sell my story when I was actually the best person to do so. From that error of judgment I learned the need for personal responsibility.”
Raiz philosophically admits that for a true leader mistakes will never be far away, “because circumstances are always changing and it depends on your focus at any moment in time”.
He believes the only real mistake a leader can make is allowing circumstances to build whereby a panicked decision becomes necessary, such as being desperate to recruit a person to plug an immediate gap. “I consciously avoid getting into desperate
straits which typically arise from being too stretched organisationally. I do this by acknowledging that stretching is a weakness of mine, and by giving greater balance to my views through the views of others.”
Sassoon admits to having occasionally been over-impressed with job applicants’ academic qualifications and failed to check their leadership capability – particularly whether they had the ability to inspire others to grow. “I have recruited people who far from adding to the business, subtracted from it. There is no formula to this: it requires greater patience and digging, and a certain intuition,” says Sassoon.
Lledo says his biggest challenge (one which remains a work in progress) is expecting the rest of the financial advice industry to follow their lead in adopting the advice-based remuneration model over commission. “I thought it would be a lot easier, and even in our own business changing paradigms, to go the same way that other advanced countries have, has slowed our ability to educate clients, despite their distrust of a commission-based environment.”
Stark agrees that mistakes are an integral part of business learning, and should not be dwelt on. “I make many little mistakes, but move on. An important part of leadership is being your own best PR agent by promoting your successes, learning from your mistakes and thereafter moving on.
From my mistakes, I learned that the best policy is to surround yourself with a strong team that shoulders collective responsibility and has the capability to manage strong growth.”
The challenges they face
These leaders head organisations that all face challenges, and their success is often determined by how well they manage those challenges. In 2004 South African Airways moved to a strategy of paying no commissions to travel agents, but shifted to a net-fare basis.
Logic would have suggested that travel agents would be put out of business, yet Stark’s Corporate Traveller has experienced unprecedented growth by changing its own rules. “We had to find ways to generate revenue without passing it on to the customer.”
The audit profession is under constant pressure from changing regulations. Hannington’s response has been to take personal responsibility to be the ‘rainmaker’ of his firm – going out and getting business. By shielding the business from the major market challenges, he enables the rest of the firm to concentrate on what he believes is the real challenge – getting quality staff and technical skills.
In recent years, business incubation has become a growing business in South Africa in the wake of government’s call to encourage the development of small and medium-sized business. As so often happens, the result, says Raiz, was consulting firms “jumping on the bandwagon” and creating confusion in the market.
“Many of these have subsequently gone insolvent and in the process damaged the reputation of our industry. Raizcorp has been trying to pick up the pieces and restore that reputation, but it still suffers from a lack of adequate skills.”
Few industries are in bigger turmoil than banking, with reputations of many in tatters. Yet Sasfin has thrived in this environment, increasing its turnover, number of clients and areas of business as its larger competitors withdraw.
“The industry still faces huge challenges in complying with regulations. Credit assessment the world over is becoming tougher as the Western world is mostly in a debt trap,” says Sassoon. ❐
Author: Eamonn Ryan, LLB (Hons), is a Business Journalist.
Instilling ethical leadership
Ethical leadership is about doing what is right for the long-term benefit of all stakeholders.
Yes, this is a good time to ask about the type of leaders that we, as a global society, need to lead our countries, institutions and businesses. After all, the consequences of poor decisions can be dramatic and far-reaching.
Today, the scope of leaders and the impact of their decisions are so much more expansive and influential than 100 or even 25 years ago. Everything is inter-connected: a poor decision made in one part of the world can seriously impact upon the lives of people in another. For example, the fallout from the Barclays Bank involvement in the recent Libor rate-fixing scandal –resulting in the untimely exits of its Chairman and CEO – has not yet been fully absorbed.
This saga, among others, calls into question not only the moral intentions of senior business leaders, but also the credibility of the entire global financial system.
What do we know about ethical leadership in the corporate context?
Defining ethics and leadership
Ethics can be defined as the body of knowledge that deals with the study of universal principles that determine right from wrong. Ethics concerns itself with the moral principles that govern behaviour. It has been stated: “ethics revolves around three concepts,
‘self’, ‘good’ and ‘other’, and … ethical behaviour results when one does not merely consider what is good for oneself, but also considers what is good for others”.
Leadership can be defined as the art of helping, guiding and influencing people to act toward achieving a common goal.
By combining the two definitions, one quickly derives a simple definition for ethical leadership: the art of helping, guiding and influencing people to achieve a common goal in a morally acceptable way. “Doing the right thing” underpins the ethical leader’s message and, therefore, style of behaviour.
A framework for ethical leadership
At its heart, the term ‘ethical leadership’ presumes that there is a simple basic difference between right and wrong, and that an ethical leader is one who does what is right. Those who are unethical usually do something wrong that exploits a person, group or
situation for their own or their company’s gain at the expense of ‘others’.
Ethical leadership is about doing what is right for the long-term benefit of all stakeholders. It is about balancing the organisation’s short-term goals and longer-term aspirations in a way that achieves a positive result for all those who could be affected by the organisation and the decisions of its leader. It is not only about ensuring that others are not adversely affected by the leader’s decisions and actions, but also actively looking for ways to make sure that others benefit from these decisions. It goes without saying that the more senior the leadership role, the more influence and impact that leader’s decisions will have on a broader group of stakeholders.
Therefore, the more senior the leader, the more careful and circumspect they should be in reaching decisions. This is the very essence of establishing sound oversight and governance. Structures should be in place to provide the leader with a sounding board and advisory conscience. This will help to prevent them from taking ill-advised decisions and actions which may ultimately cause harm.
There are levels of behaviour from the unethical through to the highly ethical. Building on the work of Dexter Dunphy, Emeritus Professor in the School of Management at the University of Technology Sydney, we can define them as follows:
Level 1: Rejection. Exploit, use and abuse others, and especially their relative disadvantages, for your own gain, without any regard for consequence.
Level 2: Non-responsiveness. Operate from a position that measures success only in terms of one’s own gain; exploit others
where there is a power or monetary gain to be had; little real concern for the law of regulation.
Level 3: Compliance. Do the minimum required by the relevant law of the land, and continue to exploit others, but minimise
consequential risk. In other words, don’t get caught out.
Level 4: Efficiency. Regard yourself as a good citizen (individual or corporate) and act in a manner that respects and upholds the
morals, values, regulations, customs and styles of wider society; act in a holistic, integrated way across all areas of activity.
Level 5: Proactivity. Be a proactive agent for values-led leadership in the context of wider society in all areas of activity,
recognising this as a point of personal or corporate distinction. Or, be a role model by going “above and beyond”.
Level 6: Sustaining. Recognise one’s place in the grander scheme of things, and the inter-connectedness of everyone and
everything; act as a co-evolutionary element to foster greater effectiveness for the whole.
In recent times, we can say that Nelson Mandela has been a shining example of a Level 6 ethical leader. The years after his release from Robben Island and the leadership he provided the South African nation through the 1990s was, at the very least, Level 5 leadership. But these are more than levels of behaviour.
They are mindsets, attitudes, or ways of being. And this goes to the heart of the matter. An ethical leader operates from Level 4, 5 or 6. They have a sense of mission in life. They operate according to their identity, and the values and morals they clearly possess. They are marked out by the perspectives they bring to problem-solving, the capabilities they develop in themselves and others, the choices they make and how this is all expressed in their behaviour.
We contend that from the perspective of common sense definitions, a leader operating from Levels 1, 2 or 3 is not an ethical leader.
What makes for ethical leadership?
We suggest that ethical leadership finds a home in the help and guidance given to a well-formed group of people around a set of values that works for them and for the wider context of their society, culture, country and organisation in a manner consistent with Levels 4, 5 or 6. Indeed, we would argue that the closer the leader is operating to Level 6, then the more ethical and the more effective will be their leadership. Effectiveness in this context refers to the moral sustainability of a leader’s style and influence over time. It is important to note that some leadership is very effective for well-formed groups, but not for wider contexts.
The Mafia and extreme forms of religious fundamentalism are clear examples.
The more ethical the leader, we contend, the more substantial and long lasting will be the legacy on their organisation.
Antony Jenkins, the newly appointed Group Chief Executive of Barclays Bank, publically committed himself during the recent One Young World Summit held in the USA city of Pittsburgh, to re-examine the bank’s core values. He said: “Large organisations have to take responsibility for their own behaviours and actions. I actually believe that businesses that operate in an ethical way will ultimately be more successful.”
We support this contention. We also understand that this is often where many leaders face conflicting challenges. They regularly have to balance short term actions (which may not entirely adhere to the individual’s ethical standards), with longer-term and ultimately much more beneficial strategies. We can imagine a number of scenarios where leaders have to take a course of action that may not be entirely ethical.
Nonetheless, it is our contention that ethical leaders always take the right path, even if the consequences are not necessarily palatable to a certain category of stakeholder. Ultimately, the leader will be recognised and rewarded (not always financially) for taking the right path.
Where and why does ethical leadership matter?
The benefits of ethical leadership can be seen most clearly where it is absent; where there is misalignment of the level of leadership and the ethics of the leader on the one hand, and the group they are leading or the wider context on the other.
Such conditions foster greed, fraud, confusion, alienation, tension and struggle. Perhaps the clearest example of this in recent years is the Enron scandal and the subsequent unravelling of Arthur Andersen.
There is a special condition that is even worse in its reach and negative consequences. That is when the level of corruption throughout a country is so deep, so pervasive, that it not only tolerates, but actively fosters corporate corruption.
Looking at the latest corruption perception index (CPI) from Transparency International, it is clear that it would be very difficult, if not impossible, for ethical leader to operate in certain countries. Out of the 184 countries ranked in the 2011 index, only 50 score above the mid-point. It is extremely challenging for a leader to operate at Levels 5 or 6 in environments where corruption is endemic.
Making high-profile appointments
If we accept that ethical leaders ultimately create greater value for organisations, we can then ask: why have there been so many recent events that have exposed the lack of integrity and moral standing of so many high-profile leaders? It seems that almost every day, the press exposes a new leader that, quite frankly, fails the test of conducting the affairs of the organisation in a morally sound
and defendable manner.
It would appear that ethical considerations are not sufficiently considered and fostered in many organisations. Is it because society has been institutionalised into considering the best person for the role to be the one with the right experience, academic record and networks – without questioning the individual’s values?
The following list offers some guidance on how to determine the ethical strength of any leader. Ask, does the leader:
• Value the establishment, functioning and importance of governance structures?
• Ensure that these structures are properly informed of the issues facing the organisation?
• Take advice and feedback from these structures?
• Actively seek honest feedback from colleagues and do they feel comfortable challenging the leader on significant issues?
• Respond positively to questioning and criticism from his/her own team?
• Positively receive suggestions and direct communication from various stakeholders?
• Actively support proper control mechanism within the organisation?
• Communicate the organisation’s values clearly to all stakeholders and take appropriate action against people who breach these values?
• Lead by example by living the values?
• Ensure the organisation has established appropriate, anonymous, feedback mechanisms?
Strategies to consider
Ethical leadership starts at the top, with the company’s board of directors. In the case of transnational companies, it must be evident in the senior executive group of each country’s operations. Above all, it must be present in the CEO.
Such people need a clear, unambiguous set of values and standards that reflect their agreed commitment to a level of ethical leadership, as described earlier. These values need to be set and then articulated in the wider context of the organisation, society, culture and regulations of the operating country or environment.
In South Africa, a set of core principles, referred to as the King III Corporate Governance (King III) framework, has been set out. One of the principles is that: “the board should ensure that the company’s ethics are managed effectively”. In this context, King III prescribes the following:
“Building and sustaining an ethical corporate culture requires ethical leadership…it is the responsibility of the board (and executive
management) to provide ethical leadership in the company. The board should ensure that the company’s ethical standards are clearly articulated and should be seen to support them actively by taking measures to achieve adherence to them in all aspects of the business. In this way, the board would ensure that ethics is an integral part of the way in which a company conducts its business.”
“The board’s commitment to building and sustaining an ethical organisational culture should be reflected in the company’s vision,
mission, strategies and operations; its decisions and conduct; and the manner in which it treats its internal and external stakeholders….”
“The board assumes ultimate responsibility for the company’s ethics performance by delegating to executive management the task of setting up a well-designed and properly implemented ethics management process.”
Ethics must, therefore, be managed in a coordinated manner to help organisations act responsibly. According to Professor Deon Rossouw, CEO of the Ethics Institute of South Africa, three make-or-break factors underlie the ability of companies to manage their ethics effectively:
1. The need for visible and audible commitment by a company’s leaders to ethical values and standards of behaviour within the company.
2. The quality of the communication of the values and ethics of the organisation.
3. The speed, visibility and decisiveness with which a company responds to unethical conduct. Since the 1990s, it has been increasingly popular for companies to assemble ethics committees in order to avoid scandals. We suggest this is Level 3 at best. The espoused values need to find expression among all leaders in the corporation, along with the behaviour and governance structures, principles and policies of the organisation itself.
An organisation can take the following steps to improve its ethical leadership:
• Adopt well developed business codes of conduct and standard operating procedures to codify behaviour across the entire organisation
• Set up ethics committees and subcommittees to consider and support critical decisions
• Introduce ethics training programmes and embed them into induction and technical training
• Conduct regular ethics reviews across the organisation as part of established reviews, such as internal audit
• Ensure that recruiters and interviewers incorporate ethical considerations into the selection process
• Provide a mechanism for regular (at least annual) feedback on the ethical rating or index of senior employees
• Install and publicise an ethics hotline which can be used to report potential breaches.
• Establish a process for dealing even-handedly with breaches across the organisation
• Ensure that senior employees understand when to escalate or consult on decisions that have far reaching ethical consequences
• Encourage employees to openly challenge the leadership on issues that may have serious ethical implications.
When establishing these systems and encouraging these behaviours, organisations must be sensitive to various cultures and belief systems. In doing so, it is important to:
• Understand the legal and regulatory environment in which an entity operates
• Make sure that regional corporate structures are maintained by locals, who have a better understanding of acceptable business practices in the region
• Provide expatriates working in foreign countries with local business conduct training
• Avoid unstable nations and those with poor human rights records
• Ensure that all stakeholders, including vendors and customers, comply with the standards of behaviour and ethical conduct espoused by the organisation.
An organisation is much more than an economic unit of value. It is an integral part of the broader societal fabric within which it operates. It should understand the role it plays in the overall advancement of humanity. Its leaders are the embodiment of the organisation and, by extension, its collective intellect, soul and conscience. This is a responsibility much greater, and with a much higher purpose, than may initially be apparent.
Ethical leaders are those who readily grasp this concept and view their role as stewards of the organisation. They understand that they are called upon to leave a legacy which adds to the organisation’s overall moral standing and strengthens its future as a
global asset and an example to others.
Author: Viv Oates CA(SA) is Africa Advisory Leader at EY and Tim Dalmau, BSc, Dip. Ed, MBA, is a Consultant at Dalmau Consulting.
BPO the way to go?
Finance and accounting play an important role in business by supporting core revenue generating activities across the span of any
As a business grows or changes over time, its requirements for the finance and accounting functions may change due to a number of reasons. In some instances these functions can become too expensive and inefficient – maybe due to fragmented functions, increased complexity, legacy systems, tenure of staff and lack of best practice and specialisation.
Or as time passes, process scope creep may occur, leading to control failures. A prime example is when circumstances justify a change in the process or not using it for a specific reason or time – and this practice becomes the norm.
Acquisitions may require companies to consolidate their accounting platforms and standardise procedures, often across several geographies. These exercises, and business peaks and valleys, require flexible and experienced accounting employees, which may simply not be available.
Business process outsourcing, or BPO, enables companies to overcome all these challenges and more through interventions
such as outsourcing certain finance and accounting activities to lower cost offshore locations, often through an outsource service level agreement that structures and standardises the required processes. These services can be provided across multiple
finance platforms, geographic locations and functions.
Finance and accounting outsourcing typically starts with the more repetitive, process driven, transaction based processes, and then evolves to the more critical processes as the client feels more and more comfortable with this approach and it starts to deliver the anticipated results. Finance and accounting outsourcing is becoming one of the many BPO strategies available to an organisation to make it more competitive.
Author: Johann Kunz is the MD of WNS Global Services, Section sponsored by South Africa.
Integrated Reporting envelops the world
A newly released Consultation Draft clarifies much about integrated reporting, yet poses new questions…
At six stock exchanges and in 15 countries around the world, the Consultation Draft of the International Integrated Reporting Framework was launched with great fanfare on April 16 this year. The International Integrated Reporting Council’s (IIRC) Consultation Draft was widely anticipated. After all, its content drew on the thinking and intelligence of hundreds of organisations and individuals from countries ranging from Japan to Brazil, Russia to the United States, Holland to Australia, and so many others. South Africa played its part too.
The integrated reporting experience of local listed companies and organisations was fed through to the IIRC by the many South Africans sitting on the IIRC’s board, technical team, working group, investor network, company pilot programme, and technical collaboration groups. We have done our bit; the experience of our companies has been deeply valued.
The Consultation Draft – available on www.theiirc.org and www.sustainabilitysa.org – is open for a 90-day public comment period ending on 15 July 2013. South Africa’s Integrated Reporting Committee of South Africa (IRC) has urged all stakeholder groups to submit comments to the IIRC so that their voice may be heard in this global evolution of corporate reporting. The final Framework is expected to be released in December 2013. It will be the ‘version 1.0’ Framework, to be updated periodically as integrated reporting evolves. The Consultation Draft (CD) contains some notable features.
In order to say that an integrated report has been prepared in accordance with the IIRC Framework, the report must apply all of the stated principles-based requirements set out in the Framework. The only exceptions to this blanket rule are where material information is excluded due to the lack of reliable data, specific legal prohibitions or where it could result in competitive harm.
This is brand new thinking. It wasn’t in the international or local discussion papers. On the plus side, set requirements can assist with comparability and credibility. But in the 90-day comment period, respondents might want to comment on whether they agree with all the requirements, and if any new ones should be added.
The CD requires that an integrated report be prepared primarily for providers of financial capital, to support their financial capital allocation assessments.
This requirement needs context. Firstly, the CD acknowledges that the integrated report will be of benefit to all stakeholders interested in the organisation’s ability to create value over time. Secondly, the requirement must be read against the backdrop of the CD’s fundamental concept of ‘value creation’, which is broad and all encompassing. An organisation can: “create and maximise value by serving the interests of and working with all its key stakeholders. Value created in this way manifests itself in financial returns to providers of financial capital and also in positive and negative effects on other capitals and other stakeholders”.
Further, the CD notes that: “financial returns to providers of financial capital are dependent on inter-relationships between various types of capital in which other stakeholders have an interest”. And so that completes the circle. Or does it?
The extensive explanation of value creation in the CD is a big step forward for integrating reporting, as it received only superficial mention in the international and local discussion papers, despite being fundamental to the process. But note that the CD doesn’t give an actual definition of value in the CD. Any takers for defining this subjective term?
Capitals and the Business Model
Value is closely intertwined with the other two fundamental concepts in the CD – capitals and business model. The six categories of capital (financial, manufactured, human, intellectual, social and relationship, and natural) were first introduced in the IIRC’s Discussion Paper and were warmly accepted by most respondents in their public comments. (The capitals concept is an extension of the “resources and relationships” referred to in South Africa’s Discussion Paper.) The CD guides one as to how the capitals intertwine with value. The capitals are the ‘stores of value’ – with value being created for both the organisation and its stakeholders as a result of: “the increase, decrease or transformation of the capitals caused by the organisation’s activities and outputs”.
The CD does not, however, require that the six identified categories of capital be adopted by all organisations. They are rather a benchmark check when preparing an integrated report; but disclosure of the reason why a capital is considered not material is required. Is there too much flexibility here? If adopting the set categories of capital was a requirement, surely the integrated reports of organisations would be easier to compare, as in apples with apples?
The business model is given pride of place in the CD. It is considered the core of the organisation because it’s the mechanism through which the organisation creates value. The organisation draws on various capitals as inputs, and through its business activities, converts them to outputs (products, services and waste) and that leads to outcomes (effects on the capitals it uses and affects). In my view, the effects on the capitals should be akin to total value creation (or net destruction). The definition of business model is brand new to the CD and follows extensive research on the term.
If an organisation gets its business model right – its inputs, outputs and effects on capitals – it is a long way into telling its value creation story (and fully understanding the dependencies and effects of its business).
Materiality is one of the six guiding principles that must be applied. The CD offers a thoroughly thought out definition of materiality in the context of integrated reporting and gives good guidance on the process to be followed by an organisation in determining which matters are material (and hence go into the report) and those that should be reported elsewhere (eg. The website or in other detailed reports). Materiality in integrated reporting is all about a matter’s known or potential impact on value creation.
The materiality definition gives management and the board the power to determine if a matter could substantively influence the assessments of intended report users (being the providers of financial capital) as to the organisation’s ability to create value. The CD’s wide view of value creation can result in other stakeholders being subtly included, but the public comments on the definition could be an interesting read.
Role of the Board
The CD states that an integrated report should identify the governance body with oversight responsibilities for integrated reporting. The report may include a statement from the body acknowledging responsibility for the integrity of the report; that it has applied its mind in the preparation of the report and the information it contains; and its opinion as to whether the report is presented in accordance with the Framework. This is a ‘may’ – it is not a requirement. Should it be a requirement?
Assurance providers will notice that in the CD the topic of assurance is dealt with in just two paragraphs (5.20
and 5.21). This is not due to its lack of importance. The IIRC has appointed an international technical collaboration group (being led by the IRBA Sustainability Standing Committee) to come up with possible approaches to the assurance of an integrated report – as things stand now, this is an unknown area. This research paper is expected to be ready for release mid 2013. Assurance providers might want to answer the CD’s consultation question 20 as to whether the CD’s set requirements provide suitable reporting criteria. 15 July 2013 is deadline day. Your comments will count.
Note: Three of the technical research papers used in the development of the CD are available on www.theiirc.org. There is a useful database of excerpts from company reports on www.theiirc.org.
Author: Leigh Roberts CA(SA) is Project Director, Integrated Reporting at SAICA, a member of IIRC’s Technical Task Force and the IRC Working Group.
The APC SAICA’s New ‘Part II’
The South African Institute of Chartered Accountants (SAICA) is to introduce a new examination in 2014. This examination, to be known as the Assessment of Professional Competence (APC) will replace the current Part II examinations (PPE and Financial Management) and will be a significant change in the qualification process for the chartered accountant CA(SA).
The introduction of the APC is part of SAICA’s carefully planned strategy to ensure that the CA(SA) remains the pre-eminent
business qualification in South Africa and a highly relevant and respected qualification in South Africa and abroad.
The public and private sectors of the economy have been subject to sustained change in recent years, and it is vital that CAs(SA) be equipped with the competence (knowledge, skills and attitudes) that enable them to be at the forefront of development and, indeed, to initiate and lead change.
This has required that SAICA ensure that its qualification process is dynamic and relevant, and that it anticipates the changing demands likely to be placed on chartered accountants in the future.
The qualification process to become a CA(SA) is different from those of other chartered accounting bodies around the world. The main differences lie in the role played by the universities, the central importance of SAICA’s examinations and the detailed accreditation and monitoring, by SAICA, of the academic and practical experience (training) components of the process.
This unique qualification process, with its inherent focus on quality, has contributed to the very high standing which the CA(SA) enjoys in South Africa and abroad. SAICA recognises that change and development in its qualification process should be carefully planned and based upon a very clear understanding of the role to be played by chartered accountants.
For these reasons it developed a Competency Framework which details the competencies that a newly qualified CA(SA) should have. SAICA also recognises the uniqueness of its qualification process and the central role that the qualification process plays in the standing of the CA(SA).
It understands, however, that the qualification process must remain dynamic to respond to the rapidly changing economic
environment. To ensure that changes to components of the qualification process do not undermine its coherence, SAICA has identified the foundational premises which provide the basis for its qualification process.
Both the Competency Framework and the Foundational Premises are subject to ongoing re-assessment to ensure these remain relevant and responsive to the competency requirements of the CA(SA).
The Competency Framework identifies the CA(SA) as ‘a leader with a very specific background in professional accountancy’. This identifies the prominent role that many CAs(SA) play, but also recognises that technical expertise is the indispensable
foundation for this role.
Technical competence is, therefore, a central component of the Competency Framework. There is recognition, however, that
technical competence should encompass more than the traditional sub-disciplines of accounting [financial reporting, auditing, taxation, management accounting and financial management] and that competence in strategy, risk management and governance are indispensable.
There is also full recognition that non-technical skills and attitudes are extremely important if the CA(SA) is to play a leadership role. The importance of non-technical skills and attitudes, often referred to as ‘soft skills’, has long been recognised, but little formal
emphasis has been placed on them in the qualification process. These skills and attitudes, termed ‘pervasive qualities and skills’ in the Competency Framework, include ethical behaviour and professionalism, the personal attributes of a CA(SA) and professional
attributes such as the ability to communicate\ effectively.
The Competency Framework emphasises the importance of pervasive qualities and skills and also of technical skills related to strategy, risk management and governance. The recognition of the importance of these competencies led to the decision
to introduce the APC in 2014.
The qualification process is underpinned by a number of underlying core principles (Foundational Premises). These provide a point of reference for any changes or developments in the qualification process. With regard to the introduction of the APC, two principles are of particular importance.
Firstly, that technical competence is acquired in the academic programme and assessed in the ITC [formerly Part I], and secondly, that the focus of the training programme should be on the acquisition of professional competence, and it is professional competence that should be assessed in the APC.
The overriding foundational principle requires that the standing and reputation of the CA(SA) should not be compromised in any way by changes to the qualification process.
SAICA’s decision to replace its current Part II examination with the APC was taken after several years of investigation and reflection, and was guided by established policy reflected in its Competency Framework and Foundational Premises. Some features of the APC include the following:
• The quality and standing of the CA(SA) is not compromised in any way. SAICA recognises that chartered accountants make a significant contribution to the economy of South Africa and that standards of competence must be ‘world Section sponsored by class’ if South Africa is to prosper. All aspects of the qualification process, including the APC, must contribute to this ideal.
• The APC will focus on the assessment of the pervasive qualities and skills and the specific technical skills related to strategy, risk management and governance, but within a context where the other technical competencies must be displayed.
• The APC will assess professional competence to the extent possible in a written examination. Assessment of professional competence will also continue to take place ‘on the job’ as part of the training programme.
• The form of the APC will reflect ‘real life’ where the professional accountant prepares in advance for an assignment but is not aware of the specific brief to be provided by the client. Thus, the APC will include a case study provided to candidates several
days before the assessment is written, additional information on the day of the assessment and the ‘required’ only on the day of the assessment.
• The pre-released case study will enable candidates to acquire an understanding of the entity, of the environment in which the entity operates and of its challenges and opportunities. Candidates will be able to identify the technical issues which may form part of the assessment and will, therefore, be able to prepare specifically for these issues. In this way assessment of technical competence will remain a feature of the APC, but will be fundamentally different from the approach to assessment of technical competence in the ITC. In the ITC candidates must be prepared to be assessed on any technical competence included in the Competency Framework, while in the APC candidates will have clear indication, through the pre-released case study, as to which technical competencies may be assessed.
The current SAICA Part II and the PPE (IRBA) will be phased out from 2014, as will the specialism audit and financial management education programmes that prepare candidates for these examinations.
These education programmes will be replaced by the ‘professional programme’ which will be offered for the first time in 2014. The professional programme will focus on the pervasive qualities and skills and on strategy, risk management and governance in a
context of full integration of the specific (technical) competencies.
In summary the entire qualification process for CAs(SA) is informed by the Competency Framework as follows:
SAICA has communicated closely with the Independent Regulatory Board for Auditors [IRBA] during the process of developing the APC.
This has been vitally important because the IRBA (responsible for regulating Registered Auditors) relies on the
SAICA qualification process as an important component of its own process. The IRBA recognises that auditing is a specialisation and, therefore, intends to introduce a new element to its qualification process – a professional experience period.
Successful completion of the professional experience period will be a requirement for registration as an auditor and will be in addition to qualification as a CA(SA). The additional requirement for registration as an auditor thus complements the SAICA qualification process and the introduction of the APC.
SAICA has spent a number of years reflecting on its qualification process and spent two years developing its approach to the assessment of professional competence. During this period its proposals relating to the APC have been the subject of wide consultation.
The introduction of the APC has now entered the implementation phase, during which consultation will continue. Important aspects of implementation include the preparation of specimen APC assessment instruments and the accreditation of providers of the
These matters are well in hand, with a pilot examination and marking process planned for later this year. Indications are that there
will be three providers of the professional programme, and SAICA is working closely with them and with training offices so as to ensure that candidates are appropriately prepared for the first sitting of the APC in 2014.
|AcademicProgramme||The focus of this programme is ondeveloping and assessing technicalcompetence.||Addresses the specific (technical)competencies and the pervasivequalities and skills to the extentappropriate in a programme of this|
|Initial Test ofCompetence (ITC)(Old Part I)||The ITC is a standard setting examination which ensures consistency in the academic programmes.Assesses technical competence.||Assesses technical competence butwithout a focus on integration of thespecific competencies. Assessespervasive qualities and skills in a|
manner which is consistent with the
way in which these competencies are
addressed in the academic programme.
|The Training Programme(Articles)||The focus of this programme is on developing and assessing professionalcompetence.||Focuses on the application of technicalcompetence in ‘real life’. It alsodevelops those pervasive qualities andskills which are best developed ‘on the|
job’. Assessment is an important feature
of this programme.
|The Professional Programme||The focus of this programme ison development and assessmentof professional competence.||This formal programme of educationaddresses the integration of the specific(technical) competencies in a context inwhich strategy, risk management and|
governance are inherent and in which
emphasis is placed on the pervasive
qualities and skills. The programme
relies on candidates having at least
one year of training in addition to
having successfully completed the
academic programme and ITC. It
complements the training programme
in the development of professional
competence in that it provides formal
tuition in the context of full integration
of all aspects of the Competency
|The Assessment of ProfessionalCompetence||The APC assesses professionalcompetence.||The APC assesses professionalcompetence to the extent possible in awritten examination.|
Author: Helen Bimbassis CA(SA) is the Project Director: Education at SAICA.