02 November 2018

Ethics not part of the workplace say SA’s audit executives but governance guru Mervyn King says situation not as dire

Submitted by: Lynette
Ethics not part of the workplace say  SA’s audit executives but governance guru Mervyn King says situation not as dire

Only 48% of the country’s Chief Audit Executives (CAEs) say ethics is an “integral part” of the workplace. 

And 81%, or 4 in 5, say that the output in their organisations - in relation to resources - is minimal and inadequate.

These are some of the worrying sentiments revealed in the 2018 Corporate Governance Index Report released today. The results intensify the spotlight on the lack of resources in internal audit and, say experts, reveals severe inadequacies in leadership.   

The annual survey is in its sixth instalment and serves as a benchmarking tool in relation to the country’s attitudes towards corporate governance.

It is a perceptions-based study conducted by the Institute of Internal Auditors SA (IIA SA), which represents over 8 000 members, and done in partnership with the University of South Africa (Unisa). 

With 302 of the country’s CAEs from private and public sectors participating (representing over half on the IIA SA’s books), the figure of 48% who strongly agree that ethics is integral to their organisational culture represents a drastic drop of 18% since the survey began in 2013.

Today’s launch was attended by governance guru, Professor Mervyn King, who delivered a talk on “The State of Governance in SA”. 

This after a series of public and private sector scandals in South Africa involving entities like Steinhoff and VBS Bank as well as controversies at various cash-strapped state-owned companies. 

The world-renowned Professor King said, however, the state of governance was not as dire as many think. 

“In fact, the state of governance is more advanced (in South Africa) than the rest of the world. In the latest King Report, its outcomes are based in line with the outcomes-based framework of Integrated Reporting and the outcomes-based sustainable development goals of the United Nations. Thus, there is a mindless, tickbox approach to governance as opposed to a mindful one.” 

He said “a few rotten apples do not make the whole basket rotten.” 

“For example, there are 400 companies listed on the JSE in South Africa and how many scandals have they been involved in? Just two (Steinhoff and Oakbay Resources) which is minimal in percentage terms.” 

However, he conceded that in the public sector, state-owned enterprises were “in a shocking state.” 

“Again, they have become rules-based and are mindless in application - instead of directors mindfully applying their mind in the best interests of the company. Directors (within these entities) must leave behind self-concern and cross that river of intellectual honesty. This is because a company has no heart, mind, soul or conscience. This is why we depend on conscious leadership.” 

The 2018 CGI Report, meanwhile reveals that only 6% of those polled in national government strongly agreed that their organisation possessed “suitable human resource capital to execute its strategy effectively and optimally”. 

At a provincial government level, just 30% said ethics was an important part of their organisational culture - a drop of 8% from the previous year. The quantitative survey examines 7 key governance dimensions. These are: Ethics, Compliance, Leadership, Operational Risks, External Risks, Performance and Assurance.

Other interesting results include: 

* The Ethics and Assurance categories both saw the highest decline of a 9.6% drop in attitudes;

* 41% strongly agreed that their leaders displayed a good understanding of the varying roles of assurance providers; 

* 35% of CAEs strongly agree that they have adequate resources to enable them to do their jobs properly; and, 

* Just 24% strongly agree that their leaders are familiar with, and use the Integrated Reporting principles in the organisations value creation process.

 IIA SA CEO, Dr. Claudelle von Eck, said the results revealed a 6.6% decrease across the board as compared to 2017.

 She admitted that the audit profession has come under greater scrutiny due to recent controversies and says the CGI figures shows the sector is not equipped with the necessary resources. She also added that there is still a lack of understanding of the roles and mandates of assurance providers. 

“The questions about ethics saw a significant decline in the scores. This could be attributed to the scandals in the country that have, in turn, triggered more intense conversations around governance. This could be seen as a positive as it could necessitate a change in ethical behavioural patterns.” 

She says the latest Index revealed that sentiment in the public sector remains significantly lower than in the private sector - with national government faring slightly better than provincial and local government. 

She said executives and oversight bodies in both the public and private sectors needed to show more leadership.

“Leaders must lead. South Africa’s leaders need to give more attention to developing and utilising their human resources effectively, align their ICT strategy to organisational strategy, identify and manage both operational and external risks as well as be alive to developing trends.” 

Von Eck encouraged leaders serving on oversight bodies as well as in management roles to use the Index as a vital benchmarking tool. 

She says: “It is my hope that the 2018 Index will serve as a wake-up call to leaders and will result in more introspection. It is clear that there is much work to be done in moving South African organisations to better governed organisations.