October 22, 2023 In Consultancy


Corporate governance malfunctioning history

The creation of King IV was a direct response to corporate governance malfunctioning in the early 90s, aimed at creating a framework for corporates to be more accountable and transparent in their operations. The Enron and World-Com scandals were a turning point in the traditional “Pty Ltd” model, which up to then was premised on corporate independence and privacy, far away from the meddling government and public eye. For emphasis, the Enron scandal, publicized in October 2001, eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the de facto dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world.

The Enron collapse is an important milestone because it called into question the most fundamental beliefs of investors in the United States about how their interests were protected. It is important to keep in mind that investors in public companies have relatively little control over how their funds are used by the company’s management. On the other hand, the World-Com was not just the biggest accounting scandal in the history of the United States—it was also one of the biggest bankruptcies. The revelation that telecommunications giant World-Com had cooked its books came on the heels of the Enron and Tyco frauds, which had rocked the financial markets. These scandals are important because they gave corporate governance a new impetus globally resulting in governments all over the world creating one form or another corporate governance instruments either via legislation or codes as in the King IV Code.

Since then, King IV (and all other versions prior) has been successful in creating a transparent and uniform corporate structure, shareholder oversight mechanisms, a common corporate philosophy for SA companies and an emphasis on ethics and compliance within companies. Environmental and social factors also became new “reporting indicators” for companies, who traditionally only focused on “profits at all cost”. Therefore, King IV has been greatly successful in defining the corporate structure in SA, but has fallen short on operational governance.

What is operational governance?

According to Plenert (2002) Operations Management (read “governance”) is the management of activities that enable an organization to transfer a range of basic inputs (raw materials, energy, customer requirements, information, skills, finance etc) into outputs that delivers the organization’s primary products and services to the end customer. The nature of how the management of the strategic objectives is organised depends largely on the type of organisation, such as a government authority, a manufacturing or wholesale business, a retail company or an agency (Pycraft et al. 2007). According to Brown et al. (2013) and Mahadevan (2010), the importance of effective operations management in achieving organisational objectives can be divided into three broad categories: strategic decisions, tactical decisions and operational decisions.

Operational decisions are a critical part of all organizations irrespective of manner of incorporation. It appears that this is mainly what is lacking particularly in the public sector and State-Owned Enterprises. In a nutshell, save for a few pockets of excellence, the state machinery seems to be battling in marrying strategic planning to outcomes. This is a problem clearly compounded by the misplacement or lack of skills generally available in this sector. It goes without saying that in the absence of operational governance, we end up with mountains of strategic plans with no value at a delivery level. It is for this reason that the state organs are perpetually in crisis mode, as there is no culture of appointing “horses for courses” generally. It is therefore no surprise that there is a culture of impunity and lack of consequence management in respect of poor performance. In a corporate setup it is quite evident that when a company lacks operational governance, the business will eventually become unsustainable and die a natural death. In the SOEs and government however, every failure is rewarded with either a bail-out or a downward revision of KPI’s.

Implementing operational governance

Operational governance will be evidenced by the transformation of strategic plans into actual achievement of objectives. This implies that a proper organization-wide operational governance model should be developed, implemented and monitored and must include the following elements:

  • 1.A proper diagnosis of the overall challenges facing delivery of services by the organization i.e. human resource, financial, environmental etc factors.

  • 2.Development of a proper and comprehensive problem statement for each department/division within the organization e.g. SOEs, Municipalities etc.

  • 3.Mapping over a period the various interventions required over time to resolve the challenges identified.
    4.Identifying and developing the required human skills to implement the plans;

  • 5.Procuring the correct support tools e.g., technology, systems etc to enhance efficiencies, monitoring and evaluation.

  • 6.Developing comprehensive implementation protocols supported by the relevant frameworks required for implementation of agreed outcomes.

  • 7.Define measurable timelines to achieve the outcomes.

  • 8.Create a legally-binding consequence management framework that will hold employees accountable for the success or failure of their outcomes.

  • 9.Implement the sanctions for failure to deliver on outcomes.

  • 10.Communicating with the beneficiaries or clients continuously and on an on-going basis to address progress, challenges and achievements. Ignoring the customer has severe consequences as evidenced by the violent service delivery protests currently in vogue.

In closing

Surely business cannot be just about meetings, I’ve noticed that in the public sector, meetings are considered work and as such the current operational governance model in the public sector is about attending meetings. If a private business spent all its time in arranging and attending meetings, I promise you that such a company would cease to exist in no time. Meetings, unless called for purposes of planning and other strategic reasons, are a complete waste of time. If a person’s sole reason to go to work is to sit in meetings the whole day, when then does that person actually get to work? Work is normally an isolated (even within teams) and concentrated function which requires constant communication with beneficiaries and addressing their queries and concerns etc. I fail to see how sitting in a meeting every day, usually discussing what was discussed in the previous meeting and the one before that, can assist in achieving goals and targets. No wonder we have serious service delivery problems, because it’s all planning and no action. Operational governance will address these types of anomalies and ensure a proper diagnosis of challenges, implementation of solutions and accountability of leaders in achieving the stated objectives