‘Many people have great difficulty separating their interests from that of the organisation they serve. When conflicts of interest arise, they handle them badly to the detriment of their own reputation.’
Leading local farm machinery dealership supplying agricultural equipment and tractors, invites you to join their board of directors. They need someone with your farming background. You’ve dealt with the company for years and have great respect for them. The invitation is a great compliment and as you are a loyal client, you see no difficulty and accept with pleasure. In the first few meetings you are able to provide the board with valuable input. Come the third meeting, there’s an item on the agenda about pricing strategy on tractors. Management puts up a strong case for eliminating the normal loyalty/volume discount applied in the past for regular customers.
The market is strong, driven by the high maize prices and furthermore, one of the main competitors closed shop last year. You see the merits of the proposal, but it’s going to be costly for you. You’re in the market for five units. A quick calculation reveals that it will cost you R75 000 in total. How do you handle this conflict of interest? F armers, perhaps more than other businesspeople, work collectively in many different organisations – cooperatives, farmers’ associations, export associations and security groupings etc.
They do this to protect their shared interests. In collective organisations like these, situations often arise where what is best for the group is not necessarily best for you. How do you deal with these conflicts of interest? Are you able to wear two different hats? Many people have great difficulty separating their own interests from that of the organisation they serve. Furthermore, when these conflicts of interest arise, they handle them badly to the detriment of the organisation and their own reputation. This is just one situation which good corporate governance aims to expose, or at best, eliminate. C orporate governance is simply a set of processes, customs and policies designed to assist organisations in dealing with these dilemmas. The King ll Report, available from the Institute of Directors (www.iodsa.co.za/king.asp), lays out the ground rules for good corporate governance. JSE-listed companies are obliged to comply, while compliance by other organisations is optional, although there are moves to legislate for certain requirements.
Corporate governance affects the way an organisation is directed, administered and managed. It also deals with issues affecting stakeholder relationships. Most organisations, whether companies or not, have the equivalent of shareholders, a board of directors and management. Sometimes all three roles are filled by the same person, which can cause its own dilemmas. Other stakeholders include employees, suppliers, customers, banks, regulators and the community at large. Good corporate governance also drives organisations towards the recognition of a triple bottom line – not just of profit, but also of protection of the environment and social responsibility. G ood corporate governance is a must in business today. Are you and your organisation up to speed with best practice? – Peter Hughes ([email protected] or call (013) 745 7303). |fw