Corporate Governance

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This assignment will answer three questions. First: is the “apply or explain approach” followed in South Africa merely the result of historic circumstances or is such inherently “better” than “comply or else” approach. Second: “apply or explain” with regard to directors and their decisions and, Third: based on the above two questions which approach is most convincing and why. Question 1

With regard to the South African situation, South Africa is known as a developing post-colonised country. Corporate governance is “a particularly salient issue in emerging markets attempting to compete for investors and capital with established markets where investors are less concerned about the quality of corporate governance practices” (Andreasson, 2002: 2).This statement rules out the possibility of a “comply or else” approach to corporate governance, and as a result “comply or explain” approach is the most suitable approach for South Africa. Due to South Africa being considered as a developing country our infrastructure for the law of “comply or else” approach would be difficult to uphold and enforce due to the severity of the legislation. Furthermore the investors are less concerned about the quality of corporate governance practices and if we were to have a practice such as the “comply or else” approach then it would not be successful to implement in South Africa. The King report also states further that “the danger is that the board and management may become focused on compliance at the expense of enterprise” (2009:5). Due to there being so many factors that are detrimental to the success of an organisation in a developing country, profits are already challenging without having to shift the focus of management. South Africa was colonised by the United Kingdom and inherently this would have an effect on the way we do business, be it in the past, in the present or in the future. The UK-based approach, that is, the “lighter” “comply or explain” approach has thus been implemented as a result of UK’s past relationship with South Africa. “Following the transition from apartheid, stakeholder issues and questions about the societal responsibility of corporations are increasingly salient given the urgent need for socioeconomic development” (Andreasson, 2009:5), this fundamentally results in South Africa has the tendency to move towards a more stakeholder normative approach in that “corporations have a moral obligation and social values that extend beyond the liberal emphasis on the owners.”(2009: 4) This means that, in a developing country, in order for the country to reach its maximum potential it is necessary for it to invest in its own economy as well as community. It is crucial for the development of the country that the organisations ensure that there is a balance between economic efficiency and socioeconomic development. However, an organisation needs guidance and cannot have the freedom to create their personal ethical practices without having a basic idea of what it should entail. “Hybridization explains how novel features of governance can be combined with existing practices” (Andreasson, 2009: 15). These combinations of corporations own ethical practices as well as legislated practices allow South African corporate governance the ability to be extraordinary. The ability to anchor South African corporate governance in “African values” while staying close to the U.K. approach reflects hybridization, (Andreasson, 2009:15). South Africa is such a diverse nation and, therefore, this is crucial for the success of corporate governance to be implemented and accepted in corporations. This results in there being co-operation between so many different organisations, communities as well as stakeholders. Question 2

Corporate governance ensures that companies do not only focus on the interests of shareholders but also on other stakeholders, such as the community. The fact that a company voluntarily implements corporate governance creates a...
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