In a special report for Wynboer, RETHA ALBERTS, well-known professional facilitator and business consultant*, sheds light on “corporative governance”, which has become an increasingly important issue, as well as the responsibilities of directors as two of the most important factors in the possible success or failure of an organisation.

In the context of increasing pressure and the changes on the political, social, economic and technological scenes worldwide, the requirements for effective corporative governance are likewise becoming increasingly demanding. Nowadays directors face bigger challenges and hurdles than ever before, and the demands made of directors by interested parties appear to be ever more exacting. After all, the board of a company or co-operative is responsible for the strategic direction and long term success of the organisation! The directors’ ability and expertise to make meaningful strategic decisions – amidst huge external uncertainties – and give direction, should indeed ensure that the cellar remain successful on a sustainable basis. However, the external environment is unpredictable and uncertain and at times even chaotic.

An example of this volatility and uncertainty is the current strengthening of the rand, and the effect thereof on export contracts. The risk of strategic marketing decisions by die board could end up being costly if the cellar did not take out any hedge or protection against a drastically fluctuating exchange rate! The management of such risks is but one of the issues which regularly confront directors.

Since 1994, when the first King commission under Judge Mervyn King investigated the wide spectrum of issues surrounding corporative governance, the role of directors has been emphasised to an even greater extent than before. The King Report 1 (1994) and King Report 2 (2001) emphasise the important functions and responsibilities of directors, and throughout the world the Commission’s work is considered a meaningful measure of good corporative governance guidelines.

The King Report emphasises the shift from a focus on a single goal, namely financial results, to a focus on a tripartite goal, namely financial results, social responsibility as well as environmental sensitivity. The King Reports refer to this as the importance of the “triple bottom line”.

There is an obvious shift in the demands made of cellar directors by interested parties.
For cellar boards the implications are loud and clear: decision taking around payments, quality, and profit must be balanced with issues such as for example fetal alcohol syndrome, poverty, black empowerment as well as environmental issues such as ISO, waste water and IPW. By no means an easy task!

When one tries to evaluate the issues in most cellar boardrooms, it is clear that the work of cellar directors is becoming increasingly difficult. The trends in winegrowing and wine consumption worldwide, together with new legislation and other important transformation issues in South Africa, mean that there is also an obvious shift in the demands made of cellar directors by interested parties.

Interested parties, including producers, demand that the board communicate with them in a transparent and sustained manner. At the same time one of the biggest complaints from cellar directors is often the lack of interest shown by producers, and their unwillingness and/or inability to support the strategic goals of the cellar.

The ethics code and value system are important elements of the cellar’s culture and character, and form an integral part of the strategic plan drawn up by the board. The value system defines the acceptable behaviour of the cellar’s board, management, employees and producers. The values should be transparent and acceptable to all interested parties, and the ‘tongue tip test’ is: Are these values clearly visible in everyone’s daily conduct

The obligations of directors and issues for which each board is therefore directly responsible, include:

  • Responsibility towards the employees
  • Duty of attentiveness towards the cellar
  • Acting within the proscribed mandates of the board and/or the cellar
  • Fiduciary responsibility – prevention and declaration of conflict of interests.

The latter issue often complicates the decision making process for cellar directors. One of the biggest dilemmas at cellar board level is the ongoing conflict between the interests of the cellar and those of the producers. A balance between the interests of the cellar and those of producers often throws a spanner in the works! The law is clear however that it is the responsibility of directors to ensure that the cellar is managed in a sustainable way! This is nevertheless a ‘hand-in-glove’ situation, and it is obvious that producers benefit directly when the cellar is managed successfully and strategic growth is sustained.

The election and composition of cellar boards are determined by each cellar’s Statute. In most cases the Statute stipulates that directors may only be elected from the ranks of the cellar’s own pool of producers. Historically it often happened therefore that cellar directors were re-elected year after year by members, and sometimes little renewal took place at board level.

The tremendous external changes and the greater competitiveness in the wine industry again emphasised the importance of the election of the “right” directors. The shift in emphasis to market orientation (rather than production orientation) is an example of the new types of demands which cellar directors have to face nowadays. In order to act efficiently, it is necessary that the skills and abilities of cellar directors be honed to enable the sensible fulfilment of their role and responsibilities. The general view is that the liability for the sustained success of the organisation starts and ends in the boardroom. Directors are therefore responsible for fulfilling an extremely important function in terms of the Co-operative and Companies Act in order to ensure, assuming the necessary responsibility, that the cellar grows, performs well and is successful. Consequently reference is often made in organisations to the title of a well-known book about corporative governance, namely The Fish rots from the Head

It is nevertheless no easy task to apply the principles of good corporative governance efficiently and sustainably.

Next month Retha looks at The Feasibility of Corporative Governance and Empowerment. These articles are presented in collaboration with VinPro.

*Retha is the owner of La Vita Nuova Learning and has been active in the local wine industry in South Africa for the past five years. Her specific focus is to help businesses to be successful on a sustainable basis by means of Strategic and Scenario Planning, Leadership Development and Corporative Governance. She is also a part-time lecturer in Strategic Leadership and Corporative Governance at the University of Stellenbosch Business School. Retha can be contacted on (021) 930-8804 or 082 460 4328.

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