UNDERSTANDING STANDARDS

There is no middle road here. It is either right or wrong!

In the first episode of the series Understanding Governance I brought the reality of maintaining ‘good’ governance to the fore. Ethical principles should come from within – not enforced. You may recall, I emphasised ‘There is no middle road here. It is either right or wrong!’

Our complicated surroundings, due to societal inequalities, has forced the rule of law into our lifestyles obliterating ethical principles. We have suppressed ethical standards relying or depending on by-laws to enforce the standards we ethically support.

Let me explain. An athlete or a farmer should know it is wrong to use banned performance enhancing drugs or chemicals with the intent to deliver an outcome beyond the expected standard. The key word used here is ‘banned’. Health Authorities may have determined that the substance or chemical be harmful for human consumption thus imposing restrictions on the use thereof. Once limitations have been set – a standard is introduced.

Time is by far the most common standard enforced on mankind. What time we wake up in the morning? What time we go to work? How much time we spend with the family? It is all measured to conform to a standard. The standard? … One day has twenty four hours; one hour has sixty seconds!

We are faced with a host of standards, applicable to all, in our daily lives. The weight of a loaf of bread. The volume of a litre milk. The temperature settings on my kitchen oven. The height of my front door. The diameter size of the CD/DVD disk used within my laptop. Need I continue?

However, before we could determine the weight of bread we had to standardise weight itself. The same principle applies to length, volume, temperature, etc.

There are many definitions for the term ‘standard’. The one I prefer reads: A standard is a documented, agreed upon, repetitive or consistent way of doing something that may also be referred to as ‘a set of rules’ for ensuring quality!

The ISO (International Organization for Standardization) is the world’s largest developer and publisher of International Standards. ISO has established a network of the national standards institutes of 162 countries, one member per country, with a Central Secretariat in Geneva, Switzerland, that coordinates the system. As a non-governmental organisation, the ISO, forms a bridge between the public and private sectors.

We need to appreciate that standards help to make life effective. Standards increase the reliability and the efficiency everything we use, bringing together the experience and expertise of all interested parties such as the producers, sellers, buyers, users and regulators of a particular material, product, process and/or services.

However, we need to understand that most standards are intended for voluntary use seldom enforced by legislation. In some countries laws and by-laws may refer to certain standards thus enforcing compliance.

Why a standard for governance?

In October 2001 the Enron scandal eventually led to the bankruptcy of the Enron Corporation, an American energy company based in Houston, Texas, and the dissolution of Arthur Andersen, which was one of the five largest audit and accountancy partnerships in the world. In addition to being the largest bankruptcy reorganisation in American history, at that time, Enron was attributed as the biggest audit failure. This scandal led to the formation of SOX, a United States federal law enacted on July 30, 2002, which set new or enhanced standards for all U.S. public company boards, management and public accounting firms.

SOX is named after sponsors U.S. Senator Paul Sarbanes (D-MD) and U.S. Representative Michael G. Oxley (R-OH).

The Sarbanes–Oxley Act of 2002, also known as the ‘Public Company Accounting Reform and Investor Protection Act‘ and ‘Corporate and Auditing Accountability and Responsibility Act‘.

In South Africa the King Committee on Corporate Governance was established, in 1992, to develop a governance standard from a South African perspective.

The result was the King I, dated 1994, which spearheaded corporate governance in South Africa. It aimed to promote corporate governance in South Africa and established recommended standards of conduct for boards and directors of listed companies, banks, and certain state-owned enterprises. King I advocated an integrated approach to good governance, taking into account stakeholder interests and encouraging the practice of good financial, social, ethical and environmental practice.

The second King Report on Corporate Governance was published in 2002.

In September 2009 a third, revised, King Code and Report on Governance for South Africa (King 111) was launched. It came into effect and replaced the King II Code and Report on Corporate Governance on 1 March 2010.

King 111 was prompted by changes in international governance trends and the reform of South Africa’s company laws with the promulgation of the new Companies Act 71 of 2008 that came into effect on 1 July 2010.

The review also came at a time when companies and corporate governance were increasingly under the spotlight in light of recent corporate failures and the then global economic slowdown.

Once again I need to remind you that most standards are intended for voluntary use seldom enforced by legislation. Fortunately, most countries enforce Consumer Protection laws, a form of government regulation which aims to protect the rights of consumers, thus good governance. For example, a government may require businesses to disclose detailed information about products—particularly in areas where safety or public health is an issue, such as food.

There is no middle road here. It is either right or wrong!

Be Sociable, Share!

Switch to our mobile site