NEWSLETTER Number 1 of 2009 Is there no difference between a Chief Executive Officer and a Managing Director? By Daniela Coetzee The short answer to this is that it really depends on the particular company involved. In South Africa, the use of the term is often interchangeable, with companies being run by a CEO (Chief Executive Officer) or MD (Managing Director) depending on the size and structure of the business involved. Common practice dictates that the terms MD and CEO, are to be associated only with companies. This being said, essentially the board of directors MD or CEO, or the functions that each would need needs to appoint one of its members as the director to fulfil - preferring instead to focus on the concept responsible for ‘managing’ the business of that of director or officer. Therefore, the company itself is company, in the course of its daily operations. The responsible for defining what role or functions its MD or CEO accordingly sees to that side of affairs, particular managing director should fulfil, although and might even appoint an executive committee, or the usual practice is to simply define what practices managing committee (which he / she will oversee), the MD or CEO are not allowed to perform without to assist him / her in running the business. the authorisation of the board. Irrespective of the particular title involved, it is the function fulfilled by that person, together with This allows the CEO or MD the necessary freedom whether or not he / she was appointed as manager to make and implement daily decisions in order to of the company as a whole, and the powers granted ensure the orderly and efficient functioning of the to him / her at the request of the board, that dictate business as a whole. his position in the organisation - and by implication regulating his / her having to report back to the In conclusion, there would be a substantial board of directors. difference between an MD and a CEO if both were found within the same company and were In situations where a company has both a CEO and representative of different persons holding different an MD, the former would usually hold the more positions - since the CEO would usually be more senior position. For example, a company might have senior than the MD, and accordingly carry more a number of subsidiaries or different business units responsibilities and duties, none the least of which within its structure and each one of these could be would involve reporting to the board. However, managed by an MD. The person responsible for where a company has at its helm either an MD or a overseeing the entire business entity and to whom CEO who controls the daily operation of the those various MDs would report, would be the CEO. company as a whole, there would be no difference in function or associated implications, other than a Neither the current Companies Act, nor the different name for the same position. proposed Companies Bill specifically defines either Investments for Dummies By Janus Nieuwoudt It is rather frustrating opening every article these days for the last three months and reading: “due to the current economic state… blah blah blah”. Unfortunately that is a fact. Having a few shares in a small business and then of course trying to invest the small remaining profit of a less established company can be tricky. Even radio advertisements state the obvious: do not already unstable companies will eradicate any cash in or cancel any investments. The difficulties of possible future growth, as share prices are the times are making everybody a bit morbid. determined by the buyers, who won’t buy at high Investment bankers, lawyers and even accountants prices just to save the company from going under. and financial officers are taking drastic steps, (For those who didn’t know, the latter is a criminal irrational even. The uncomfortable truth is that you offence called insider trading.) are going to have to hang on to these investments so that you don’t lose that investment capital. The solution is quite simple, pray like we are already in a recession, and trade like we are in the United The markets are down by approximately 29.3% States (before the recession). Consider restructuring since June to December 2008. The world is in an your company’s investments, or move capital to economic recession and all are feeling the effects of more reliable funds under the same umbrella. For the credit crunch because un-marginalised debt was your information, you are permitted to reselect a given to borrowers who were already over exposed. fund manager. Understanding the magnitude of the situation is also The conclusion: rather simple. Settle down to a tricky. If the markets are down by 29.3%, you pay panic and make informed decisions as believe it or the fund managers a fee of between five to ten per not, not even the best of fund managers know all cent (depending on the investment vehicle), what the options. Paying fund managers exorbitant fees will actually be added to cash flow return? On the to gamble with your investment is not exactly other hand of the economy, selling off shares in helping the already fragile situation. Last days of Manuel tax By Janus Nieuwoudt Another era has passed and the Mbeki presidential governance has come to an abrupt end, with it unfortunately the expertise of current minister of finance, Trevor Manuel. There is strong speculation that this will be the last term for this Minister of Finance, therefore the National Budget Speech was to be anticipated. The happenings of the last few months have caused In November 2008, Manuel stated at the Fin24.com many a mixed emotion. An interview published on Money Clinic that South Africa will not slip into a fin24.com, Manuel spewed doubt upon the nation recession, due to the 2010 Soccer World Cup. Brait like never before. The current account stood at 7.9% economist Colen Garrow felt a little different; of GDP in the third quarter of 2008 and is forecasted according to Fin24.com Garrow predicts the to widen even further. While the Rand-Dollar National Budget for 2009 / 2010 will see a greater exchange looks even more worrying. The Rand has emphasis on welfare spending. So we might see a lost another 5% this year and is currently trading few tax breaks and hopefully so for small and around R10.10 per dollar. Given the terrible medium sized businesses. uncertainty it seems that the politics in the country will push down the Rand to at least R13.85 against Manuel’s conservative approach to budget the greenback. surpluses also seems to be under fire, as it is being For those of us who do not understand what effect said that surpluses should be spent on economic that holds, it is rather simple, should the politicians development in a developing economy, apparently keep on throwing empty promises over the to the advantage of the GDP growth. Parliament floor, we will see the Dollar at R14.00, as in 2001. The super-spike would affect interest rates, One thing that is for sure, should this be the last inflation and yes, petrol prices - again. The effect is term for Trevor Manuel, it would be big shoes that horrific to say the very least. would be very difficult to fill. Is that for me… or my tender? By Janus Nieuwoudt The thin blue line between gifts and bribes is an everyday headache in the corporate arena. The question to be asked is; do you allow your employees the opportunity to get corporate gifts from other companies, or is it taboo, purely due to the amount of corruption in everyday business? A ‘gifts and bribes’ policy is an integral part of sound with them because of the gift… well then, that is business practice. Things to be included in this clearly a bribe. policy are fraud and corruption, gifts and bribes. Now you might ask what does that have to do with Back to the safeguarding of you and your you? Well quite simple really, even if you are a two- employees; a number of principles should be taken man accounting firm. into account when drafting your gifts and bribes policy. Unfortunately this will involve quite a number The definition of fraud according to ‘Practical Guide of man hours, as this is indeed a two way street. to Human Resources Management’ is the following: Things to determine for instance are to obtain a “Criminal deception, the use of false representations copy of similar policies from your clients and to gain an adjust advantage, dishonest artifice or contractors. Obtain frequency, appropriateness, trick, a person or thing not fulfilling expectation.” receivers and motives for gifts. Receiving gifts is a What most professionals don’t know is that fraud bit trickier, yet so simple. Ask yourself two things: can stretch from anything as simple as an employee motive and benefit, and voila. Your teenager might signing as a director or clocking in for a fellow be nagging you for a 1-series “Beemer”, but that employee; right out to the hardcore offences like doesn’t make it right to get it from a supplier on a changing IRP5 information or altering already tender, to supply your fleet with delivery vehicles. signed off documents. To leave the doomsday-like approach behind, just Bearing that in mind, how harmless is corporate be careful. According to the new Corruption Act 12 gifting really? Are corporate gifts really just a of 2004 it is a criminal offence not to report novelty? Having a proper gifts and bribes policy can corruption, theft or fraud, or a suspicion thereof in save you and your employees a lot of hassle. In this excess of R100 000.00 to the police. As for the document certain fundamentals should be included. whistle blowers, they are protected under whistle For instance, there is no crime in distinguishing blower legislation. So no, you can’t fire them. between gifts and bribes, we all do certain favours- well reasonable above board favours - for our So next time you sip French Champagne on a clients. A gift in that situation is absolutely fine, balcony in Fresnye, think of the implications however, when you feel obligated to do business thereof… What should be done to protect partnerships? By Daniela Coetzee In a partnership, what agreements/contracts should be put in place to protect the partners from individual liabilities for the duration of the partnership and also to ensure that each partner has the opportunity to buy the other's share in the event that one dies while the partnership is still in place? You can only avoid individual liability if you trade as voting rights would be, who would hold the casting a company or close corporation. However, please vote, and how, if a stalemate is reached, the conflict bear in mind that in both instances, the court has the or vote could be resolved. In some instances, it may power to fix personal liability for the debts of the be preferable to refer in the agreement to arbitration company or close corporation on the individuals if and / or mediation and who would fulfil this function. they are knowingly party to reckless or fraudulent Bearing in mind that this function must definitely be trading by the company or the corporation. It is fulfilled by an independent party to all partners. imperative that you enter into a written agreement with your partner that gives the survivor the right to The agreement would also detail how the profits of purchase the interest of the deceased in the the partnership would be split. It could be based on partnership. In addition, you would be well advised objective criteria for example, based on percentage to take out life insurance policies on the lives of of voting rights, or it could be based on subjective each other to enable the survivor to fund the criteria, for example, performance. If based on purchase from the estate of the deceased partner. performance, the partnership would have to implement rating criteria, evaluation policies and Furthermore, the partnership insurance policy procedures and could include an independent third should provide the necessary cash to make a party to assist with this function. purchase in the event of one of the partners becoming permanently disabled and unable to The agreement would also need to stipulate discharge his/her duties and functions in relation to conflicts of interest, and how these would be the partnership on a permanent basis. resolved. The partners need to determine in the agreement whether each individual partner has a The partnership agreement also assists in the case right to either vote on a contract that he or she is of conflict resolution and voting rights by the interested in, and whether each partner would be partners. permitted to go into “competition” with the partnership or have relationships with entities that The agreement could stipulate how the partners could be seen to cause a conflict of interest. could vote on certain matters, what their percentage Some of the information in this newsletter was published in the Tax Bulletin and Labour Bulletin which are brought to you by Fleet Street Publications (Pty) Ltd. If you would like more information about the Tax/Labour Bulletin or Practical Handbooks please visit www.fsp.co.za, email firstname.lastname@example.org or call (011) 699 6545.
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