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					                                                                                  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 rachel@fsp.co.za or call (011) 699 6545.

				
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