Copyright Review Commission Report - ICT Law and Regulation ...

Corporate Governance GapsKing II RequirementsPotential Implications of Non-Adherencec.All Board members wererepresentatives of composers /authors and publishers and,accordingly, there were noindependent Board members.The majority of non-executivedirectors should be independent asthis reduces the possibility ofconflicts of interest and promotesobjectivity.Every Board should considerwhether diversity and demographicsmake it effective. Diversity applies toacademic qualifications, technicalexpertise, relevant industryknowledge, relevant experience andother items.The fact that the membership was apre-requirement for becoming adirector reduced the pool ofcandidates who were capable ofbeing directors for SARRAL. As aresult, the Board had an inadequatenumber of qualified accountants withauditing and financial managementexperience.Objectivity and impartiality expectedfrom the independent Boardmembers was not possible.d.The Chairperson of the Board wasalso the Managing Director ofSARRAL.(Section 2.3.1) There should be aclearly accepted division ofresponsibilities at the head of thecompany, to ensure the balance ofpower and authority, such that noone individual has unfettered powersof decision-making.There is no evidence that the Boardtook appropriate actions against theChairperson of the Board for failingto implement the relevant controlswithin the organisation as themanaging director.The external auditors issued aqualified audit report for threeconsecutive years (2003, 2004 and2005) due to the fact that they couldnot verify the receipts anddistributions.The failure to verify the transactionscould only arise as a result ofmissing supporting documentation.e.Effective internal audit function wasnot in place.(Section 3): Internal audit isresponsible to both the Board andexecutive management, providingthem with reasonable assuranceregarding the effectiveness of thecompany’s corporate governance,risk management processes andsystems of internal control.The external auditors could not verifythe receipts from the SABC and themembers’ distributions (an indicationof systems break-downs).The internal audit would haveassisted with the investigations anddesigning appropriate controls toprevent the systems’ collapse.f.Effective risk management andinternal control systems not in place.(Section 3.2.1) A comprehensivesystem of internal control should beestablished by the Board to ensurethat the risks are mitigated and thatthe company’s objectives areattained. The control environmentshould also set the tone of thecompany and cover ethical values.The external auditors issued aqualified audit report for threeconsecutive years (2003, 2004 and2005) for failing to verify the receiptsand distributions. A good internalcontrol would have created goodaudit trails, which would haveallowed the auditors to audit.7.2 COLLECTING SOCIETIES (SAMRO, SAMPRA AND NORM) VERSUS KING III7.2.1. To minimise the risks of another collapse, it is important to analyse the state of corporate governance for theremaining collecting societies.- 48 -