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• PRIVATE EQUITY
• BUSINESS SOFTWARE
GIVEAWAYS
• DELL INSPIRON MINI 9
• HANDPRESSO

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YOU COULD FACE
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NEW
TRAVELLING WITH RICHARD QUEST

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ARE RESTRAINTS OF TRADE ENFORECEABLE?
BEE – NECESSARY EVIL OR ECONOMIC JUSTICE?

August / September 2009 Vol.14 No.4 R33.00 (incl. VAT) Other African Countries R28.95 (excl.tax)
CONTENTS

REGULAR SECTIONS COVER STORY


BRIEFCASE 4
• Books gadgets and gizmos to keep you • Facebook - Do you risk dismissal? 16
ahead in your business

Management 10
• BEE: Necessary evil or economic Justice? FEATURES
• The business of sport
• Private Equity 24
Legal 16
• Facebook – Do you risk dismissal? • Business Software 64
• Rules of the tendering game

Tax 20
• The upside of tax losses GIVEAWAYS 5
• Pain-free returns
• Dell Inspiron Mini 9
Finance & Equity 40 • Handpresso
• King III: Comply vs Apply
• Restructuring in a downswing
PUBLISHER
James Scott
Assets & Investments 44
• Golden year planning EDITOR
• Beating the market Graeme Swinney / editor@busbrief.co.za
FEATURES EDITOR
Banking & Insurance Cheryl Reddy / features@busbrief.co.za
50
• Trim your insurance bill CONTRIBUTORS
• HIV programmes Please see Contributors Pg 80
OFFICE MANAGER
Jenny Horsman
Marketing & Selling 54
• Continue advertising ADVERTISING SALES
• Don’t lose your voice! James Scott / busbrief@icon.co.za
Paul Vos / paul@africantime.co.za
Justin Lavers / justin@africantime.co.za
Human Capital 58 DESIGN & LAYOUT
• Are restraints of trade enforceable? Design Bandits
• Chair sanction overturned Bryan Maron / bryan@designbandits.co.za
Tel: 083 460 3633
COVER DESIGN & CONCEPT
Information Technology 74
James Scott
• Selecting your ISP Bryan Maron
• Black or white?
PRINTED BY
United Litho (JHB)
Tel: (011) 402 0571

TRAVEL & LEISURE 6 PUBLISHED BY


• Richard Quest: Air travel – Keep it safe BusinessBrief Publishing (Pty) Ltd
Tel: (011) 788 0880
• Allée Bleue Wine Estate Fax: (011) 788 2807
57a Second Avenue,
SEMINARS & CONFERENCES 79 Inanda, Sandton
PO Box 1546, Parklands,
• All the latest events South Africa, 2121
SUBSCRIPTIONS
CONTRIBUTORS 80 Tel: (011) 788 0880
• Consult our contributors directly Fax: (011) 788 2807
for professional advice admin@busbrief.co.za

BusinessBrief August/September 2009 1


A&
F&
T
NANCE
EQUITY
E

SETS &
STMENTS
I

TAX
EDITOR’S NOTE
N CAPITAL INFORMATION TECHNOLOGY BANKING & INSURANCE

HC IT B& O
HUMAN CAPITAL

ur readers surely need no introduction to Richard Quest, CNN’s

TECHNOLOGY
INFORMATION
CPD/E

INSURANCE
BANKING &
popular travel and business presenter. We are excited to launch
The following in this edition the first of his articles on business travel. Richard

I
bodies, subject
is the host of CNN’s monthly Business Traveller programme and
to individual
requirements, hour-long weeknight business show Quest Means Business. He
have accredited has worked in broadcasting for more than 20 years covering
BusinessBrief international financial markets, key world events and travel. We
for purposes of
CPD/E (Continuing
hope that readers enjoy Richard’s canny observations and wry wit.
Professional
EL & LEISURE Development/ BRIEFCASE The BusinessBrief team would like to extend a hearty welcome to
SEMINARS & CONFERENCES
Education) new readers from the South African Black Entrepreneurs Forum
(SABEF), with whom the publication has formed a partnership,

S&
T&
B
and The Association of Business Executives South Africa (abeSA),

CONFERENCES
SEMINARS &
BRIEFCASE

who have accredited the publication for its ongoing professional


TRAVEL &
LEISURE

development programme.

L
The Association of

C
Business Executives
South Africa
A further introduction is necessary: We are delighted to welcome
Cheryl Reddy to the BusinessBrief team. She joins us as our new
features editor and will be writing the features that appear in each
edition.
URE EDITOR’S NOTE CONTACTS
As readers will no doubt be aware, social networking, and Facebook
in particular, has enjoyed a phenomenal increase in use around

F E C
the world over the last number of years. It is not surprising then
EDITOR’S NOTE

that we hear of a corresponding increase in the number of cases


CONTACTS
FEATURE

involving employees publishing less than kind comments about their


employers online. While some employees might think they can say
what they like about their bosses in their private time, local courts
often disagree. As our lead article in this edition highlights, recent
court rulings indicate that when an employee acts in a way that
negatively impacts upon his employer’s business, the employer’s right to fair labour practice may hold precedence
over the employee’s right to privacy. The result can be disciplinary action and even dismissal. So no matter what
the forum, watch what you say about your boss!

This edition’s first feature looks at Private Equity (PE) and considers what role the sector is playing in these times
of economic uncertainty. Not surprisingly PE activity has slowed dramatically around the world this past year. In
South Africa, however, while the mega deals are no longer in evidence, smaller deals are still popular and PE
remains an important contributor to the SA economy.

Business Software has become such an important part of our everyday work lives that most of us do not think
much about its role in our work anymore. But for many companies today, the selection of software solutions can
be the difference between business success and failure. Our second feature looks at some of the issues facing
management when making software implementation decisions.

A commitment to professional publishing


The publishers of this magazine are members of the Magazine Publishers’ Association of South Africa.
They have made a commitment to:
• Conduct business professionally and ethically at all times
• Not misrepresent their experience or capabilities, or those of their employees and agents.
• Not make misleading claims or use terms which may be misunderstood
• Treat as confidential all off-record information learned about the customer
• Publish the magazine timeously
• Open their distribution records for audit by the Audit Bureau of Circulation
BRIEFCASE

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and a contemporary white chassis makes it
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home or workplace.

For further information contact Epson on telephone


011 465 9621 or log on to www.epson.co.za

GIVEAWAY winner of last edition’s Polycom Communicator C100s. Your prize will soon
For a chance to win the Dell Inspiron Mini 9 from DCC and/or the be delivered to you by Southbird courier service.
Homeline Direct Handpresso please send an email or postcard (one
entry per person per Giveaway) with your name, physical address and Southbird courier and freight service delivers the prizes to
the Giveaway winners in each edition of BusinessBrief.
telephone number marked “DCC/BusinessBrief Competition” and/or
“Homeline Direct/BusinessBrief Competition”. Please note that this For further information on SouthBird contact:
competition is only open to our South African readers.
Email: editor@busbrief.co.za Tel: 086 161 5555
Postcard: PO Box 1546, Parklands, 2121 Cell: 082 667 7277
Closing date: Friday 11 September 2009 Emergency: 076 601 2609
Email: info@southbird.co.za
Congratulations to Yasmin Mall of Robertsham, Johannesburg, who is the Web: www.southbird.co.za

4 BusinessBrief August/September 2009


BRIEFCASE

The Effective Investor


The Definitive Guide for all South Africans
By Franco Busetti

D uring times of economic downturn and upheaval, people express


heightened interest in the stock market and there is a greater need
for sound advice. For existing and aspiring private investors, the stock
market is often intimidating, so valuable information is of the utmost
importance. Even professional investors require insights into the stock
market that are unbiased and clinical. This book is a valuable source of
information in that it supplies concise and insightful answers to questions
such as “What drives returns?”; What does risk really mean and how can
one reduce it?” and “How much should one invest offshore?” Published by
Rollerbird/Pan Macmillan

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good or been this simple to make. The Handpresso is an extremely high
quality, portable espresso machine that delivers a premium quality coffee no
matter where you are. Be it in the car, office or camping, you can still have your
favourite cup of Java.

For further information on how to enter this Homeline Direct/BusinessBrief


competition please see the requirements at the foot of page 4. For further information
on the Handpresso contact Homeline Direct: Tel. 011 708 6695; Fax: 011 7086712;
Website: www.homelinedirect.co.za.

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For further information on how to enter this Drive Control Corporation/


BusinessBrief competition please see the requirements at the foot of
page 4. For further information on the Dell Inspiron Mini 9 please
contact Drive Control Corporation (DCC) via the following email
address: Dell_jhb@drivecon.net.

BusinessBrief August/September 2009 5


TRAVEL & LEISURE

ReQuest
Air travel –
Keep it safe

T he crash of the British Airways 777 at LHR last year brought it home to me.
Although flying remains one of the safest forms of travel there are still risks
involved and it is our responsibility to remember how to look after ourselves in a
crisis. For instance, when did you last read the safety instructions left lying, gathering
dust, in the seat back pocket?

The 777 from Beijing lost power minutes from landing at London Heathrow, the pilot
skilfully glided the plane on the grass... the cabin crew got the passengers out and by
all accounts it was a textbook evacuation. (Much more worryingly they still don’t know
why the engines refused to obey the pilot’s commands for more power... worrying
indeed since the 777 is the backbone of oceanic travel.)

It gave me the jolt I needed to start paying attention again to the safety
announcements at the start of each flight. I had become one of those regular too-
clever-by-half travellers given to making huge sighs of “do I have to listen to this again”
and then noisily picking up a newspaper, pointedly ignoring the flight
attendant demonstrating the oxygen mask…

Today I act more responsibly when the


safety announcement is made. I
genuinely look to see which is my
nearest exit and I note the number
of rows to reach it. In any crash
if you survive the impact then it
is fire and smoke which pose the
greatest danger.

I am old enough to remember the


Manchester Air Disaster when fire took hold
on a British Airtours 737 while taking off…..the
plane stopped on the runway, but still 55 people
died. Time and again accidents which should have been
survivable have seen loss of life because people didn’t know
what to do.

The opposite is also true: if you know what to do you stand a very good
chance of surviving!! For instance, in 2005 the Air France A340 crash
in Toronto when the plane ran off the end of the runway and ended up in a
ditch, was another case of everyone doing what they should. To view the pictures
the inferno suggested horrendous loss of life, (even more so since some of the
emergency slides didn’t automatically deploy) but because crew and passengers
alike knew what to do everyone survived. The same could be said for the China
Airlines 737 which caught fire shortly after arrival in Naha city in August 2007. Just
moments before the plane exploded, all onboard escaped safely via the emergency
chutes.

6 BusinessBrief August/September 2009


TRAVEL & LEISURE

That’s not to say I believe all the safety rubbish thrown at us; for
instance the lifejacket demonstration.

To my knowledge no commercial airliner has ditched in the middle


of the ocean. They have been blown up, they have been hijacked,
and they have attempted crash landings and ended up in the water
but none has merrily put down in midst of raging seas…And even if
they did, and everyone managed to get out how long do you think
you can survive the waters of the North Atlantic? (Not long enough
to blow the bloody whistle to attract attention!)

Yes, I have become a bit obsessed by the whole safety question


and I travel with my own smoke hood for use in hotel rooms if
there was a fire…it’s a small plastic pouch no bigger than a pocket the inside, thank
camera…and it might save my life one day! you.

Safety sounds sensible and therefore boring. It’s like the old advice Finally, I won’t
given to turn off the gas if you’re going on holiday, or lag your name the airline
water pipes in winter... And it’s true those announcements involved, but please,
can sometimes be interminable as they drone change your safety
on about what happens if you “tamper video... the people in it are smiling as
with, destroy or interfere with” the if a quick dose of emergency oxygen was just what
lavatory smoke detectors. But they’d been looking for... Safety is a serious issue.
at the end of the day it is And it’s my responsibility to do my bit. I am not so
my skin and I want to altruistic that I care too much if the other passengers
keep the blood get out safe and sound…this is all about ensuring I get
running out, preferably ahead of them!

Richard Quest welcomes your views. Email him


at quest@cnn.com

on

BusinessBrief August/September 2009 7


TRAVEL & LEISURE

Steeped in history
Franschhoek’s Allée Bleue Wine Estate

A s one of the oldest vineyards in the Cape, the Allée Bleue


Estate lies in a picturesque location in the Franschhoek
Valley - an area with a distinct French influence - and offers a
Other recently opened accommodation is the charming Kendall
Cottage. Built in 1920, the historic residence now boasts a
fresh and modern interior that is an ideal retreat for newly-
breathtaking view of the Drakenstein mountain range. With its weds, private parties of friends and business guests. The
snow-white, thatched buildings surrounded by dense lavender cottage offers only two generous suites, a spacious living room
bushes, the extensive estate stands proudly in the middle of with hospitality bar as well as a private terrace overlooking the
large fields of herbs and expansive meadows. Estate’s beautiful lavender and rosemary fields.

In response to the frequent requests by guests to linger Dressed in cooling hues of blues and whites, the décor is the
longer after a visit to the estate, the Estate recently opened epitome of understated elegance that includes an international
a Boutique Hotel. This deluxe addition to Allée Bleue includes collection of contemporary art adorning the farmhouse walls.
two en-suite bedrooms, a large living area with an outdoor
veranda overlooking the estate vines. Ideal for bridal couples Exclusive butler and chef services are on hand to ensure the
and business VIP’s, the restored historical Boutique Hotel is a most memorable of stays. When not dining at the Cottage,
contemporary mix of old and new. Current renovations of the guests may chose the relaxed but chic ambience of the Allée
estate’s historic manor house are paving the way for a chic Bleue Bistro or sample the many renowned restaurants of the
boutique hotel that is due for launch in 2010. Franschhoek Valley.

Allée Bleue Estate has been superbly restored and houses Kendall Cottage is the first phase of the Estate’s luxury
state-of-the-art conference facilities. Varying in size, the accommodation future offering. By mid 2010, a total of
conference rooms cater for executive boardrooms, advanced seventeen stylish suites will be completed using the existing
training facilities, product launches and corporate retreats. and historic collection of manor houses that dot the Estate’s
In addition to its world class conference facilities, the venue stunning landscape. A fine-dining restaurant will also be
can host a special event or celebration beneath its 220- opened to residents and day visitors.
seater free-form tent that is anchored to the famous 1 000-
year-old olive tree. For reservations call 021 874 1021 or email
info@alleebleue.com. For further information on
Allée Bleue Estate visit www.alleebleue.com.

8 BusinessBrief August/September 2009


TRAVEL & LEISURE

Safety in Malaria areas


W ith 300 to 500 million people infected and two to three
million deaths, malaria has become a modern day
scourge. It is in Africa that malaria has gained its greatest
foothold and where it is responsible for the most fatalities –
mostly among the poorest of the poor.

“However,” cautions Glenda Seeger, Operations Manager of


Netcare Travel Clinics, “nobody is truly immune from malaria.
It is therefore imperative that leisure and business travellers
are at all times made aware of the risks associated with
malaria and how to prevent possible infection. For example,
there is a very real risk involved for individuals that are
deployed into high risk malaria areas in Africa – particularly
as many of these individuals become less careful with time.”

“When it comes to young children one cannot be careful


enough! That is why we tend to advise parents against
travelling into known malaria areas with children under the
age of five. Despite the fact that there are at least three
types of prophylactics available on the market nowadays we
still do not encourage the use thereof by young children.”

Seeger explains that there is no such thing as “the best or


the worst” prophylactic to use. “In fact,” she says “Each
individual has different healthcare needs and a unique
healthcare profile. That is why it is best to get a prophylactic
prescribed that best meets your needs. Simply buying a
prophylactic over the counter is not wise as you may well end
up buying a perfectly good product that is not suitable for
you.”

The carrier of the malaria parasite is the smallest Anopheles


mosquito. Although there are times when malaria is very
much less active, it is important to remember that you are at
risk at any time of the year when entering a malarial area.

According to Seeger there are three critical lines of defense


to observe when it comes to malaria prevention:

• D on’t get bitten! Personal protective measures against


mosquito bites are the cornerstone of malaria prevention,
whether in a high or a low risk area
• B e sure to take malaria chemoprophylaxis measures as
advised by your doctor or travel clinic. It is important to
remember that there are only three types of medication
that are effective in Africa. This medication, which is only
95% safe, is also suitable for long-term use. It is essential
that each person be individually evaluated in order to
determine which medication is the most appropriate for
him/her.
• B e alert to any signs of illness after visiting a malarial area,
no matter what time of year it is!

“Strict adherence and compliance to all three of the above


lines of defence are needed to ensure maximum protection
against malaria,” cautions Seeger. “Do remember that
prevention is better than cure, as severe malaria is often
fatal, even with the best possible care.”

BusinessBrief August/September 2009 9


MANAGEMENT

BEE: Necessary evil or


economic justice?
By Prof Mthuli Ncube, Executive Director, Wits Business School and President, South African Business Schools Association

Administering economic
justice after forty years of B EE has been seen on the one hand
as an ethically just initiative to
compensate previously disadvantaged
(BBBEE) Act which is a more integrated
policy integrating all previously
disadvantaged individuals including
oppression is indeed a heavy
individuals, and on the other hand as a disabled, small and medium businesses,
task. BEE policy has become
pragmatic strategy that undercuts the rural communities, trade unions and
central to administering notion of merit. workers.
justice in a legislative
environment. However, BEE began as a ruling that propagated
since its conception, the the participation of black people in the
authenticity and relevance of economic mainstream. This was aimed
Black Economic Empowerment to allow for black people who were We need a nation
previously deprived of opportunities to
(BEE) has come under scrutiny.
assume positions which would rebut the that works to
previous lack. However, a ruling which
gives a certain percent of employment achieve excellence
Prof Mthuli Ncube, to black individuals, irrespective of
Executive Director, merit implications, can be counter-
Wits Business School and President, productive.
South African Business Schools Association
However, even still, implementation
The core essence of justice is in a just manner is unfortunately
challenged at the thought of a white an ideal. BEE and BBBEE is great in
individual who meets the given criteria, theory, but in reality some see it as
but is shunned because of his skin ‘cutting the proverbial economic pie in
colour. The question then arises; can smaller pieces.’ (http://www.inside-
previous injustices be set right by the south-africa.blogspot.com/ ). What we
same system? essentially want moving forward is to
grow the pie.
Evidently, the BEE debate is a
delicate one. In its BEE strategy Another criticism is that BEE is only
document, the Department of Trade beneficial to the marginal elite. Some
and Industry states, “No economy believe that it ignores the cries of
can grow by excluding any part of the average and below average black
its people, and an economy that population. In his article entitled,
is not growing cannot integrate all “BEE Fuelling Economic Revolution,”
of its citizens in a meaningful way,” (Financial Times, May 2006), Jim
As such, this strategy stresses a Sutcliffe, former CEO of Old Mutual
BEE process that is associated with says that according to the South African
growth, development and enterprise Advertising and Research Foundation,
development, and not merely the “Nearly half a million black adults
redistribution of existing wealth. moved into the middle income bracket
in 2006 … [The] number of black people
Set out in those words, in the upper brackets grew 30% and the
the idea of a broad proportion of blacks in the top income
based policy seems bracket is now 20%, up from close to
concrete. Whether zero a decade ago.”
South Africa is
administering this Sutcliff explains further, “This was
in a ‘broad based’ perhaps inevitable as businesses
manner is the key scrambled to find what they considered
question. Born out to be bankable and ‘connected’ partners
of this debate is as a new era dawned.” He also
the Broad-Based mentions that this has lead to a growing
Black Economic culture of entrepreneurship in South
Empowerment Africa, which was required.

10 BusinessBrief August/September 2009


MANAGEMENT

It gave “some of the brightest black brains” the opportunity and restoration, but it is certainly not an indefinite solution.
to open their own businesses and build our nation as opposed South Africa is synonymous for its stance in restoring justice,
to joining the never ending political struggle for justice. and it would only make sense for us to play the field in a
Companies, (both black and white) have according to Sutcliff clean and merit driven manner from here onwards.
benefited largely from the BEE policy:
Also, rewarding individuals on the basis of colour encourages
“Empowerment deals such as the ones announced by De an apathy that breeds mediocrity. Black individuals have been
Beers, Merrill Lynch and my own company over deprived of a holistic quality education. How can they be
the past year are increasingly the norm. assisted if they are deprived (yet again), of the
Beneficiaries will own a growing stake prime lesson of hard work? How can we
in these companies’ South African breed a nation that does not settle
subsidiaries. They include for mediocrity but instead works
employees, customers, to achieve excellence at all costs?
emerging businesses as This places employers in a
well as strategic black particularly tough situation
business partners who when hiring people who
bring real bottom-line will make a contribution
value to the table to an organisation, but
and are rewarded are not considered BEE
accordingly,” said candidates. As South Africa
Sutcliff. sees the change of guard in
the reigns of leadership, the question
The gap between rich and on all our minds remains, what is the next
poor still stands, however. It step to administer justice? After much
also seems the gap between the exploration, the voice of the people is
black rich and black poor is widening. what should dictate the outcome. Should
In this light, others have the perception we not focus on entrepreneurship? How
that BEE was good while it lasted, but it is now about the rural poor? How are they being
time to move on. We have seen its effects in reparation catered for?

Outperforming the competition


by Jane Macgregor, Head Consultant, Maestro Performance

D espite the current economic climate, organisations can


still perform well, albeit with a smaller staff and reduced
customer base. Good leadership, motivation and teamwork
pay for them. An organisation’s success stems from the ability
to provide these things consistently better than competitors.

are the most important components to ensuring success. All members of staff from factory floor to management
are skilled and need to continually upskill themselves to
Current performance is, no doubt, affected by retrenchments, improve performance. In addition, each employee needs to
hiring freezes, budget cuts and the loss of customers. However, understand the business processes and the value that they
companies with leaders who understand the overall business and individually bring to the company. Enabling staff to determine
are always considering the bigger picture can still perform well. their own performance on a daily basis contributes to their
general understanding of the bigger picture and allows them
The organisation has changed and will need to continue to see the value that is generated from what they do.
to change in order to adapt to the new market place.
Leaders must adapt the company’s vision, mission and A company is a complex system, just like an orchestra.
goals to meet these new conditions, even if the company Each action, employee and resource of the company works
is smaller and is aiming at a smaller customer base. together towards a common goal, and thus they all affect
one another. Relating that analogy to a company means that
These managers, CEOs and directors are responsible, the basic business processes, and more importantly the
not only for setting these goals, but also in value that each step adds, need to be understood. These
communicating them effectively to staff and inspiring define how the business hangs together. Once these are
passion, commitment and motivation. Getting buy- understood, rework and duplication of effort can start to
in and understanding from staff is crucial. be eliminated, thereby saving on costs. In addition, the
processes and resources that don’t add any value can be
Regardless of the economy there are still customers out there eliminated, and the processes that do add value be focused
who need your products or services and they are still willing to on to ensure that they continue to add value and grow.

BusinessBrief August/September 2009 11


MANAGEMENT

SERIES PART 3

The business of sport


The global financial crisis and its impact on sports sponsorships and funding in general
by Brian Naicker, Programme Leader, FIFA-CIES Programme in Sport Management, UNISA School of Business Management

This is the third of a seven part series of articles on sports to maintain the support in terms of season ticketholders
management by Brian Naicker, Programme Leader of the and the fan base in general. Many clubs involved in rugby,
FIFA-CIES Programme in Sport Management, a programme football and cricket are having to focus increasingly on the
designed by Centre Internationale du Sport in conjunction domestic front as the quest for regional and continental
with FIFA. FIFA-CIES has a collaboration agreement glory requires massive investment on top notch players as
with UNISA to provide the tuition for this programme. In well as all the incremental expenses involved with regional
addition to heading up the Programme, Brian is also the and continental competitions. The top names and brands
Head of UNISA Centre for Business Management (CBM). in sport have not been spared the financial meltdown. One
of the largest insurers in the world, American Insurance

G iven the current sale of Christiano Ronaldo from


Manchester United to Real Madrid for £80 million, one
could be forgiven for thinking that the football and sporting
Group (AIG) has indicated that it will not renew its four
year $100 million deal with Manchester United. Many of
the global carmakers, e.g. General Motors and the like,
world in general was awash with a great deal of money. have also indicated that they will severely curtail their
The global financial crisis is certainly impacting sports in a sponsorships within sports over the next few years.
significant way, however. Some of the recent articles written
in major sports media centre around the following; “UEFA, Many of the global sports have taken an internal view and
top officials in talks to cap transfer and pay”, “ Government have started to address fundamental issues within the
bailout 2012 Olympic Village project”, “ AIG will not renew sport. The entire Formula One industry has begun a process
Man Utd sponsorship”, “Spurs freeze ticket prices to help of looking at the costs which underpin the operation of the
fans”, “Johnson & Johnson ends Olympic sponsorship deal”. sport. The new wave of creating sustainable golf course
developments and reducing the high dependence on water
While some major sports like tennis have indicated that and other resources is now becoming increasingly important.
they are able to withstand the current financial crisis, On a parallel front, many new legislative requirements
other sports have been heavily affected. The 2012 London are being proposed to handle the current problems being
Olympics has been affected to a significant extent. Britain’s faced by many sports, leagues and clubs across the world.
Olympic Minister, Tessa Jowell recently Issues like percentages of revenue
announced a $633 million cash injection to be spent on wages and transfers,
to offset some of the funding that has not maximum foreign ownership, salary
materialised from private investments. caps etc. are currently being
placed on the discussion table.
This has been the trend with many other
codes of sport as well. Those sports If history is anything to go by then
requiring large amounts of capital what we will perhaps witness over
investments have been severely affected. the next few years looks encouraging.
Many golf course developments which After the Great Depression and
have residential and hotel components heading into the 1930s we saw
attached to them have been downscaled an incredible surge within the
drastically or been put on hold entirely. community participation in sport.
This so called trend of government or The reduction of ticket prices meant
public bailout of projects which have that stadiums were packed and the
a huge public interest is happening masses were able to attend many
globally. Projects such as Vancouver sporting events. Construction was
2010 (Winter Olympics), FIFA World Cup largely driven by the need to get
2010 (in South Africa); Commonwealth Brian Naicker, people back to employment and
Games (Delhi 2010) and the London Programme Leader, many projects were driven along
FIFA-CIES Programme in Sport Management,
2012 Summer Olympics are just a few UNISA School of Business Management
community and social improvement
examples. These projects obviously lines. Those years post 1929 and the
have huge fixed capital investments desire to improve the community
and will have to be completed; hence the bailouts. base for sports also nurtured many athletes out of the
amateur ranks who went on to achieve global fame. The
On the micro-level of sports, the picture appears to be names of boxing legend Joe Louis, athlete Jesse Owens,
somewhat different. Football clubs for example are facing football star Stanley Matthews and cricket legend Don
increasing pressures to limit wages and to place a cap on Bradman come to mind. These were working class heroes
transfers. Some clubs, e.g. Tottenham Hotspurs, have decided who started their long road to fame on the amateur
to freeze the price of tickets for up to two years in order stage and spent considerable time within those ranks.

12 BusinessBrief August/September 2009


MANAGEMENT

Change management: Is your


business hanging in the balance?
by Tokozile Marah, Associate Director, PricewaterhouseCoopers

C
hange management plays a pivotal part of any business, CEO’s office with the support of the Strategic Development
regardless of its size or the services offered to the Office. Human Resource departments should be dealing with
public. All organisations will experience change at cultural and capacitation issues while departmental heads
some point because change is constant and necessary in a deal with matters related to operational excellence and
competitive environment. increased productivity.

Change happens when a specific entity enters the process Senior management should always be involved in the change
of transitioning from a known environment to an unfamiliar process and must be aligned with the intensity and level
situation where new knowledge is required to perform the of change. The CEO of the organisation should focus on
duties expected of individuals involved. implementing a best fit approach that will act as a roadmap
to reach the ultimate goal. Evaluating the situation closely
Approach is imperative. The execution of change from the existing
Most government departments are currently going through situation to the desired end-state, exists to facilitate in
fundamental changes as our new South African President, achievement of most predetermined objectives.
Jacob Zuma, takes over the top position in the country. The
approach used to implement these changes is vital because Structured process
the transition needs to happen smoothly without hindering As change is implemented, new insights, unexpected results
productivity. Government departments are mostly filled and crucial opportunities that could translate into productive
with intellectuals and introducing change in an authoritative and lucrative prospects arise and, if it is handled correctly,
way might be met with resistance. In this case, change will result in substantive benefits being realised. Change
management needs to be adapted and approached more management is not only about people’s emotions, it is a
carefully to suit the needs of the individuals who will be structured process supported by tools and insights designed
experiencing this change. to enable the successful and seamless execution of a project
or to address the strategic objectives of the organisation.
Resistance
Unfortunately, change doesn’t always happen effortlessly and Different disciplines
in many cases it can be met with strong hesitation from staff, Change management requires effective utilisation of a
clients, management and even executives. The reason behind number of disciplines ranging from people skills, project
this resistance could be based on various factors related to management, business management, process management,
human emotions, personal beliefs, poor leadership, lack of and technical skills. Institutions wishing to embark into a
communication or even lack of support from those in charge change journey should not hesitate to obtain the services
of implementing the change process. of a change management professional. A best fit approach
minimises mistakes and avoids change fatigue, it can
Maturity curve accelerate the key processes and dramatically increases the
Recent research suggest that 75% of all change initiatives confidence of the individuals involved in achieving project
fail or do not reach their intended objectives, nine of the ten outcomes across the entire organisation.
reasons cited for this failure are related to people issues.
The need for change management therefore becomes clear Companies throughout South Africa are increasingly
and a detailed strategy must be implemented to ensure a realising the importance of implementing effective change
smooth transition. Strategies implemented to facilitate this management processes in order to achieve strategic and
change should be designed to suit the characteristics of the operational excellence. An integrated model that takes into
organisation. account the effect of any change on the organisation as a
whole in a manner that enables an organisation to remain
Before implementing a change intervention, management agile is best. An integrated model should be designed to
should consider the current state of the economy, the culture assist businesses implement change as quickly and smoothly
of the organisation and the position of the organisation on as possible using a combination of global and local research.
the maturity curve. This will give those individuals in charge
of driving change a better understanding of what approach to Adapt
use when implementing the transition. Life changes every day and it is the responsibility of
individuals to adapt to the changes in order to become
Senior management successful. Change is inevitable and the sooner individuals of
The importance of change management in an organisation an organisation take a conscious decision to accept and adapt
should not be underestimated. Managing change should be to change, the quicker the rewards of implementing holistic
viewed as a strategic tool and should be controlled from the change will be experienced.

14 BusinessBrief August/September 2009


MANAGEMENT

Conflict of interest?
by Marianne du Toit–Scholtz, Senior Associate, and Albert Aukema, Candidate Attorney, Cliffe Dekker Hofmeyr

D irectors have a legal duty to act at


all times in the best interests of their
companies. Naturally, a conflict arises
rule is where the director has obtained
the consent of the members of the
company in a general meeting.
content of the disclosure, and this will
depend on the circumstances of each
case. At the very least, a director should
where a director has an interest, either disclose the nature of his interest, any
directly or indirectly, in any transaction The second rule is known as the “fair- profits he may make and any other
that is being concluded with his company. dealing” rule and essentially compels facts that would have a bearing on the
Where these conflicts arise, there are a a director to make full disclosure of company’s decision to enter into the
number of legal requirements relating to his interest in the contract and of all contract.
consent and disclosure that have to be other relevant material facts. Unless
met by directors to render their conduct the company’s articles of association If a director contravenes either the self
lawful and the resultant contracts valid. stipulate otherwise, disclosure must be dealing rule or the fair dealing rule, the
made to the members of a company at a contract is voidable at the insistence
Broadly speaking, two distinct but related general meeting. Interestingly, once full of the company no matter how fair or
rules govern these matters. Firstly, disclosure is made, a director who is also reasonable the transaction. However, if
directors may not act for or on behalf a member may even vote for the approval the contract was concluded with a third
of their company in the negotiation and of the relevant contract at a general party that did not know, or could not
conclusion of a contract in which they meeting. reasonably have been expected to know,
may have a conflicting interest. This is of the conflict of interest; the company
known as the rule against “self-dealing”. A company’s articles of association will is bound to the terms of the contract. In
The reason for this rule is fairly self- often, for the sake of convenience, give those circumstances, the company has
evident - a director of a company is the board of directors the authority a right to claim back from the relevant
obliged to obtain the best terms possible to consider and approve contracts director any profits he may have made
for that company when concluding a in which a particular director has a from the transaction. In addition, the
contract whilst his personal interest in personal interest. The Companies Act, director may well be held liable for any
that contract may motivate him to do just 1973 prescribes the manner in which damages sustained by the company
the opposite. The only exception to this disclosure must take place but not the arising from the non-disclosure.

Overstretched supply chain threat!


by Nick Wildgoose, Supply Chain Product Manager, Zurich

W eak links appearing in supply chains because of economic


instability, overambitious cost savings and increased
global risks. More and more businesses are facing threats to
Reputational risk
The increased risks facing businesses’ supply chains include
suppliers going into receivership, suppliers’ financial problems
their profitability because of an increased likelihood of needed meaning they are not able to deliver to the right quality or
supplies not arriving when planned, according to a new report. timescales, fraud, government intervention or embargo, strikes
and natural disasters. These supply chain issues are a risk not
Profits hit only to the profitability of companies but also to their reputation
The report highlights that the number of companies with customers, investors, policy-makers and the general public.
saying that supply chain disruptions have hit their profits
has more than doubled in the last five years, while the Protecting your supply chain
number of countries considered to have “supply chain Among the most important questions to ask
vulnerability” has risen by more than a third. regarding the health of your supply chains are:

Increasingly complex •D  o you know who your critical suppliers are and how
For a number of reasons, the challenges of managing a much their failure would harm your company’s profits?
global supply chain are becoming increasingly complex. As • Do you have a complete picture of your critical
global markets have become increasingly competitive, many supply chains from raw material to customer?
businesses have introduced cost-saving supply chain strategies • Do you have routine systems for measuring
to maintain profit margins, including sole sourcing and just- the financial stability of your suppliers?
in-time deliveries of critical resources and components. With • Do you understand how natural disasters could impact
many organisations worldwide facing a major economic your key production facilities and distribution centres?
slump, some of these earlier savings are becoming operational • Have you provided risk training to your
weak links, especially in extended supply chains. supply chain management team?

BusinessBrief August/September 2009 15


LEGAL

Facebook – Do you risk dismissal?


By Johan Botes, Director Employment, Cliffe Dekker Hofmeyr

A 23-year old Durban employee


was recently dismissed by his T wo other employees were also
suspended by their respective
employers following their exploits on
principle, the caveat lies in those
otherwise private actions of the
employee that may impact on the
employer after the employee
FaceBook. A 25-year-old Pretoria man employment relationship with the
posted a rude comment about was reportedly suspended after posting employer. For instance, if an off-
his boss on FaceBook. Can comment on his FaceBook page about duty employee makes defamatory
an employer take action his employer’s alleged laziness. A 25- statements in relation to his employer
against an employee for the year-old Johannesburg woman was in public, this (otherwise private)
employee’s conduct outside of reportedly suspended for promoting action may have a direct bearing on
the work environment? Does a competitor’s product on her profile his continued employment with his
home page. In all three instances, employer. Certainly, an employer cannot
the employee’s right to privacy
the employers took a dim view of the be expected to continue the work
not prevail and act as a shield employees’ conduct in posting their relationship with an employee where
against the employer’s right to comments on FaceBook. the latter’s actions are irreconcilable
discipline? with a healthy employment relationship.
FaceBook is a social phenomenon that But what if it took place outside of
has taken the world by storm. With working hours or the workplace? The
increased mobility of employment, Courts have been willing to accept
many globetrotting (and less fortunate) that a link can arise between the
employees use FaceBook as an effective employee’s private actions and the
vehicle for staying in touch with employment relationship. Where the
friends and family. President Obama is employee, in his private capacity, acts
reported to be the most popular person in a manner that negatively impacts on
on FaceBook. If the President of the his employer’s business, the employer’s
United States of America has a page on right to fair labour practice may trump
FaceBook, shouldn’t all of us have one? the employee’s right to privacy. The
The reports above highlight some of the employer may then discipline and even
downsides of ‘FaceBooking’, however. dismiss an employee whose after-hours
conduct negatively impacts on the
The employer’s right to discipline its employer’s business.
workers flows directly from the common
law provisions of the employment In Van Zyl v Duvha Opencast
contract. Under the common law, an Services, the Industrial Court upheld
employee places his or her labour the dismissal of an employee who
potential at the disposal of the assaulted his supervisor, in front
employer in return for remuneration. of another employee, after hours.
In doing so, the employee is in a The Court held that the employee’s
subordinate position and must subject actions made a harmonious working
himself or herself to the employer’s relationship intolerable. Thus,
Johan Botes, control and command. The employer although the employee acted outside
Director Employment, has the corresponding right to issue of the workplace and after working
Cliffe Dekker Hofmeyr instruction and expect obedience to all hours, his actions still linked back
lawful and reasonable instructions. to the employment relationship. In
assaulting his supervisor, he damaged

Employees Logically, though, the employer can only


control and command those actions
the relationship between him and his
employer beyond repair. This resulted
should of the employee resorting within the in the dismissal being held to be fair,
employment relationship. What the notwithstanding the fact that it was an
remember that employee does in his spare time is of ostensible private act by the employee.
no consequence to the employer. The
they cannot bite employer can certainly not instruct the Employees should also remember that
the hand that employee (and expect compliance) of
those aspects that has no bearing on
they are under a common law obligation
to further their employer’s business
feeds them the employee’s employment duties. interests. This means that they may
not do anything to destroy harmonious
Whilst the Courts have accepted this working relations with their employer or

16 BusinessBrief August/September 2009


colleagues. When posting comments on social networking sites such as FaceBook,
they should remember that potential clients, competitors and colleagues may trawl
the internet for information on their suppliers, rival businesses or co-workers. In
doing so, it is foreseeable that they may come across information posted by staff.
Employees are labouring under a terrible misapprehension if they believe that the
information they post on most social networking sites are private and cannot have
any bearing on their continued employment.

An employee who disrespects his employer in a public forum like FaceBook should
expect the same treatment as that dished out to a drunken employee shouting
obscenities to his boss at the annual Christmas lunch. And an employee who punts
the opposition’s business on FaceBook or in an email to third parties can face
the same wrath as if she went on radio or television, defaming her employer. The
employee’s obligation to further his employer’s business interests, or the duty not
to do his employer’s business harm, does not keep office hours. Employees should
remember that they cannot bite the hand that feeds them.

Employers must record sim-cards


By Wendy Rosenberg, Director, and Tebogo Mthiyane, Senior Associate,
Werksmans Incorporating Jan S de Villiers

I
epson
n January 2009, the Regulation of Interception of Communications and
Provision of Communication Related Information Act, 2002 (RICA), was
amended so as to change the requirements for certain cell phone and SIM-
card information to be collected and stored.

RICA now imposes information recording and storing obligations on, among
others, employers who provide SIM-cards to persons in their employment.
These information recording and storing obligations took effect on 1 July
advert
page 17
2009.

An employer must, before handing over the SIM-card to the employee,


record the:
• Date and period for which the SIM-card is provided;
• M obile Subscriber Integrated Service Digital Network number (MSISDN-
number) of the SIM-card; and
• Full names and surname, identity number and at least one address of the
employee concerned, or, in the case of an employee who is not a South
African citizen or who is not permanently resident in South Africa, the
country where the employee’s passport was issued.

An employer must verify this information with reference to the following


documents:
Recorded information
• Full name, surname, identity number and identity of employee.
• E mployee’s address.

Documents to verify information


• Identity Document.
• E mployee’s address.
• B ank statement, a municipal rates and taxes invoice, telephone of cellular
phone account that is not older than three months, any other utility bill
or an account of a retailer not older than three months, an existing lease,
rental or credit sale agreement, insurance policy, a current television
licence or a new motor vehicle licence document.

This information must all be stored for five years.


LEGAL

Rules of the tendering game


By Bulelwa Khemese, Director, Werksmans Incorporating Jan S. De Villiers

The rate at which tenders have been challenged in South Africa has increased dramatically over
the past year. As a result, more decisions across the country are being challenged on the tender
process as entities and tenderers are realising that there is legal recourse to action. The rules of
tendering for public companies putting work out to tender and entities bidding on that tender are
highlighted here.

T he onus lies on the public body to make sure that tender


decisions are transparent, lawful and procedurally fair.
Public entities can expose themselves to legal action if these
Companies bidding for tenders really need to take three areas into
consideration:

requirements are not met. In a recent case, before the Supreme 1. The tender requirements
Court of Appeal a company that was awarded the tender, •T  here will always be a deadline for submitting a tender which
completely relied on the strength, competence and expertise of needs to be met – make sure your application is submitted
another entity, even though the company that was awarded the timeously
tender, did not itself, satisfy the requirements of that tender. • Formal and technical requirements will need to be met,
including, for example, bank guarantees and tax clearance forms
The rules of the tendering game for companies putting work out to • BEE figures will need to be represented, including equity in
tender include: management and staff
• Any service level agreements will need to be signed
1. Advertising/public knowledge – First and foremost public
entities are obliged to advertise tenders that are valued at 2. Experience
R500 000 or more. All parties that might want to be involved in •A  company will need to show their knowledge, competence
the tender process need knowledge of the tender or the public and skill within the relevant sector. In other words if you were
entity can be taken to task; bidding for, say, a catering tender to provide food, you would
2. Substance over form – If a company was formed purely for need to prove that you have registered dieticians available for
the purposes of winning the tender bid it does not, per se, have the purposes of compiling appropriate menus and the requisite
to satisfy tender requirements. However, a public entity would staff
have to satisfy itself on whether or not the company that is • If there is a joint venture, experience within this venture will
tendering is able to meet the requirements of the tender; need to be shown
3. Room for competition at all levels - The law encourages
historically disadvantaged companies to participate, and 3. Physical requirements of the tender
public entities need to ensure that they properly consider joint •A  tender will often have physical requirements that need to be
ventures between SMMEs and other bigger entities; met. For example, if the tender is to supply equipment, minerals
4. Rationally connected to the objective - Be aware of the or technology, a company would need to show that they have
provisions of the Promotion of Administrative Justice Act No. 3 requisite premises and technology to implement the tender
of 2000. This means that your actions and decisions must be • Companies would also need to prove their compliance with
reasonable, procedurally fair and lawful; the necessary applicable laws, including but not limited to
5. Terms and conditions – public companies need to ensure environmental health and safety legislative requirements
that they adhere to the terms and conditions laid out in the
tender document. These would include BEE requirements, It takes a great deal of money and time for an aggrieved tenderer
percentages linked to expertise needed/equipment, technical to seek justice, and the down side is that you could
requirements etc; and be cutting off the hand that feeds you if you follow
6. Disqualification – companies tendering cannot simply be such a course of action. Bear in mind that if you
disqualified for mere non-compliance to small technicalities, for are solely relying on public entities for business,
example, submitting an unsigned document. Courts have gone you could be ruining that relationship for good if
further to say where it is obvious that certain compliance is you take them to task.
technical in nature, one cannot disqualify a company especially
if their value-add will far outweigh the technical oversight or
error.

Companies bidding for a tender have the right to administrative


action that is reasonable, procedurally fair and lawful. If one has
won a tender unlawfully, and if the person challenging the tender
succeeds, one will not have recourse to the money or damages
one may have incurred in operating the tender unlawfully.

18 BusinessBrief August/September 2009


New protection for
whistleblowers
by Gillian Bolton, Head Forensic Services, Mazars Moores Rowland

T he new Companies Act 71 of 2008, which is likely to come into force in


the middle of next year, provides greater protection for whistleblowers,
particularly in the corporate sector. The implications of the relevant section of
the Act are potentially far-reaching and will need to be managed strategically
so that companies do not unwittingly expose themselves to claims.

Not effective
Employees who blow the whistle on some sort of unlawful or irregular conduct are
currently protected under the Protected Disclosures Act (the PDA). However, the
protection tends not to be very effective, as it makes no provision for the often very
subtle forms of discrimination and detriment to which whistleblowers are subjected.

In addition
Chapter 7 of the new Act is titled “Remedies and Enforcement” and provides
certain protections for whistleblowers. Significantly, it provides that to the extent
that it creates any right of or establishes any protection for an employee as
defined in the PDA, this is in addition to any protection in terms of the PDA.

The section also states that any provision in a company’s


Memorandum of Incorporation or rules or an agreement will be void
if it is inconsistent with or tries to circumvent the section.

According to the Act, any disclosure of information will be protected if made


in good faith to an appropriate person or body – and the Act lists these.

Reasonable belief
Further, the whistleblower must have a reasonable belief at the time
of making the disclosure that the company or individual contravened
legislation, failed to comply with a statutory obligation, engaged in
conduct that could (or did) endanger someone’s health or safety (or
damaged the environment), or engaged in unfair discrimination.

The list of persons who would qualify for protection with regard to the good
faith and reasonable belief requirements referred to is far broader than an
employee alone as provided for in the PDA. The list, which is set out in sub-
section 4, includes: a shareholder; a director; the company secretary; a
prescribed officer; an employee; a registered trade union that represents
employees of the company or another employee representative; or a supplier
of goods or services to the company or an employee of such a supplier.

Immune
They would have qualified privilege in relation to the disclosure and are
also immune from any civil, criminal or administrative liability as a result of
the disclosure. In addition, they are entitled to compensation for damages
suffered as a result of the possible or actual disclosure from any other person
who causes detriment to them, or who threatens them with detriment. This
means that there would potentially be no limit to compensation.

Hotline
Finally, companies (whether public or state owned) must establish and
maintain a system to receive confidential disclosures and act on them. Clearly
a hotline would be the primary tool for companies to use in this regard.
TAX

The upside of tax losses


By Nazrien Kader, Lead Tax Director of Financial Services, Deloitte, and former member of the SAICA National Tax Committee

H
Tax losses are one of owever, the complex tax codes Be warned that large losses offer no
around the world and the rapid protection from tax audits. In fact, in
the most immediate
reorganisation of many corporations times of falling profits and shrinking
sources of value for revenues, tax authorities will go the
will result in these tax losses easily
companies looking to vanishing if not carefully understood and extra mile to replenish public coffers.
position themselves managed. In addition, many such losses
for growth when are time sensitive and will require careful It is not enough to be aware of the risk
the market upswing treatment if they are to remain of value attached to innovative loss utilisation.
occurs. If correctly to each entity. During this period of rapid change for
many financial institutions, ostensibly
utilised, these losses
Be aware, however, that it will not be assured tax losses could be at risk as
have the potential to companies restructure, shareholders
plain-sailing for the tax department when
offset tax payments on it comes to offsetting the huge losses change and businesses refocus their
future profits, giving incurred during the downturn against strategies.
institutions a head start potentially more modest profits when the
in the recovery years markets eventually start to recover. In such an environment, it is absolutely
to come. essential that tax losses and similar
No company can assume that the tax tax attributes are managed in real time
benefit arising from operating losses is a so as to minimise risk of forfeiture and
foregone conclusion. For one thing, the maximise current and future benefits.
Chief Financial Officer and tax director
should go to great lengths to ensure Critically, tax should be considered at
that book losses are flowing through to the start of the decision-making process
the tax returns. Permanent, temporary throughout this defining period.
Nazrien Kader, or timing differences should be fully
Lead Tax Director of Financial Services, understood and managed to maximise Many companies are re-examining the
Deloitte, and former member of the the company’s ability to utilise losses way they do business, in the course of
SAICA National Tax Committee efficiently as the business recovers. the process of which they are defining
the successful core and restructuring
to focus on that core. A takeover, or a
major change in shareholding arising
from a merger, may limit a corporation’s
The tax ability to use losses incurred prior to the
transaction.
opportunities
available to Even internal restructuring on its own
may be sufficient to threaten available
businesses during a tax losses in some jurisdictions or across
multi-jurisdiction operations. The future
loss period should use of losses incurred by a specific
business may be lost or severely limited
not be missed in certain jurisdictions if that business is
terminated, even if the group as a whole
continues to trade.

Consolidation of businesses for cost


reduction purposes may also put tax
losses at risk. The CFO will need to
ensure that tax is considered in the
early stages of any re-organisation.
To fully understand the impact on
losses, the CFO must ensure that the
tax department is involved in business
planning and forecasting.

One of the most effective ways to obtain


a benefit from tax losses is by carry-back

20 BusinessBrief August/September 2009


TAX

against prior year profits, if available. This may give certainty losses and understand how this will be achieved. Effective tax
of use and result in a tax repayment rather than a benefit at management for a loss-making business must be measured
some time in the future. Such a strategy may require the tax over an extended period to determine effectiveness. Quick wins
department to change its behaviour and file tax returns earlier such as loss carry-back should be implemented swiftly where
if repayment of tax cannot be obtained until the tax return for possible, thus providing a more immediate cash benefit.
the loss period is submitted to the authorities.
The eventual ability to use tax losses is key. The importance of
Where tax losses cannot be immediately utilised, companies minimising the risk of future challenge by tax authorities cannot
need to consider the extent to which losses carried forward can be underestimated. Above all, tax risk is as great an issue now
be recognised for accounting purposes, as well as the value that as during high tax-paying periods.
regulators might put on deferred tax assets representing loss
carry-forwards. A final word: The tax opportunities available to businesses
during a loss period, such as the potential to implement internal
The tax director’s target should be to maximise efficient use of restructure plans, should not be missed.

New tax laws affect formula approach


By Tim Desmond, Director, Garlicke & Bousfield

T he draft Taxation Laws Amendment Bill has been


released for public comment. The draft bill deals with a
number of issues that will affect a wide range of taxpayers.
certificates from the National Energy Efficiency Agency.

Another issue that is addressed is the depreciation of


This article highlights some of the proposed amendments improvements to assets. The draft bill aims to harmonise
that will be of general interest to businesses. the approach taken throughout the Income Tax Act in this
regard. Improvements will be depreciated as if they were
There are a number of provisions dealing with the stand alone assets themselves. The principles that apply
conversion of secondary tax on companies to a dividend to the depreciation of the relevant underlying assets (for
tax. Although legislation is in place, the conversion has instance, that they be new and unused) will be applied to
not yet been made effective. The additional provisions improvements to those assets.
proposed in the draft bill include anti-avoidance measures
aimed at preventing the conversion of proceeds from In terms of current legislation, deductions against taxable
the sale of shares into tax-exempt pre-sale dividends. A income from financial leases of depreciable assets are
mechanism to apply the concept of deemed dividends, well limited (leading to the ring-fencing of losses). The draft
established under the secondary tax on companies regime, bill recognises that the scope of the limitation is too wide,
is also introduced. The distribution of shares and share particularly to the extent that losses that have arisen
rights is also addressed. The new provisions will come into cannot be set off against proceeds from a sale of the
effect at the same time as the conversion as a whole. underlying assets. The draft bill narrows the scope of
the limitations and it will be possible to set the losses off
The draft bill continues the government’s approach of against recoupments and capital gains on disposal of the
incentivising environmental efficiencies. The sale of underlying assets.
certified emission reductions (so-called carbon credits) will
be exempt from income tax. There will also be notional The provisions regulating learnership allowances are also
income tax deductions available as a result of energy to be simplified. In essence, the existing formula based
savings. These savings will require energy efficiency approach is to be replaced with fixed sum deductions.
TAX

SERIES PART 1

New laws keep rolling in


by Kemp Munnik, Tax Director, BDO Spencer Steward

O n 1st June, the 2009 Taxation Laws Amendment Bill and the
Taxation Laws Second Amendment Bill were released for
comment. Many taxpayers saw 2009 as a year of consolidation
stepped up value in the hands of the estate and then eventually
the beneficiaries. There is however potential for double tax where
assets transfer directly to heirs, as there are no step-up rules
following a fairly benign Budget on the tax front. Nevertheless, for such beneficiaries. This will be remedied with effect from 1
the combined bills run up to over 200 pages of legislation. These January 2010 for years of assessment ending after that date.
changes are highlighted in this series.
Simplification of Learnership Allowances
Demise of the Deemed kilometre The complexity and number of variables involved with this
From 1st March 2010, it will no longer be possible to regard the incentive have rendered it unworkable. For this reason, the rules
annual kilometres from 18 000km to 32 000km to be for business have been significantly simplified and the caps, based upon
purposes. It will then become necessary to retain a logbook of employee income, have been removed. Also the learnership
business travel, which excludes commuting to the office and back. allowance programme previously only allowed for a deduction in
The PAYE rules will be amended accordingly, on a basis whereby the first year and a completion allowance in the final year. Special
the portion of the allowance subject to PAYE will be increased from rules and enhanced allowances are proposed for learnership
60% to 80%. contracts of three years or more.

Medical Aid Contributions Post-Retirement Medical Aid


Currently employer contributions to medical aid funds are exempt Many employers have opted to substitute the uncontrollable cost
from tax up to the monthly capped amount and not regarded as of future medical expenses for retired employees with a lump sum,
a fringe benefit. On 1st March 2010, the fringe benefit exemption the tax deductibility of which is uncertain. This uncertainty will be
relating to a portion of an employers contribution to a medical aid remedied on a basis whereby a full deduction will be allowed in the
scheme, will fall away. This will be compensated for by a deduction hands of the employer, unless the payment does not effectively
by individuals of amounts contributed by employers, up to the shift risk and is a disguised investment.
current monthly capped limits. The net effect is expected to be
neutral. Retirement Annuity Contributions by an Employer
At present such contributions are a fringe benefit in the hands of
Pre-Retirement Lump Sums an employee yet do not rank for the deductions which would have
The proposed amendment brings into effect a separate set of applied, had an employee contributed directly. This anomaly will
tables which apply on resignation from a fund. It is now made be corrected with effect from 1 March 2010.
clear that one cannot structure one’s affairs to benefit from both
the average rates on resignation and the average rates applicable Payout of an Actuarial Surplus from a Pension Fund
to retirement and death, as the two separate sets of tables work Currently such amounts are taxable in full but circumstances may
on a cumulative basis. have arisen where an employer did not enjoy a deduction of the
contributions (eg, on a take-over). The position will be remedied,
Minor Beneficiary Funds retrospective to 1 January 2009 to allow for a reduction of the
In order to simplify compliance, payments from minor gross income amount to the extent that the employer has made
beneficiary funds will no longer attract PAYE like annuities. contributions or paid costs that were not claimed as a deduction.
Instead of this, lump sum tax will be imposed on the
death of a retirement fund member. Carbon Emission Credits
In order to compensate for the market failure associated with
Unrealised Gains on Death environmental protection, the disposal of credits by a registered
Under the capital gains tax rules, assets project will be exempt from income tax. Furthermore, as most
are deemed to have been disposed credits will be for export, the zero rating for VAT purposes has
of at market value and acquired been made clear.
at the
Energy Efficiency
A special allowance will be created for energy efficiency savings
determined by an accredited professional.

Dividends Tax Refinements


Numerous refinements have been proposed to
this impending tax which will, in all likelihood
be subject to significant further changes, not
yet announced. This will be examined in greater
depth, once the dust begins to settle.

22 BusinessBrief August/September 2009


TAX

Pain-free tax returns


by Grant Lloyd, Managing Director, Softline Pastel Payroll

T he 2009 tax filing season went live on


1 July and to avoid punishing fines or
penalties, individuals need to know what
can simply log on to the website to verify
and complete the pre-populated IT12
return online.
kilometres can be claimed of which the
first 18 000 kilometres is regarded as
non-business travel. So a taxpayer with a
is required of them and be aware of the travel allowance who travelled more than
deadlines they have to meet. Individuals When completing their tax returns, 32 000 kilometres in this financial year
should start getting their documents in individuals can claim certain deductions but did not keep a detailed logbook, will
order now. against their taxable earnings. These be allowed to claim a total of only 14 000
include medical expenses, retirement kilometres for business purposes against
For those who earned more than R120 annuity contributions, business the travel allowance.
000 and have to file a return, the kilometres travelled if a travel
deadline is 18 September if the return is allowance was received, business Taxpayers must make sure that they
being done manually, but those who have travel expenditure against subsistence claim their business kilometres this year
access to an internet connection and allowances and donations to an approved or SARS will recover tax on assessment
choose to submit electronically gain an charity or NGO. from the 40% of the travel allowance that
additional six weeks up to 20 November. was not subject to PAYE (employers are
Travel allowance obliged to deduct PAYE from only 60% of
Manual return Taxpayers should be aware that this the value of travel allowances).
A manual return pre-populated with the 2008-2009 return will be their last
individual’s tax certificate information opportunity to submit claims against Taxpayers should have started to record
submitted by the employer can be a travel allowance without a detailed their business travel details from 1 March
requested from the local SARS branch or logbook as proof of business trips made 2009 as they will not be able to submit
obtained by completing a return request using a private car. any claims against a travel allowance
form that was posted to all non-eFiling without a detailed logbook after 28
taxpayers last month. SARS eFiling users Currently, a maximum of 32 000 February 2010.
FEATURE - PRIVATE EQUITY

Private Equity
Private Equity shows
growth despite
economic downturn

The global credit crisis has produced a mixed bag of fortunes for
private equity – the investment class in which capital is invested
in private companies. On the downside, corporate earnings have
declined but on the upside, reduced company valuations have
produced a range of investment ‘bargains’. This feature discusses
the last year, the current state of the industry, black economic
empowerment (BEE), trends in the market and international
investment, among other aspects.

“P
rivate equity represents a viable option for the funding of businesses in South
Africa. This type of funding is ‘smart capital’ as private equity fund managers
make a return from the increased valuation of a business and hence work with
management to develop the business,” says Executive Officer of South African Venture
Capital and Private Equity Association (SAVCA), J-P Fourie.

Sasfin Capital’s Private Equity Head, Malcolm Segal adds that private equity is
not just for multi-billion rand transactions. “It is a versatile form of funding
that can help companies of any size unlock their true potential without
burdening themselves with excessive debt. Private equity is well
placed to play a dynamic role in the growth and development
of smaller entrepreneurial companies,” he says.
Investments by private equity funds into companies
hold great benefits besides the mere cash injection to
develop a business. Private equity investments have
considerable impacts in terms of productivity, skills
development and job creation, as it includes the transfer

24 BusinessBrief August/September 2009


FEATURE - PRIVATE EQUITY

and exchange of know-how and not only buyout, says Head of Private Equity saw tightening of credit, huge gaps
the flow of capital. at Nedbank Capital Dave Stadler. This between buyers and sellers and no
was significant as the deals were being money to do deals. Deal sizes have
“In South Africa, the private equity funded by ‘Junk Bonds’ – high yielding come down drastically in the last year.
industry represents a significant sector bonds.
within the overall financial services Deloitte’s Leader of private equity
industry, and an attractive asset class A pattern emerged internationally, group, Sean McPhee says that banks,
within the broader capital markets. and even in South Africa where insurance companies and corporate
As seen across a range of indicators, deals were funded with a very high entities are not providing the level of
the profile of the local private equity level of leverage - little equity and funding for private equity that they
industry is that of a productive more gearing. Between 2000 and once did. This means that the shortfall
contributor to the development of the 2007, American businessmen started is expected to be filled by new sources
South African economy. In particular, investing in countries all over the world such as private individuals and pension
private equity facilitates BEE, addresses and eventually into South Africa, where funds.
economic imbalances of the past, the largest deal to date has been the
promotes entrepreneurial initiatives Edcon buyout valued at R27bn. “Even the nature of deals has changed
and positions South Africa to compete drastically.
successfully on the global stage,” adds Stadler says that these werethe boom
Segal. years of private equity and huge
amounts of debt were being
Then and now raised. Then the private
Private equity only really emerged in equity industry took
the 1980s with the huge RJR Nabisco a turn and
deal valued at some $25bn. RJR we
Nabisco was then bought by Kohlberg
Kravis Roberts & Co (KKR) at about
$32bn and was at the time
the largest leveraged

BusinessBrief August/September 2009 25


FEATURE - PRIVATE EQUITY

In 2006, buyers would put up to 40% of enough capital. If investors did have and the propensity for public issues
equity into a transaction and raise 60% sufficient funding, that would help them more limited, this renders private
of debt, now private equity firms are to recapitalise their business and help equity capital even more sought after.
ploughing in more equity and raising them trade in these tough times,” says Strangely enough, a positive aspect of
less debt,” says McPhee. Serebro. the economic crisis has in fact been
massive clean up of the private equity
The inability to ‘leverage up’ means According to Serebro, the downturn industry. The number of players in
that the private equity deals that you will lead to a realignment of wealth, a the market has been reduced, thus
will see in the next year are likely to be realignment of private equity players. benefitting the more established
much smaller than in the recent past. People will either be forced to sell their players,” he says.
Of the 400 private equity practitioners assets or indulge in a co-investment.
surveyed by Deloitte, more than half An industry perspective
believe the deal size will fall. “Deals will require more equity In 2008, the rest of the world fell into a
than before and we expect to see tailspin, but in South Africa, it appears
Director at Edward Nathan Sonnenbergs, more collaboration between private that the South African private equity
Brad Serebro remarks that before the equity and corporate co-investing in and venture capital industry remained
economic crisis, South Africa saw deals opportunities,” says McPhee. in a relatively healthy position. “Though
that were high priced. The multiples deal value and flow were lower than
that people were paying for businesses, Sasfin Capital’s recently appointed the last previous year, the industry
and the gearing ratio that they were Deal Origination and Capital Raising still reported more than R20bn of
obtaining to fund the acquisitions of Executive, Neil Eppel shares this investment activity. The South African
those businesses were disproportionate sentiment ,adding that co-investment economy, in spite of facing tough
to the actual values of the businesses. with partner private equity players times, is one of the few worldwide to be
“Basically, people were overpaying for may become a predominant feature in marginally shielded from the financial
assets and what is harder now is to pay many deals. “I believe that the private meltdown. This level of protection
for those assets and the debt that was equity industry is going back to its comes from our nominal foreign
borrowed as the economy has dipped more traditional roots. Since the term exposure and also some good policy
significantly. Investors do not have ‘debt funding’ is so much more scary decisions,” says J-P Fourie.

26 BusinessBrief August/September 2009


FEATURE - PRIVATE EQUITY

On a macroeconomic level, South Africa a change in how the industry views a changing and challenging market.
is also fairly well-off. The banking investment opportunities, with greater “Globally, merger and acquisition
industry remains robust, the banks are interest in businesses that invest in activity has slowed and mega deals
well regulated and their balance sheets research and development and ongoing have evaporated. Investors remain
are sufficiently capitalised. Inflation innovation – good prospects for venture cautious since earnings visibility is
is forecast to start falling, allowing capitalists. a major challenge and debt markets
the Reserve Bank greater leeway with have improved marginally. There is no
its monetary policy. Infrastructure The time for mega-deals has also shortage of debt for good deals, but the
spending continues to be robust, as passed but the industry’s greatest amount of debt offered has come down
government is ploughing billions into opportunity in 2009 lies in the along with gearing levels. We have, in
improving the country’s infrastructure midmarket. essence gone back to private equity
and social services. basics.”
In a recent jointly-hosted media
“In 2009, the drop in activity will briefing by SAVCA and Sanlam Private Fernandezshares Fourie’s sentiments in
continue. Though the economic outlook Equity (SPE), which examined the state that private equity players in developed
is uncertain, opportunities exist, of private equity locally and globally, it markets are now looking to mid-size
especially for forward-looking managers was revealed that profitable exit from companies for investment opportunities,
who are not averse to risks. As an deals is likely to be delayed due to the with a hive of activity currently
industry, we have worked hard to make downturn. However, with a slowdown underway in underperforming assets
ourselves more accessible. Though in the number of companies listing on and secondaries.
equity remains cheaper than debt, the stock exchanges, companies that
private equity will continue to remain a may previously have gone public are “The private equity industry in South
popular asset class, despite the lengthy now good prospects for private equity Africa is far better placed than its
investment cycle,” adds Fourie. investors. more mature counterparts in the first
world. South African private equity
He reckons that investors are already CEO of SPE Cora Fernandez said deals have never been geared to the
demanding intelligent, lean and value- that experienced managers have same extent as the gearing levels
based opportunities. This will drive demonstrated their ability to adapt in seen in the developed markets. As a
FEATURE - PRIVATE EQUITY

merger and acquisition activity,


South Africa’s private equity industry
breached the R100 bn mark for the first
time during 2008. In addition, R29.2bn
in commitments remains undrawn and
can be used for further investment.
These were the findings of the KPMG
and SAVCA Venture Capital and Private
Equity Industry Performance Survey
for 2008.

Growth in black economic


empowerment (BEE) private equity
deals grew 38.1% from R11.8bn in 2007
to R16.3bn in 2008.

Due to the absence of the large public-


to-private deals as seen in 2007 such
as Consol Glass, Edcon and Primemedia,
it is no surprise to see that private
equity investments fell in 2008 from
R26.1bn in 2007 to R21.3bn in 2008.
Fundraising also decreased from
R15.4bn in 2007 to R7.2bn in 2008.

KPMG’s head of private equity Warren


Watkins says, “These figures are a
positive reflection on the achievements
of the South Africa private equity.
Although South Africa is not immune
to developments in the global economy,
we currently appear to be better off
than other private equity markets. This
could be due to South Africa’s ongoing
infrastructure spending and limited
credit crunch exposure”.

their asset allocation strategies in The survey also found that funds
search of greater liquidity. More than valued at R68.6bn were under the
50% of capital raised by PE funds management of captives -government
result, we don’t expect to see a high in the past two years was sourced or entities that are either black owned,
level of underperforming or distressed offshore, principally the US and empowered or influenced. This is up to
assets, work outs or turnarounds,” says European countries. The full extent and 16.3% from R59bn in 2007.
Fernandez. consequences of this risk is only likely
to be felt in the next 12 to 18 months,” The private equity sector maintained
She said that South Africa’s industry adds Fernandez. a lingering exuberance from 2007
may be small by international through the first half of 2008 and then
standards – it makes up only one Fernandez said that, despite these became more subdued in the second
percent of global activity – but it challenges, private equity remains half of 2008. The net result was overall
does contribute a significant 3.2% to a great source of foreign direct growth of 19.5% on R86.3bn held in
GDP, which contributes to expansion investment and of growth and December 2007 to R103.1bn
and development in the country. It is expansion finance. This is good news
sophisticated and well-organised with for the financial services sector and Watkins remarks that there is a reason
a well established network of highly the economy, meaning that we can use for cautious optimism for South
experienced players, deep and liquid foreign capital to finance and stimulate Africa, in particular with respect to
debt markets and solid legal framework. growth in South Africa. the prospect of lower interest rates,
and the forthcoming FIFA 2010 Soccer
“Currently, the biggest challenge The year at a glance... World Cup.
facing us in the aftermath of the The South African sector remains
financial crisis is fundraising. Locally, strong due to ongoing infrastructure “The scale of activity in our industry
investors into PE funds are largely spend and limited exposure to global continues to outperform most of
pension funds and endowments, many financial markets. Despite the global the major international economies,
of which are currently reviewing meltdown and a slowdown in local which bodes well for South Africa’s

28 BusinessBrief August/September 2009


The range that keeps a leading South
African haircare business in the black.
Ebony + Ivory 12833

www.idc.co.za
FEATURE - PRIVATE EQUITY

government stated growth targets, According to Serebro, it became clear still the leading source of raising capital
as local and international research that as the credit crunch manifested, followed by the US (29%) and then
confirms that private equity investment the massive loans used to fund Europe (20%). A potential structural
is a key driver of entrepreneurial LBOs would be the first to dry up. change is evident in the sources of
activity and growth in any economy,” Current deal multiples have changed these funds as more respondents are
says Fourie. significantly, with lower gearing levels looking to other markets such as the
(Debt/EBITDA) and significantly higher Middle East and Asia to close their
The survey found that South Africa’s equity injections required. funding gap.
funds under management (excluding
undrawn commitments) relative to GDP With adversity comes opportunity 51% of respondents envisage investing
of 3.2% were higher than 2007 and McPhee highlighted that the financial all available funds in less than two
again greater than the global average crisis and declining valuations should years, which is a crucial driver of
of 2.7%. Funds under management provide significant opportunities for the raising of new funds. 47% of
were R30.7bn in 1999 with R103.1bn private equity firms to acquire assets respondents envisage taking up to
reported in the current survey. This at attractive prices once expectations four years to invest their current
represents 14.4% compound annual between buyers and sellers converge. funds. It is these funds with their “war
growth rate. chests” already in place that will be
According to the sixth local Deloitte best positioned to take advantage of
The Credit Crunch Private Equity Confidence Survey the opportunities that are expected to
“The period before the current global (PECS) which is conducted in emerge when the economy finally turns.
financial crisis was marked by the collaboration with SAVCA, among
largest private equity boom to date. investment professionals in the private No respondents are looking to invest
For nearly four years private equity equity industry, 40% of respondents in start-up companies and seed
firms went on a buying spree fuelled expect the overall economic climate to capital. 18% of respondents believe
by the abundance of inexpensive credit decline, 33% to remain the same and that the attitude and understanding
globally. Existing shareholders of target 27% expect the economic climate to of institutional investors is worsening,
companies were bought at considerable improve. which is the highest recorded in this
premiums, pushing valuations and survey. In line with respondents
prices to new heights,” said Serebro. Despite global uncertainty and the spending the majority of their time
anticipated difficulty in raising funds, being internally focused on investee
Target companies were saddled with 62% of respondents are planning to companies, the transaction focus will
billions of dollars of debt used in these raise a new fund over the next 12 be on providing replacement/buy-out
leverage buy-outs (LBO). The change in months. Greg Benjamin, Deloitte and expansion and development capital.
the global deal multiples is: Corporate Finance Manager comments,
• D ebt/EBITDA multiples increased by “In a world where competition for 57% of respondents expect that
50% from 2001 (average 4.1x Debt/ capital is increasing, this is going to competition for new assets will decline,
EBITDA) to 2007 (average 6.2x Debt/ be incredibly tough but respondents while 79% of respondents expect
EBITDA) are under no illusion, with 76% entry multiples to decrease. This must
• P urchase price/ EBITDA multiples acknowledging this challenge.” represent a huge buying opportunity
increased by 62% from 2001 (6.0x) to however, the big question is, when will
2007 (9.7x Debt/EBITDA) According to McPhee, South Africa is the bottom be reached and will sellers’
price expectations converge with
buyers?

30 BusinessBrief August/September 2009


FEATURE - PRIVATE EQUITY

80% of respondents expect deal sizes industry will emerge stronger and will which measured the opinions of more
to decrease as the equity to total continue to play a significant role in than 700 venture capitalists worldwide,
transaction capital ratios increase. As capital markets and building better, also shines headlights into the post-
a result, Deloitte expects more activity more resilient businesses,” concludes recession landscape.
in the mid-market space. 64% of McPhee.
respondents expect the availability “While the recession has slowed the
of debt funding for transactions to Global Survey pace of venture investing in the short
decrease and Deloitte expects the The global economic downturn has term, it may very well have expedited
equity component of deals to increase many venture capitalists altering the global evolution of the industry
as deals are more conservatively strategies, including reducing in the long run,” says Greg Benjamin,
financed. 80% of respondents expect investment levels in the short term. Deloitte Corporate Finance Manager.
exit valuations to decrease and 76% This is according to the 2009 Global “In recent years, many entrepreneurs
expect the volume of exits to decrease. Venture Capital Survey by Deloitte. who have been educated in the United
This confirms that it is not a good time States have returned to their home
to exit. “The main findings of the survey are: countries to start companies. The
that the competitive landscape is poised playing field continues to level out in
“There is an opportunity for the to shift due to industry globalisation; terms of new innovation hot spots,
emergence of a stronger secondary the clean technology sector has been broader access to capital and growing
private equity market in South Africa,” identified for future investment; and regional ecosystems that foster risk
says McPhee. “A stronger secondary the majority are looking outside home taking and capital formation.”
market would inject liquidity and has markets for opportunities,” says Sean
been successful in achieving this McPhee of Deloitte. While investment levels may decline,
in markets such as the US, UK and the majority of venture capitalists are
Europe.” 51% of the survey respondents are not shifting their investment strategies
decreasing the number of companies in in terms of the industries where they
“Investors remain confident that which they plan to invest and just 13% are putting their money to work. A
private equity returns will outperform are increasing this activity. majority of venture capitalists (79%)
returns achievable on the JSE. We anticipate stable levels of investment
are confident that the private equity The 2009 Global Venture Capital survey, across all industry sectors with the

Redefining SMME business support.

South African Black Entrepreneurs Forum (SABEF) is


the voluntary organization whose mission is to promote, inspire
and grow entrepreneurship in the black communities as the
source of poverty alleviation, job creation and
economic growth in South Africa.

For partnership opportunities and membership enquiries,


please contact SABEF Head Office on telephone: 011 691 7933

www.sabef.co.za | info@sabef.co.za
FEATURE - PRIVATE EQUITY

exception of the clean technology BEE He says that a number of BEE deals
sector where 63% of venture capitalists “Many of the BEE deals struck in recent will be under threat during the current
expect to increase their investments years after painstaking negotiations economic slowdown, especially those
over the next three years. may have to be renegotiated, dealing deals struck in the mining sector at
a blow to the Department of Trade and the top of the cycle, as many were
Advances in new technology, growing Industry’s goal for an unencumbered last year, to meet the Mining Charter
consumer demand in alternative 25% of the economy to be in black deadline. Van der Merwe is confident
energy and the ambitious plans of hands by 2017, says Werksmans that a large portion of deals should
governments worldwide to invest in Attorneys Senior Director in the be safe in light of the fact that a
clean technologies have made this corporate and commercial department, significant number of the latest wave
sector a key focus for the venture Morne van der Merwe. of BEE deals were struck on a vendor-
community. finance basis, using less bank finance
An estimated R41 billion worth of than was the case under the model that
The medical device sector ranked potential BEE deals have been wiped collapsed during the Nineties market
second in terms of growth potential out due to unfavourable trading correction.
with 37% of respondents anticipating conditions in the past two years,
increases in investment followed by according to statistics sourced from However, many deals (especially the
new media (26%), consumer business BEE rating agency Empowerdex. Last large value deals) were structured
and biopharma (24%) and software year, the total value of BEE deals using bank and private equity funding.
(22%). Venture capitalists are less sealed on the JSE declined fivefold to
optimistic about more mature sectors, R13 billion (from R66 billion in 2007). Paul Austin, Head of Corporate Finance
such as the telecommunications and But the real threat is that deals already at BDO Spencer Steward in the Cape,
semiconductor industries, with just struck may begin to unwind. says that where bank finance is present
15% and 16% of venture capitalists in a deal, the structure may be under
surveyed planning to increase Van der Merwe adds that a solution stress, not so much because of the
their investment in those sectors with special focus on mergers and share price collapse, but due to falling
respectively. acquisitions (M& A) would be for company earnings in an economic
government to consider a bail-out slowdown.
The recession also has a core group of package to ensure no BEE deals fail,
venture capitalists shifting their stage and the country remains on target to “A lot of BEE deals are still financed
of development investment focus. 36% meet DTI objectives. with debt, and bankers the world
of the respondents surveyed intend over are under pressure to find more
to move toward later stage investing security and reduce their exposure to
in order to support existing portfolio risk. Although banks have a substantial
companies until the exit markets exposure to BEE finance, we
improve. Just 6% intend to move have not yet seen any
toward early stage investing to take deals actually
advantage of the longer runway for collapse,
company growth.
FEATURE - PRIVATE EQUITY

because there is a degree of robustness in many of the older


deals. Even if a share price has collapsed from, say, R500
to R300, if the deal was done in 2005 it is likely to still be in
the money. For instance, the original share price might have
been R100,” says Austin.

It would only affect deals either done at the peak of the


cycle last year, or where the share price collapse has been Brown also mentions that they have a long term strategy in
of spectacular proportion. However, there have been some place where a six to eight year view is taken when assessing
such spectacular collapses in share price of as much as 94% deals. “There is a pressure for more businesses to go black
in the case of Super Group. Austin says many of these deals and RMB Corvest still has more BEE deals on the cards.
still have a long time horizon in which to recover, and BEE Increasing BEE credentials is vital to stay in the game,”
partners are therefore no worse off than other shareholders. remarks Brown.

In most deals involving bank finance, a certain rigour was


introduced by the banks’ process of due diligence. Austin More buyers than sellers
says although banks have been heavily involved in funding “Despite the marked decrease in mergers and acquisitions
BEE deals, “they never gave anything away, and every deal (M& A) in the first quarter of this year, there are more
had to be bankable with their loan capital well secured”. buyers than sellers in the market at the moment,” says Wils
Raubenheimer, Director at Mazars Moores Rowland.
In the few cases where deals have to be renegotiated, both
Van der Merwe and Austin see a positive aspect to it. Only He adds that in the current difficult economic environment,
last September were the Codes of Good Practice finally one would expect to find more sellers than buyers but most
published, and only in February this year was the final piece would-be sellers have gone to ground and are waiting for a
of the jigsaw put in place when a verification system was better economic environment to sell or seek investors for
authorised. fear of selling at too much of a discount.

Meanwhile RMB Corvest, a captive fund that has concluded Prior to the global financial meltdown values were driven
over 30 BEE deals, confirms that BEE deals can only be to unrealistic heights with less and less relationship to net
successful if the underlying company’s value increases. One asset value (NAV). While current values are distressed,
of the company’s directors, Stephen Brown adds that if you that doesn’t mean sellers can’t extract fair value. “Nor is it
have done a BEE deal at a high price earnings (PE) ratio impossible for buyers to get funding if they don’t have the
and the company’s performance comes down, those BEE cash. Interest rates are declining and lending institutions
transactions may be in trouble. “BEE is a way of life and in are looking for funding opportunities. Provided you present
the previous booming economy, BEE deals were able to use a good funding proposal and can meet more stringent
debt from banks but due to debt having dried up, more deals requirements than before, the banks will look at it,” he
will be done through private equity,” adds Brown. remarks

Brown mentions that in this economic downturn, RMB Corvest He believes companies should consider taking on private
is not fully affected as being a captive fund gives them the equity investors and using that money to get ready for the
advantage to wait for the market to turn before exiting a next upswing. A strategic capital injection at this point
deal, and to wait for growth in the business before exiting, could result in better competitiveness and the ability to take
thereby generating improved returns if they hold on, and advantage of opportunities once the economic cycle turns
possibly wait for a trade sale. more positive.

34 BusinessBrief June/July 2009


FEATURE - PRIVATE EQUITY

Restructuring in turbulent says KPMG Director of Restructuring business. A thorough analysis should
times Advisory, Sandile Hlophe. be conducted to ascertain where
Companies hoping to ride the costs can be optimised. A number of
economic downturn through An underperforming business usually businesses seem to have interpreted
restructuring their businesses displays the signs of a continued but cost optimisation as simply mass
could do well to approach the diminishing cash flow. This could be retrenchment or closure of certain
exercise with an informed due to a number of factors ranging operations, when, in fact, these
measure of caution. Critical from pressure on the sector in which extreme responses might not be the
to the restructuring exercise a business finds itself to inflationary correct approach to restructuring
is establishing the position of constraints or difficulty with debtors. as they may impact on sustaining
a business to ascertain where remaining business processes and
restructuring interventions will The restructuring response could operations which would hamper the
deliver the most value to continued incorporate a number of interventions growth of the business should the
operational success. intended, broadly, to release working economic environment improve in the
capital from existing operations. These near future,” adds Hlophe.
“Typically, a business that might need could range from optimising costs,
to consider some level of restructuring identifying and releasing working A stressed company is one that is not
could find itself in one of three capital trapped in inventory, debtors just facing a cash flow problem, but
positions in a continuum ranging from or capital expenditure projects, finding is also not making any profit at all.
underperforming to stressed and, new markets or rationalising operations. Typically, these companies struggle to
ultimately, distressed. To ascertain the meet their credit payment terms and
nature and depth of the restructuring “It is important to note that cost their regular expenditure deadlines.
requirements, a key consideration optimisation is not simply a case For example, they might begin to pay
is cash flow constraints, particularly of cutting costs for the sake of cost salaries late and renege on UIF and
in the latter two categories. While cutting at any cost. As the term implies, PAYE obligations.
this is always a consideration in the it should be the efficient management
operation of a business, it is especially of costs that continues to release Some responses to address the
the case during an economic downturn,” value for the ongoing operation of the situation include financial restructuring
FEATURE - PRIVATE EQUITY

and a clearer understanding of the flexibility that might declining growth in Europe, the US and Australia, there is still
be afforded not just by lenders, but by commonly good growth in China, Brazil and India and to a larger extent, the
perceived ‘inflexible’ institutions such as SARS. As a solid African continent.
turnaround plan might act as a persuasive mechanism
in addressing both these players, it is critical that such There is hope. It is time that people start properly assessing their
a plan is developed following the detailed analysis of deals as capital is quite precious right now. In these turbulent
a company that finds itself in the stressed position by times, the industry needs to demonstrate relevance and value
an independent advisor, if the plan is to win over the as there issome optimistic news in the form of infrastructure
confidence of key stakeholders. spending, limited credit crunch exposure, interest rate head room
and the FIFA 2010 Soccer World Cup to look forward to.
Looking Ahead
Fourie said that more equity-only deals were a strong
CONTRIBUTORS
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36 BusinessBrief June/July 2009


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FINANCE & EQUITY

King III: Comply vs Apply –


What’s the difference?
By Lindie Engelbrecht, Chief Executive, Institute of Directors in Southern Africa (IoD)

One of the subtle changes


in the King III draft report - T he King II Report was drafted with
‘affected entities’ in mind. Essentially
these included listed companies, financial
is on ‘application’ versus ‘compliance’.

For this framework to work effectively,


released 25 February 2009
institutions and public entities. Private the principles were also drafted at a
- is the shift from ‘comply or
companies and other entities, although sufficiently high level to ensure that all
explain’ to ‘apply or explain’. not specifically included in the definition organisations would be able to apply
However, to the uninformed, were urged to comply on a voluntary these principles for their particular
the question may be what basis. Thus, many private companies and circumstances.
is the difference and the other entities did not regard the King II
informed may be wondering, code applicable to their companies and did The difference is best explained through an
why the difference? not comply. example. One of the principles of the King
III Code is that the board is responsible for
The framework of ‘comply or explain’ was the process of risk management. When a
applied mainly by listed companies, as a large listed company applies this principle,
result of the requirement for compliance it may require the establishment of a risk
in the JSE listing requirements, and in committee, a chief risk officer and several
the reports of many companies, it was other process changes to achieve this
clear that companies complied with those principle.
principles that they agreed with or were
cost effective, and then did not comply A small one-man concern should also
with other principles. This resulted in apply this principle, however as the
many companies reporting on ‘substantial person who ‘is the board’ this person may
compliance’ on certain principles and not want to consider and note the top ten
the code read as a whole. risks facing the entity and consider the
applicable controls necessary to mitigate
In our attempt to broaden the scope these risks.
of the King code, the King III code is
drafted without any particular ‘affected’ Both entities have applied the principle,
companies in mind. The code applies to however very differently to fit the nature,
all companies, public entities, private size and complexity of the organisation.
companies and all other forms of The explanation needed in both these
businesses. cases is to set out how the principle is
addressed and to give stakeholders the
The aim of this objective is to ensure opportunity and the information to assess
that all forms of business apply the basic if the principle has been adequately
principles of good governance in South addressed.
Africa. This decision clearly resulted in
the question of how a small company You may also find that some entities
Lindie Engelbrecht, could comply with the principles of good do not apply a particular principle, for
Chief Executive, governance, the same as what was example, a small business may decide
Institute of Directors in Southern Africa (IoD) expected from a large listed company. The that the company does not need a
focus was on compliance, still on the form company secretary. In this instance it
over the substance and one would expect would be required of this business to
some form of comparability. To expect explain that it has not applied a principle
a small company to comply with the and what the reasons were, again
Many companies principles the same as a listed company providing the information to stakeholders
would have significant cost implications to question the appropriateness of the
reported on certain and, we believed, have many unintended decision.

principles only and consequences.


The ‘apply or explain’ basis allows every
not the code as a Therefore, the King committee decided organisation to apply all the principles of
to draft the principles on an ‘apply or the code as it best meets the objectives of
whole explain’ basis to prevent these cost the entity and to focus on the substance
implications and to ensure that the focus rather on the form of application.

40 BusinessBrief August/September 2009


Manage working capital
to release cash
by Derek Engelbrecht, Director Assurance, Ernst & Young

I n the current economic downturn, improved working capital


management policies are necessary to enable the release of
much-needed cash to help consumer industry companies boost
Building a learning society
liquidity. This is vital in the face of slowing consumer demand
and tightening credit conditions, currents which are compounded
CENTRE FOR

BUSINESS
by commodity price and currency volatility. These factors will
severely affect cash flow in industry and in particular working
capital. That said, high levels of cash opportunity still exist.

It is of particular importance for consumer industry organisations


to focus on liquidity. They should also aim to reinforce stringent
working capital management.
MANAGEMENT
Despite an increased focus on active management of working Programmes offered over periods of 3, 6 and
capital, most consumer products companies still have significant
opportunities to release additional cash. An intensified focus on
12 months in the following areas:
this issue can create the opportunity to release potentially billions
of Rands of cash.
• Business communication
A recent global survey indicates that significant levels of cash
were tied up in working capital across certain selected segments • Financial management including Banking and
of the consumer products industry. The survey focused on the
following segments: breweries, where figures indicate the ‘cash Insurance
potential’ is somewhere between R26 billion and R50 billion; food
and beverages, which has between R69 billion and R135 billion;
and household and personal care, which has between R53 billion • Human resource management
and R107 billion.

The range of opportunity is defined as the sum of the working


• General management and Entrepreneurship
capital cash for each company when comparing performances of
each of the working capital components with both the low and high
estimates of its industry segment peer group.
• Production & operations management
The analysis of such ‘cash potential’ also reveals that the • Marketing management

WR8106E CBM AUGSEP


opportunity is not concentrated in one area, but rather is
distributed across the various components of working capital.
These components include: gross working capital; sales; net debt; • Purchasing & supply management
and enterprise value.

The figures for cash surplus, however, need to be treated with • Retail management
some caution. They are based on an external view of each
company’s working capital performance. In other words, they have
not been adjusted to reflect each company’s operational strategy,
geographical reach or product mix. Also, differences in the
accounting and disclosure of trade accruals have not been taken
into account.
Tel: (012) 429-4586 / 4212
Fax to E-mail: 086 641 7260
In addition, while process optimisation is an operation that could
lead to significant operating cost benefits and the concomitant E-mail: bussen@unisa.ac.za
freeing up of more cash, it should be remembered that additional www.unisa.ac.za/cbm
capital expenditure may be required to realise these benefits.
PO Box 392, Unisa
Ultimately, with the conservative attitude banks are presently
taking toward lending, businesses will need to look at a variety
South Africa, 0003
of methods to gain access to cash. Putting working capital at
the top of the agenda will offer organisations a chance to access
what amounts to ‘free’ capital, leaving them well placed to take
advantage of business opportunities.

The African University centre for


In the service of humanity. business management
FINANCE & EQUITY

Do auditors need protection?


by Jan Dijkman, Project Director: Ethics and Discipline, SAICA

T he number of people entering the audit profession, or


remaining in it, is declining, at times dramatically. The
prime reason for the phenomenon is that damage
perceived to possess deep pockets because of the professional
liability insurance they carry.

claims arising from alleged professional negligence Numerous submissions to the relevant authorities have been
are increasing and the amounts claimed are made on the basis that the often spurious claims against the
rising to “staggering” levels, according profession prevent auditors from concentrating on their task of
to the recent Discussion Paper on providing the best auditing assurance possible “without fear or
the Equitable Apportionment of favour”.
Registered Auditors’ Professional
Liability. The negative spinoffs from this phenomenon include:
• T he right calibre of people are not being attracted to the
It seems clear from the paper profession (and/or are not remaining in the profession) for
that the claims levelled against fear of being caught up in a massive claim for damages;
auditors are often far in excess • T he ability and desire to expand auditing and other assurance
of the economic damage caused services to the business and investing community, thereby
directly or indirectly by the providing stability and credibility to the investment market, is
auditor. We also predict that the being stifled; and
economic meltdown will trigger • T he opportunity for mid-tier firms to expand into the upper
another round of litigation, much end of the market, and thereby create greater choice for
of it against auditors, who are users, is dampened by the threat of litigation.

“A careful balancing of interests is of the utmost importance,”


the paper maintains. “Adequate protection must be afforded to
those who use the services of professionals, without placing an
unreasonable burden on professionals.”

Restructuring in a downswing
by Robert Driman and Riza Moosa, Directors, Deneys Reitz

T he worldwide economic meltdown caught many businesses


unaware. Gearing quickly became over-gearing, leverage
- instead of being a catapult for new wealth -- became a
A company may therefore cede its book debts to a lender as
security for a fresh loan, invoices can be discounted to produce
cash flow, assets can be mortgaged or hypothecated, and
noose, and business leaders had to scramble to keep their sleeping assets can be brought to life. Share capital may be
companies alive. Of critical importance is the injection raised by issuing new shares of various classes, each with
of new capital to restore a balance sheet to solvency by different rights, offering the new investors preferential rights
ensuring that assets -- fairly valued -- exceed liabilities, or whether in respect of voting or to receive distributions from the
to generate cash flow to remedy technical solvency issues company. Expert legal and commercial advice would help in
such as the ability to pay debts as and when they fall due. releasing hidden value even in difficult market circumstances
and where credit is no longer freely given. Investors and
In this climate, there are a number of commercial remedies lenders will be careful in these circumstances to ensure that
available that would benefit a stretched company. These the security granted in their favour is not seen to prefer one
involve gauging whether the Company is able to raise creditor over the other or is subject to suspension during any
further funding in the form of debt (by way of borrowing so-called hardening periods in terms of the Insolvency Act.
from banks or by disintermediation and directly accessing
the debt capital markets) or by way of equity in the form of Companies facing solvency problems need to be properly
share capital. Funding so raised may be used to strengthen advised on how to deal with the issues. Directors and others
the balance sheet or for working capital purposes or may dealing with the companies’ problems may be at risk of personal
be used indirectly to refinance more expensive debt. In liability. Giving selective or insufficient information to creditors
order to raise debt funding, the company will need to or employees may be tempting but unwise. Specialised advice
consider which of its assets it is able to offer as security in is required. Directors would be well advised to ensure that
order to reduce the costs of raising such debt. Security all affected parties obtain their own advice. In the meantime
may also be granted in relation to the acquisition of or business rescue creditors’ consortiums -- while cumbersome
subscription for shares in the company, subject to the -- could well help by making sure that a balance is introduced
financial assistance provisions in the Companies Act. that brings fairness into play to promote workable solutions.

42 BusinessBrief August/September 2009


ICB’s
Accounting
Fraud on the rise!
Technician F
C E RT I F I E

D
STITUTE O
Certification

BO
OKKEE
by Luway Mongie, Associate, White Collar Crime,
Bowman Gilfillan
Programme
M any businesses are feeling the effects of the economic

IN

P
ER
downturn and in their attempts to minimise losses, E
TH S
often they unknowingly open themselves up to huge
financial and reputational risks. This is due to the fact that
when companies cut back on costs, they often increase their
chances of being victims of fraud.

According to various reports, fraud is South Africa’s number


one economic crime and considering that fraud accounts for
7% of company revenue worldwide, any further increases
in this figure could prove detrimental to an organisation in
these difficult economic times. In South Africa alone, it is
estimated that fraud costs the economy in excess of
R2bn a year.

Fraud is often explained in terms of the fraud triangle which


describes that fraud is most likely to occur when there is
an overlap of an incentive or pressure to commit fraud, the
opportunity to commit fraud, and a rationalisation therefore.

In an economic downturn, the incentive or pressure to


commit fraud is increased as financial pressures increase,
unrealistic corporate targets are set, the desire to help
the organisation succeed intensifies, and/or employees
feel the need to impress employers as those around them
lose their jobs. This may result in the fraudster defrauding
www.icb.org.za

the company for their personal benefit, or resorting to


fraudulent actions on behalf of the company to ensure
success for their organisation.

When tough economic times impact the company financially,


this usually increases the opportunity to commit fraud.
This is because in an attempt to reduce costs, companies
usually resort to measures like retrenching staff (which
Are you training
may affect the segregation of duties doctrine), reduced
training, abandoning checks and balances which may be your accounting
in place, and/or cutting back on internal audits, amongst
various other things. In such conditions, an organisation is
susceptible to fraudulent behaviour from its employees both
support staff?
internally, as well as externally in transactions binding the
firm. As employees feel the effects of the recession, they Why not enrol them on the
also begin to find it easier to rationalise any corrupt doings.
acclaimed Internationally
Businesses are particularly hard hit and it is important
that the appropriate measures are taken to mitigate
recognised, locally essential
losses. Directors and officers are ultimately responsible so
they should be proactive and take the necessary steps to
ICB’s accounting technician
combat fraud. A strong emphasis should be placed on fraud
prevention and deterrence. A risk-management strategy and
programme. SETA accredited.
well-drafted economic-crime prevention policies provide a
vital platform for businesses to prevent and detect fraud,
whilst adequate staff training is required. Internal controls
Contact us
and audits should be kept in place and a confidential Maitland House 2, River Park, Liesbeeck
whistle-blowing process should be in place as these provide
some of the more successful means for the detection of
Parkway, Mowbray, 7700
fraud. Remember, you have to spend a little to save a lot! P O Box 2237, Cape Town, 8000
E-mail: enquiries@icb.org.za
Tel: +27 21 685 2746
Fax: +27 21 686 4083
ASSETS & INVESTMENTS

Golden year planning


by Nico Coetzee, Head of Sales, PPS Investments

As a doctor/lawyer/engineer etc, you have Finally, unlike a guaranteed annuity, when you die, the amount
probably had to make a number of important left in your living annuity is passed on to your beneficiaries. This
amount can be passed on as an ongoing annuity to generate an
decisions with long term consequences. As
income, or as an accelerated annuity that pays out all the capital
you approach retirement, you will face a and investment growth over five years. The residue is not taxable
decision that will largely determine how you in your estate, but will be treated as income in the hands of your
live out your golden years, namely, what to beneficiaries, who will be taxed at their marginal tax rates.
do with the retirement nest egg you have
built up over the years. While living annuities have the edge in many respects, if you
want a guaranteed income for the rest of your life and do not

A ccording to legislation, on retiring you are required to buy want to get involved in managing your retirement capital, then
an annuity with at least two-thirds of your retirement capital a guaranteed annuity would be appropriate. Your income is
that you have accumulated in your pension fund or retirement determined by interest rates on the day that you retire and your
annuity (if you were contributing to a provident fund, you are monthly income stays the same. This option may suit investors
allowed to withdraw the whole amount at retirement). who require the certainty of a fixed income. One of the drawbacks
is that your income may not keep pace with inflation.
The purpose of the annuity is to provide you with an income on
retirement from capital you have accumulated over the years in
your various retirement vehicles.

The type of annuity you choose will have a significant impact on


whether you are able to maintain your standard of living. There The type
are two main types of annuities available – living and guaranteed.
A living annuity allows you to select a rate of income annually
of annuity
which is withdrawn from your capital, while a guaranteed annuity you choose
provides you with a stipulated income for the rest of your life.
will have a
Both these annuities have a place in the market. A deciding
factor will be the level of control that you want over your post-
significant
retirement savings. impact on
If you want to have a high degree of control over your income whether you
each year, and would like to grow your post- retirement income,
then a living annuity may be appropriate. Always bear in mind are able to
that with more control comes more responsibility. With a living
annuity, it is up to you to determine how much of your capital
maintain your
you draw each year, which can be between 2.5% and 17.5% standard of
of the annual capital value of the annuity. This income can be
paid out annually, half-yearly, quarterly or monthly. You must living
review the annuity amount every year and you need to carefully
manage your income so that you do not run out of capital.

A living annuity also provides you with far more investment


choice than a traditional guaranteed annuity. It therefore
requires you to play a more active role in ensuring you have
sufficient money on which to live until the day you die.

You are in charge of the underlying investment choices. You can


select and change the underlying investments at your discretion
within the options available from your annuity provider. One
option is to invest in a balanced fund that provides some growth,
helping your capital to keep pace with inflation, while at the same
time offering protection in falling markets.
Nico Coetzee,
Head of Sales,
PPS Investments

44 BusinessBrief August/September 2009


ASSETS & INVESTMENTS

Should you buy guarantees?


by Dave Elliot, Chief Executive Officer, Imara Asset Management

I
nvestors moving into capital- emotional appeal when it’s already too The well advised investor who is well
guarantee products solely because late – you should have been worried known to his adviser and fund manager
of equity market fears are probably about market performance when the and has honestly explained his or her
buying for the wrong reasons at the market was high, not after values have risk tolerance usually has little need to
wrong time. tumbled. pay for guarantees.

The sidelight on the cyclical vogue A professional who appreciates that


enjoyed by investments with built-in capital preservation is the overriding
guarantees comes from, a portfolio requirement of the client should be
manager and adviser who has able to make the appropriate portfolio
experienced multiple market cycles in a allocations, even at times of market
40-year career. weakness.

The investor’s personal or business need Some asset managers combine advice
for absolute certainty should drive the and portfolio management as one fee.
purchase decision. Vague fears about In other cases, an investor may be
market performance should not dictate. paying separate fees. Why should the
client then meet another set of costs
Capital guarantees will always attract for a guarantee when he has already
attention at times like these, but this paid for professional expertise that will
type of product usually has most supposedly preserve capital?

New ‘fear index’ tracks risks


by Allan Thomson, Head of Derivatives Trading at the JSE

I
f you asked someone what they investment risk of the rand-dollar less risk. For example, when daily
thought was the most volatile, exchange rate. This investment tool is currency market returns are sufficiently
between June 2008 and June 2009, especially relevant to businesses in the volatile, the SAVI Dollar will tend to
the rand-dollar exchange rate, or the export and import arena that trade in spike upward, reflecting a sense of fear
Alsi Top 40 index over the last year, currency futures and options, exchange and a higher level of expected risk.
what do you suppose would be the enabling the investor to monitor ‘fear’
answer? Contrary to popular perception, forecasts daily. As the performance of It must be noted that although a
the rand tends not to be highly volatile the rand is also an indicator of market volatility index is often called the
and the rand-dollar exchange rate has sentiment for political and country risk, “fear index,” a high volatility reading
been approximately half as volatile in the SAVI Dollar gives also business is not necessarily bearish for stocks.
the past year as the Alsi Top 40 index. people an instant snapshoot of investor Instead, the SAVI and the SAVI Dollar
Investor fear and greed play a confidence in South Africa in general. are a measure of fear of volatility in
significant and often irrational role in either direction, including a market
financial markets around the world The SAVI Dollar is derived from actual rally where share prices soar.
and South Africa is no exception. traded data; investment houses are
polled regarding where they are The SAVI Dollar follows on from the
These market sentiments can be prepared to price options in the market JSE South Africa Volatility index (SAVI)
seen in the volatility of the market; this is averaged out. Investment houses that forecast equity market risk in
when the market is fearful volatility price options higher when they expect South Africa. The SAVI, which was
is high and as a result large market a high risk of a change in prices as they the first of its kind in an emerging
moves either up or down are expected, require a greater premium from traders economy, is similar to the VIX volatility
in contrast, when the market is to insure against such moves. The power index in US, with the difference being
complacent, volatility is low and of an indicator such as the SAVI Dollar that the US index measures implied
smaller market moves are expected. is that it methodically draws on a large volatility over one month, while SAVI
In essence, volatility can be seen as a amount of raw data and transforms this looks forward three months. Both the
measure of risk in financial markets. into a simple to understand reference. SAVI Dollar index and the SAVI are
Now thanks to the SAVI Dollar, the latest A high value corresponds to a more calculated and published at the end
volatility index launched by the JSE volatile market and therefore more of each trading day. It is available on
in collaboration with Cadiz Securities, risk, while a low value is indicative of the JSE’s website and the Reuters
business people can track the expected a less volatile market and therefore and Bloomberg news wire services.

BusinessBrief August/September 2009 45


ASSETS & INVESTMENTS

Beating the market –


The active vs passive debate
By Andrew Newell, Head of New Business, Cannon Asset Managers

T here are active manager styles which consistently beat


the market: the trick is knowing where to find them. The
decision to adopt an active investment stance over a passive
Graham have focused on different strategies, and have proved
successful investors, the evidence for active investing in
aggregate remains damning.
stance has been debated extensively for decades. While, at the
asset class level, equities offer superior returns to cash, bonds That active investment managers fail to beat the market, is a
and property over time, investors aim to beat the market and mask which conceals the fact that certain styles of investing
capture even more than the average equity return. can consistently outperform the indices. In Eugene Fama and
Kenneth French’s study of 1998, they examined the quarter
However, research shows that globally, over investment of active investment managers that do beat the market. The
periods of five, ten or even twenty years, about 75% of results revealed that some styles consistently beat others, one
investors fail in their quest to beat the equity market. By of them being the value philosophy. The depth of this result
extension, only a modest 25% of active investment managers is of importance too. The value style showed to be successful
are successful. This result suggests that for most investors, a across markets, geographies, time, currencies and companies.
passive investment is the correct decision. Importantly, it is not an effect of investing in small companies,
but delivers success across companies of varying sizes.
Such an investment aims to replicate a market or index’s
Returns to Value Stocks and Growth Stocks by Country
performance as closely as possible. A passive portfolio will
% (1975-1995)
usually track a market index, such as the FTSE JSE All Share
35
Index or the Dow Jones Industrial Average, but they can
also aim to mimic an investment theme or environment. For 30 Growth Value Market
example, one can track European Financial Equities, or Large
Cap Asian Equities. (Ironically, it can therefore be argued that 20
16.2
a decision to be a passive investor is an active investment
15
decision.)
13.3
10
By contrast, an active investor will set out to beat a 10.4
pre-determined index. Some active managers employ a 5
particular style in this pursuit, while others may make use
of sophisticated quantitative tools or better-than-average 0

research capabilities. In all instances the active manager, U


S an U
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an
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al
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s
iu
m
an
d
e
n li
a
n
g
o
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e
Ja
p an It an lg rl e
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o
ap
ra
through the belief that markets are inefficient, is trying to Fr e
rm e
rl e z e w st g g ve
B S u n in A
G th it A o S
outperform a particular index. N
e S
w H
e
h
T

While the evidence is in clear support of passive investing, The chart above clearly shows that the value investment
it is not without its shortcomings. By simply replicating an philosophy has delivered significant outperformance of both
index’s performance or characteristics, no attention is given to the growth investment philosophy and the market. However,
forecasting or subjective assessment. For instance, if one were long term market-beating performance by the value style is
to construct and manage an index of high dividend yielding not without interruption over the short and medium term. The
shares, it would take into account only historical information: difficulty with adhering to this style is that most often, value
no attempt would be made to determine whether those investing opportunities are unpopular and unloved stocks.
dividends will increase, decrease, or stop altogether. Unrefined By contrast, most people follow loved and popular stocks,
or raw tracking of a market index will be overweight growth, which are, by definition, high growth, high momentum, large
high momentum and large-cap stocks. Of these factors, only capitalization shares. As stated earlier, of these factors, only
momentum has been shown to have any merit in terms of momentum offers any evidence of success.
future success.
Since the market is the sum of all activity taking place in it,
All investors who choose active investment management do you need to be different to the market, or contrarian, to enjoy
so with the belief that they fall into the 25% of those investors market-beating results. However, most people follow popular
that beat the market. Different strategies are used in this task. and fashionable shares, and so three quarters of investors fail
They include a top-down or bottom-up approach, a belief that to beat the market. Following a value style can require nerves
one can time the entry and exit point of markets and stocks, of steel, as the short and medium term deviations from the
or perhaps that a purely quantitative investment process market’s performance may be difficult to tolerate. For those
is most successful. Different active investment strategies who are unable to step away from the comfortable stance of
provide us with examples of successful practitioners. However, ‘safety in numbers’, a passive fund is the correct place to be.
while the likes of George Soros, Warren Buffett and Benjamin For the rest, there is active value.

46 BusinessBrief August/September 2009


Location, location,
location
by Dr Koos du Toit, Chief Executive Officer,
P3 Investment Group

T he old adage that it’s better to buy a dump in the best suburb
than to purchase a palace in a more suspect area remains
sound advice for property investors. Correct? Not necessarily.
There are different sets of rules for different types of property
investors that must be taken into account when deciding which
property to buy.

Depreciate?
The traditional philosophy that underpins the residential property
market is that homes in the right locations appreciate more in
value than homes in the “wrong” locations. Indeed, those in the
wrong locations may even depreciate in value; so, because your
home is your biggest investment, you need to select it carefully.

Home
This philosophy holds true only for those investors who are
buying the home to live in it, and who basically own just one
property – and perhaps a second holiday home as well – at any
given time. For these individuals, the wrong choice of home could
well set them back financially, especially if they want to sell later.

Income
But what if your point of departure is totally different from the
basic philosophy used by the home buyer? What if you don’t
intend to ever stay in the property? If you never intend to sell the
property, but to use it as a source of income for as long as you
live as an asset in your own buy-to-let business, the question of
desirable location – and type and size of the property - takes on
a whole different complexion.

For example, while homes in close proximity to industrial areas


are usually considered less desirable than those in the so-called
“leafy suburbs”, demand for entry-level rental flats and houses
near an industrial area is high because it significantly reduces the
cost of transport for the people likely to work there.

Rental income
For buy-to-let property entrepreneurs, the emphasis moves from
capital growth to rental income. You may ‘invest’ in a property
that might not be profitable in terms of re-selling it later, but will
be highly profitable in terms of deriving a constant stream of
income.
ASSETS & INVESTMENTS

Selling a family business


by Jean-Christophe Bouche, Associate Director, PricewaterhouseCoopers

T he results of recent survey showed that family


businesses in the country are most likely to change
ownership in the near future for reasons which include:
are generally very efficient when it comes to acquiring new
businesses and are sure to negotiate in order to drive the
price down.

•A  ddressing the ownership requirements of Black Economic For the reasons set out above, the third party interested
Empowerment; in buying the business could be an empowerment partner,
• Immigration of business owners and their families; and trade buyer or even a financial buyer such as a private
• Many young South Africans would rather look for work equity firm. The need for advanced planning becomes
opportunities in large corporations, opportunities outside essential for many reasons but four of the most important
of South Africa or are interested in alternative life are:
experiences.
This means that when change of ownership occurs, it would •T  o prepare the business and the staff for the impending
most likely include a third party. sale;
• Attract the right level of interest from prospective buyers;
Sellers of the businesses need to be well prepared for the • Achieve the best price and terms upon sale; and
sale in order to get the best price for their business. Buyers • C oncluding an efficient sale process.

The real cost of house buying


by Piet van der Walt, Managing Director, Sanlam Home Solutions

B uying a house is probably the most important investment


you will ever make, but it can also be a costly business.
Do not forget to also budget for the actual move. According to
our calculations the cost of moving your furniture within
a 100km radius will amount to over R10 000.00.
Apart from the purchase price of the house, there are several
other linked, once-off costs which, if you have not budgeted Another small cost (about R200) to bear in mind is an
for them, can come as a nasty surprise. It is therefore always electricity connection fee.
wise to work it into your overall financial plan before taking
the plunge. This way you’ll also know first-hand what it is Among the monthly expenses that need to be budgeted for are:
that you can afford. With the new lending criteria, banks
no longer grant 100% mortgages, so buyers need to have a •M  onthly repayments on the bond: At the current interest rate
deposit of up to 20% of the purchase price. of 13%, the monthly repayment on a bond of R760 640.00
will be R8 911.47.
Assuming the client can afford a 20% deposit and using • B ond Monthly Admin Service Fee: R28.50
Absa’s latest Average House Price Index, where buying an • Home-owner’s insurance: Banks normally add this to the
average house will cost you R950 800, the main costs of mortgage amount to protect themselves against claims for
buying a house are as follows: flood, fire and hail damage.
• Insurance on the owner’s life: This is to cover the cost of the
Purchase Price: R 950 800 house in case of death. The policy will not only cover the
1. 20% Deposit R 190 160 outstanding loan amount to the bank, but will also ensure
2. Transfer Duty to SARS R 22 540 that at the time of death the home-owner’s dependants have
3. Conveyancer Fees & VAT R 11 400 a roof over their heads. Life cover insurance may vary from
4. Postages & Petties & VAT R 399 service provider to service provider, so it would be wise
5. Deeds Office Transfer Levy R 500 to visit your financial adviser or broker to do a complete
6. Electronic Document Generation Fee R 111 financial needs analysis that should include your credit life
7. Deeds Office Search Fee R 91 insurance.
8. Local Council Rate Clearance R 150 • Rates and taxes: Due to the municipality for rubbish removal
and the maintenance of your area. This can be paid monthly
Bank & Bond Cost on R 760 640 or annually.
1. Deeds Office Levy Fee R 500 • Electricity and water: Due to the municipality for your
2. Initiation Fee R 3 612 monthly consumption of electricity and water.
3. Attorney Bond Registration Cost R 6 612
4. Postages & Petties & VAT R 285 Those looking to buy a house should see a qualified financial
5. Electronic Generation Fee R 111 adviser to help them get started.

48 BusinessBrief August/September 2009


BANKING & INSURANCE

Trim your insurance bill


By Gari Dombo, Managing Director, Alexander Forbes Insurance

Given interest rates, food inflation and generally tougher


times ahead advice on trimming ‘the fat’ abounds. Few,
however, think to take a long hard look at their monthly
insurance bills. Cutting fixed monthly costs like insurance
can amount to considerable savings over time.

A n effective way of reducing


your monthly insurance bill is to
self-insure. Self insurance involves
fences your monthly premium should
decrease. Or, perhaps, if you moved
to a high security complex you could
deciding what insurance you could exclude theft cover. Alternately, if
do without – and cover yourself your car is parked on the street or
in the event of loss occurring. in your garden, building a lock up
garage could reduce your monthly
This is, in fact, the basic concept car premiums substantially.
of risk management – taking
on some of the risk yourself to Changing your vehicle insurance to a
reduce monthly premiums. named driver scheme may also reduce
car premiums. For example, if you live
Ultimately, the trick to cheaper alone or there are just two of you in
insurance bills is to build up a kitty to your household, nominating you and
manage areas of self insurance. This your partner as the only people who
ensures you are covered if something drive your car should reduce your
does go wrong. If you don’t have this premium. If you have older children
kitty you will not be covered in which who regularly use your car, however,
case you need to make sure that the this would probably not be an advisable
things you have chosen not to cover option. Alternatively, you could reduce
are not essential to your survival. your vehicle premium to just third
Gari Dombo, party, fire and theft; or just third party
Managing Director,
Things like cell phones, rings and - instead of comprehensive cover.
Alexander Forbes Insurance
watches, along with most of the
stuff you use on a daily basis, are This strategy does, however, once again
all replaceable at not so crippling involve an element of self insurance.
costs. Rates on All Risk policies Policy holders need to be sure that they
are high because you are covering can cover themselves for the loss of
valuables that you use outside of uninsured property or occurrences -
the home, and you are covered highlighting the advisability of building
anywhere in the world. Yet how up a sufficiently large kitty to deal
Reduce your often are you actually overseas? with any elements of self insurance

monthly insurance Instead you may consider giving up


if you are to follow this route.

bill by self-insuring your All Risk policy, provided that you Finally, if a client pays their
are able to self-insure the smaller day premiums annually they will incur
to day items that you may lose. Or, you a substantial discount. Similarly
may even decide that you do not need a saving can be achieved by
to insure them at all. In the event you consolidating all your portfolios
were to travel abroad you could always and paying by one debit order.
take up temporary travel insurance.
Having five insurers for five classes
Also, if you improve your risk, that of insurance is expensive. Instead,
is, make yourself less likely to suffer different classes of insurance tend to
loss your premium is also likely to subsidise one another. Having all your
come down. For example, if you insurances with one insurer will also
put in an alarm system and electric reduce your overall premium cost.

50 BusinessBrief August/September 2009


BANKING & INSURANCE

HIV programmes: What to look for


by Dr James Arens, Clinical Operations Executive, Pro Sano Medical Scheme

M ost Medical Schemes and many businesses have come


to accept that there are benefits in providing long term
treatment to their HIV and AIDS population. The debate today
cause in poor response to treatment. Schemes will require a well
documented motivation from the treating doctor before such tests
are approved.
is how well schemes are doing in striving to recruit and retain
individuals on their disease management programmes. Vitamin Supplements - schemes differ in the way they view
the value of vitamins and whether or not to provide any benefit.
Because of the specialised knowledge required in the treatment Options with savings accounts may allow the access of vitamins
of HIV and AIDS, disease management plays a particularly crucial from such accounts.
role in ensuring that individuals receive the correct treatment at
the right time and are monitored to detect development of drug Disease Management in HIV/Aids - this is the most important
resistance in good time so that appropriate action is taken. component in the management of HIV and AIDS. This process
ensures that the patient is well counselled and motivated for the
Medical Schemes generally follow standard and acceptable treatment program. A case manager is assigned to liaise with the
treatment guidelines within the benefits of HIV and AIDS, most patient, doctor and pharmacist. The treatment choices and blood
of which are largely adaptations from the SAHIVSOC (South investigations are also closely monitored through the program –
African HIV Clinicians Society) guidelines. While medical schemes this is to ensure that the patient receives optimal care.
generally follow a treatment programme similar to that of the
state, there are few but rather significant differences. Some Reporting - proper reporting is an essential part of the
medical schemes, for example, start treatment when the CD4 programme. Reports should be meaningful and should be able to
count falls below 350/ul whereas the state would normally wait direct the user to areas that need attention in order to improve
selfmed-Busbrief 137x105 4/28/09 4:53 PM Page 1
till the CD4 count falls to below 200/ul. Medical schemes also the outcome of the program. Confidentiality has to be maintained
C M Y CM MY CY CMY K
generally provide access to a greater variety of antiretrovirals throughout.
(ARV’s)

The Medical scheme benefits for HIV and AIDS should


be structured as follows:
Prevention of Mother to Child Transmission (PMTCT) - this
entails putting the HIV positive mother onto the appropriate
treatment regimen. The baby is put on AZT from birth for six
weeks and is monitored with the appropriate tests till the age
of 18 months. Some schemes provide for the formulary feed
required during this period.

Post Exposure Prophylaxis (PEP) - this short term


preventative ARV treatment has proved beneficial in reducing
the likelihood of exposure to HIV. This applies to any form
of exposure to HIV infected blood, body fluid or unprotected
sexual intercourse.

ARV Treatment - the initiation of ARV’s requires a set of


standard base line blood investigations, depending on the
regimen of drug to be given. Guidelines suggest initiation of
treatment at a CD4 count of below 200/ul.

Opportunistic Infections - the value in treating opportunistic


infection like pneumonias, fungal infections and TB is well
documented. All schemes cover for it, with the differences
being in what drugs schemes permit as some of these drugs,
particularly for fungal infections, may be very expensive.

Hospitalisation - this benefit is generally similar to that


for any other disease. Members should be cognizant of the
hospitalization limits pertaining to their options, and should as
far as possible ensure adequate hospital cover.

Resistance Testing - resistance testing is an essential


component of the benefits which excludes resistance as a
BANKING & INSURANCE

Update your online security


by Christo Vrey, Managing Executive, Absa Digital Channels

I n a concerted effort to combat potential online


identity theft and fraud, Internet Banking and online
shopping users are urged to use comprehensive
•K  eep your access information secure (account number,
user number, and all PIN numbers and passwords);
security software or at least anti-virus software • Ignore phishing emails (emails purportedly sent by your
to protect themselves from cyber criminals. bank requesting you confirm or update your login details);
• Ensure you are logged on to your bank’s genuine Internet
While Internet Banking and online shopping provide banking site by checking the address in the browser line;
fantastic convenience, it is the customer’s responsibility • Ensure you see a lock and key icon either at the
to ensure that they adhere to proper and safe use of top of the Internet browser window or at the
the internet, especially when transacting online. bottom – depending on your browser;
• Refrain from banking at public terminals
Clients should ensure they have quality security software and like Internet Cafes; and
regularly update it. Security software ensures that clients • Only provide credit card details to reputable
enjoy a secure online experience especially when used in companies; and look for the lock and key icon and
combination with the following simple protection measures: security certificates when shopping online.

Tailor-make your insurance


by Helen Szemerei, Director Insurance Services, IntegriSure Group

E veryone realizes the importance of being innovative


and vigorous to survive and grow in a competitive
environment. The insurance industry is no exception.
a lower premium with a higher excess for a vehicle that is
seldom used, or a person residing in a maximum security
complex may decide on fire insurance only.
The way in which innovation is implemented, however, is
justifiable only if it benefits the client. One has to consider the fact that people are not exposed to
matters of this nature every day. Consequently, they may
It is often asked whether insurance products can really be lose track of detailed information such as the replacement
tailor-made without extra cost to the client. The answer value of household contents. The advisor has to provide
is most definitely yes. Individuals who can make informed guidance in this respect as well.
decisions, effectively have access to considerably better and
often less expensive products. But informed is the operative After all, the role of the advisor is to find and retain a client.
word . That is why a professional, financial advisor will always seek
and adjust where necessary, in order to offer the client the
The public is often unaware of all the insurance permutations, best product at the best possible price.
which makes a well-informed decision impossible. It is at this
point where an independent, professional advisor is of critical
importance.
Because the public is seldom confronted with all the
variations and possibilities, naive decisions can easily be
Check the claims record
made – with bitter consequences. Unless they are informed by Neelan Porthen, Head of Risk Products, Liberty Life
otherwise, clients tend to assume that ‘everything’ is covered

I
only to be in for a shock once they have a claim. This does nsurers have a responsibility to educate financial advisers
not only harm the individual, but also causes untold damage about the reality of unforeseen events that occur in the
to the industry. lives of consumers. People suffer needlessly everyday
because they haven’t made adequate insurance provision
Professional service providers cannot merely shrug it off by for themselves and their families. To this end, the claims-
exclaiming: “But they never asked!” There is a professional paying record of insurance companies is key information for
obligation to ensure that the client is properly informed and consumers and for financial advisers to use in their advisory
that the needs and requirements of each client are carefully capacity to consumers.
assessed.
Every well-established insurance company keeps a detailed
The public should be informed in such a way that they are record of the number and amount of claims that it honours
able to determine their risk levels themselves. For instance, in a year. These statistics should be used to highlight
a person who is totally dependent on a vehicle, needs to to consumers the importance of those monthly grudge
include a hire-car in the policy. Someone else may prefer insurance payments.

52 BusinessBrief August/September 2009


BANKING & INSURANCE

Watch for exclusion clauses


by Chris de Klerk, Corporate Actuary, PPS Insurance

R
eports of disputes around Michael Jackson’s children, through which you have obtained the loan, so that if you die,
estate and life insurance have raised a number of the policy covers the outstanding home loan.
insurance-related issues. The first has to do with
exclusion clauses in his life policies that may result in these not Some insurers even allow you take out one policy and cede it
paying out due to concerns over the nature of his death. This to several people, divided up by the amount that you owe each
could leave his dependents with a large amount of debt and one.
without sufficient financial resources for the future.
Another issue that Michael Jackson’s death has raised is the
While life policies in some countries have a permanent suicide amount of death cover needed. Most companies follow similar
exclusion clause, in this country the typical policy will only not financial underwriting requirements, using income and age as
pay out if the policyholder commits suicide in the first two years a guide as to how much death cover is appropriate. Generally,
of taking out the policy. This exclusion clause would fall away the younger the policyholder, the more life cover is needed as
after the first two years. he or she is likely to have younger dependents who will require
financial assistance for a longer period of time. In addition,
No other exclusions are standard on life cover policies in South current income also needs to be taken into account in order for
Africa, but it remains important to check the policy wording of dependents to continue with the same standard of living.
your contract to ensure that this is the case.
Another brewing controversy over Jackson’s death is around
On the other hand, most disability policies such as permanent the nomination of beneficiaries. Individual life cover policies
income replacement and dreaded disease cover (i.e. in the generally pay out quickly if a beneficiary is nominated.
case of a coma or paraplegia) typically have more standard However, if no beneficiary has been nominated, the funds
exclusions and do not pay out if you are injured doing get paid to the estate and it can take years before the
something illegal. A disability policy would also not pay out if beneficiaries receive anything. It is also important to make
the policyholder was disabled as a result of abusing prescription sure your nominated beneficiary form is up to date as the life
medication as it would probably fall under the deliberate self company will pay to the beneficiaries you have nominated on
harm exclusion. this form.

Life cover is crucial in order to prevent leaving your dependents This is unlike death cover in a pension fund, which require the
in debt. You can take out policies for a specific reason, such as Trustees of the fund to investigate who the death cover should
covering an outstanding home loan and cede it to the institution be paid to, regardless of who is nominated by the member.

Rewards for effective risk management


by Manie Whisgary, Executive Head Risk Management, Centriq Insurance

A
ll businesses are exposed to a multitude of risks bit as important as financial or facilities management.
daily. These risks can be the result of uncertainty
in financial markets, project failures, legal liabilities, The basic principle of risk management is attempting to
credit risk, accidents, natural causes and disasters identify and then manage threats that could severely impact
as well as deliberate attacks from an adversary. on an organisation. This involves reviewing operations of the
organisation, identifying potential threats to the organisation
While large corporations usually have comprehensive and the likelihood of their occurrence, and then taking
systems and processes in place to manage and mitigate any appropriate actions to address the most likely threats.
risk, it’s the small and medium enterprises (SMME’s) that
are often left exposed. This is due to a lack of understanding It is important to note that it is impossible for an
of the importance of risk management and having the SMME to focus on all the risks that it may be exposed
appropriate mechanisms in place to prevent and manage risk. to. The identification process should therefore focus
on the key risks that could threaten the sustainability
As risk management was closely linked to an insurance of the organisation or that could have a significant
package in the past, it was not taken very seriously. Today financial and/or reputational impact on the business.
however, the role of risk management in businesses has
changed dramatically, especially with the increased rules and Risks need not always be viewed as negative. The benefit of a
regulations and reliance on key resources. It is due to these risk management framework is balancing the risk and reward.
business elements, among others, that risk management It is through effective risk management programmes that
has evolved to become a management practice that is every optimum value is generated for stakeholders of a business.

BusinessBrief August/September 2009 53


MARKETING & SELLING

Continue advertising
By John Bowles, Joint Managing Director, Newspaper Advertising Bureau

As we head into a time of budget cuts and advertising reviews, it’s important to make sure that
we are aware of the big picture. Sure, we are experiencing an economic slowdown, but the market
will and is continuing to operate.

S hoppers are still shopping, buyers


buying and consumers consuming.
Even if a market retracts by 5%, there
Since 2001 (and before) retail sales
have been unbelievably consistent
month-after-month, year-after-year. If
is still 95% of last years’ shopping you had to put your house on it - some of
taking place. That is better than half or us may need to in these times - you can
nothing at all. bet that in January 2009, almost exactly
7.3% of retail sales for this year will have
What is interesting is how evenly retail taken place. Whilst there may be a spike
sales are spread across the year. in December sales (logically), we are still
We know that people must eat every not far off the average monthly retail
day and food and grocery sales will sales.
therefore be spread over the year.
However, when you look at the spread What does this mean? That people buy
of sales for the other categories, it is all the time. Some markets are ‘thicker’
quite amazing to see how stable they than others are, but even the ‘thinner’
are during the course of the year, and markets (like buying hardware or
year-on-year. furniture) happen throughout the year.
If you are not visible, you risk not being
This has to have implications for thought of when those buyers are in the
advertising budget planning and market.
brand visibility in the marketplace,
particularly if you are a seasonal or In 2008’s retail sales, R508-billion of
ad hoc advertiser that has a store them across all of the categories, you
John Bowles, or product that you want buyers to can see the consistency of the monthly
Joint Managing Director,
consider purchasing. The numbers sales barring a few spikes during the
Newspaper Advertising Bureau
speak for themselves (see Table I) Christmas season (see Table II).

Percentage contribution per month of total retail sales per annum (Stats SA)
Table I

Month 2001 2002 2003 2004 2005 2006 2007 2008 Average
2001-2008
January 7.4% 7.3% 7.5% 7.5% 7.2% 7.0% 7.3% 7.2% 7.3%
February 7.2% 7.1% 7.2% 7.3% 7.2% 7.2% 7.3% 7.5% 7.2%
March 8.0% 8.0% 8.0% 7.7% 7.7% 7.7% 7.9% 7.9% 7.8%
April 7.9% 7.7% 7.8% 7.6% 7.8% 7.7% 7.9% 8.0% 7.8%
May 8.1% 8.1% 8.2% 8.0% 8.0% 8.0% 8.2% 8.0% 8.1%
June 8.0% 8.0% 7.9% 8.0% 7.8% 7.8% 8.0% 8.0% 7.9%
July 8.2% 8.0% 8.0% 8.1% 7.9% 8.0% 8.0% 8.0% 8.0%
August 8.1% 8.2% 8.0% 7.8% 8.1% 8.1% 8.1% 8.1%* 8.1%
September 8.0% 8.1% 8.1% 8.3% 8.2% 8.6% 8.3% 8.2% 8.2%
October 8.5% 8.5% 8.4% 8.6% 8.7% 8.6% 8.5% 8.6% 8.6%
November 9.0% 9.1% 9.0% 9.1% 9.2% 9.4% 9.1% 9.0% 9.1%
December 11.% 11.% 11.% 11.% 12.% 11.% 11.5% 11.6% 11.8%
Total 100% 100% 100% 100% 100% 100% 100% 100.0%
* This table reads, of all retail sales in 2008, 8.1% went through the tills in August that year.

54 BusinessBrief August/September 2009


MARKETING & SELLING
Table II

Clothing Household
Medical footwear Furniture
cosmetics Textiles Leather Appliances & Hardware Paint
Month toiletries goods Equipment and Glass
January 7.7% 7.0% 8.1% 6.6%
February 8.2% 6.8% 7.4% 8.1%
March 8.1% 7.1% 7.5% 8.0%
April 8.1% 8.5% 7.6% 8.4%
May 8.1% 8.4% 7.8% 8.5%
June 8.1% 7.8%* 8.2% 8.6%
July 8.8% 7.8% 8.1% 8.4%
August 8.4% 7.7% 8.0% 8.7%
September 8.5% 7.2% 7.4% 8.5%
October 8.6% 8.3% 8.4% 9.2%
November 8.7% 9.5% 9.3% 9.2%
December 8.8% 13.9% 12.1% 7.8%
* This table reads: 7.8% of all clothing retail sales in 2008 took place in June of that year. source: Stats SA retail sales 2008

If you are a clothing retailer or manufacturer your gut might


tell you to hit the market ‘big’ before each fashion season “The budgets don’t allow for continuous visibility all year
- say four times during the year in the biggest months. The round,” you may hear. A sacrifice must, and should be
outcome: You would still not be visible or thought of for made, in the frequency, or even impact region, the area that
60% of the clothing, footwear, textiles and leather goods absorbs so much of the budget.
retail sales ‘season’. For others like the hardware sector,
advertising seasonally could be commercial suicide. What Media reach is the most crucial element - around your
the numbers tell us is that there is a strong case for regular stores or where your products/services are available - but
consistent advertising that is visible to the market the whole being visible all year has to be the second objective of your
year round, informing the market of your availability, image, communication priorities. You may have to be more creative
price, benefits or other attributes. Quite simply, if you are with less space, airtime or frequency, but retain your year
not there, chances are that your competitors will be and they round visibility. Reminding the buyer that you are there as
are going to reel in those buyers that are actively looking for close to the purchase as possible can only make that limited
goods and services. advertising budget work so much harder.

The last word in


communication
standards
PRISA is the professional body
for public relations and
communication management in
Southern Africa.

It is dedicated to delivering
dynamic, value-added services to
its members and ensuring the
P R I S A
continued growth and Public Relations Institute of Southern Africa
professionalisation of the public ProComm House, 108 Bram Fischer Drive, Ferndale, Johannesburg Public Relations &
Communication Management
relations profession. Tel: (011) 326-1262 Fax: (011) 326-1259 www.prisa.co.za info@prisa.co.za Established 1957
MARKETING & SELLING

The inside out factor


by Jeremy Sampson, Chair, and Angela Bruwer, Chief Executive, Interbrand Sampson Group

Every brand relies on one crucial factor: What happens


inside the company behind it, or what is known as the
‘inside out’ factor.
The full potential of any brand can only be realised when
brand engagement and brand culture is built from the
inside out. It directly affects profit because your employees
are the interface between your brand and your customers.
The inside out factor is about nurturing your brand within According to the Harvard Business Review more than 68%
the hearts and minds of your employees. of customer losses are due to an inappropriate attitude on
the part of the person who served them.
Brand engagement is far more than internal advertising; it
is about designing the culture of your organisation in such Good brands become great brands when employees believe
a way that you inspire employees to understand, believe in in them. This way, the experience promised by the brand
and champion your brand. is the experience delivered. This is becoming such an
important issue globally, that increasingly HR departments
As we move into recessionary times, it is particularly are being renamed ‘Talent Departments’ and working
important to focus and energise all staff members to ever more closely alongside their colleagues in Marketing.
maximise their impact as ambassadors of the entire Companies now have to consider themselves as ‘Employer
business. Brands’ as the competition for the best people intensifies.

Social media: social networking


by Richard Mullins, Director, Acceleration

I f 2008 marked the year that social media burst into the
mainstream, this is the year that the concept must prove
its value to skeptical marketers against the backdrop of a
So, what does this mean for you as a South African marketer?
Social media sites have really taken off across the world, and
South Africa is no exception. MySpace, YouTube, Twitter, Flickr
worldwide economic downturn. and FaceBook all attract thousands of unique South African
users generating millions of page impressions each month.
Last year, the social networking space enjoyed stellar growth
with worldwide revenues growing to US$2 billion, up 46% It’s not a channel that any forward-thinking marketer can
from the previous year. Growth this year is likely to be less afford to ignore completely. The challenge for marketers lies
impressive - eMarketer recently slashed its growth forecast in understanding, firstly what social media is, and secondly,
for the social networking market from 32% to 17% and in how to harness its potential as a marketing and advertising
predicts that the market will be worth $2.3 billion by the end medium.
of 2009.
Social media is all about community, networking, interaction
Of course, some might argue that double-digit growth in and engagement. It’s a space where people meet others; build
the midst of an economic downturn sounds good, but the on existing relationships, and share information, feelings,
reality is that the new forecast from eMarketer is nearly half ideas and content. As such, you can’t simply advertise to them
of its earlier predictions. Growth in social networking spend as though you’re placing a banner on a news site.
around the world is slowing down not only as a result of poor
economic conditions, but also because of a lack of proven Instead, it’s all about involving consumers in a dialogue with
advertising models. your brand. Setting up communities, creating interactive
widgets, and other interactive elements are essential if you
Social media sites have a massive audience base to offer want to make the most of social networking. South African
advertisers, but most of them are still struggling to show brands are starting to understand this - a number of local
advertisers how they can tap the audience for a proper companies have set up groups on FaceBook or feeds on
return on investment (ROI). Many advertisers have rushed Twitter, with relative success. These tactics are relatively
into social media without truly understanding the space and low-cost and allow one to drive quality interactions with one’s
have been disappointed with the results. audience.

One of the major problems lies in the fact that the ROI Even though the economic downturn is taking its toll on the
benchmarks and models in the social media are still social networking space, it is becoming increasingly clear
immature. Advertisers don’t understand the economic models that there’s an enormous amount of value in the concept for
because social media owners don’t yet understand them marketers. Best of all, one can start experimenting with the
themselves. channel at a low cost.

56 BusinessBrief August/September 2009


1 year subscription
(6 issues) = R200.00
Don’t lose your voice!
by Ronelle Bester, Chief Executive Officer, Red Ribbon Communications
Every issue brings you
I t is puzzling that during an economic downturn, companies look at cutting their
public relations (PR) budgets. It is understandable that traditional advertising
budgets might get slashed, but PR is a critical element in connecting a business
the latest trends in:
with its stakeholder groups, whether they are customers, staff, shareholders or
• Advertising in • Branding
partners. South Africa • Strategy
Less effective • Public Relations • The Marketing Mix
The bottom line is that we can’t stop communicating. Human beings and the
• CRM • Case Studies
organisations we form are inherently social, and communication is part and parcel
of what we do. If you cut your PR budget, you won’t stop communicating, you will • Websites and • Profiles
just do it less effectively and this will have an impact on your profile with your
stakeholder groups. Marketing • Sponsorship
• Media • And much more...
Also, less of a focus on communication during a downturn means that you
will have to work much harder to gain the ground you lose by slowing down
on communications in a recession. By keeping communications consistent
regardless of the economic climate, a company is well positioned to take Mail to: The Journal,
opportunities as they arise even in a downturn, and build momentum when
business conditions become more favourable. PO Box 3355, Rivonia, 2128,
Gauteng, South Africa
Multi-skilled
Perhaps part of the problem is that companies view PR only as media relations—a Tel: (011) 803-2040
nice to have to build a bit of a profile. The reality, however, is that PR is actually
relations with your publics, i.e. all people and groups who are connected with
Fax: (011) 803-2022
your business. These days, ‘PROs’ are multi-skilled executives who can help a E-mail: bronwen@thefuture.co.za
business manage its communication to various audiences and across a number of
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HUMAN CAPITAL

Are restraints of trade enforceable?


By Willie Coetzee, Partner, Shepstone & Wylie

Restraints of trade: Are they constitutional and enforceable?


This question continues to be hotly debated in our courtrooms
with two recent cases raising some legal eyebrows. The settled
law on restraints of trade is that they are legal, and the party
seeking to avoid a restraint must prove that the restraint is
unreasonable and therefore contrary to public policy.

T his has been further refined by the


Supreme Court of Appeal, which notes
that when considering whether or not
Reaffirmed
This somewhat controversial approach is
roundly criticised by Acting Judge Wallis
a restraint is reasonable four questions in a more recent Durban High court case,
should be answered: where he reaffirms the law on restraints,
and points out the Constitutional Court
•D  oes the employer have a protectable has held that contractual obligations are
interest that deserves protection? enforceable unless they are contrary to
• Is that interest threatened by the ex- public policy.
employee?
• Does the employer’s interest weigh He says that there is no in-principle
qualitatively and quantitatively against objection to restraints (as implied by
the interest of the employee to be Judge Davis) and that where a business
economically active and productive? has secured a restraint from an employee,
• I s there an aspect of public policy that there is no reason “for the courts or the
has nothing to do with the relationship law to view this with disfavour” unless
but which requires that the restraint be public policy bounds are “overstepped”.
maintained or rejected?
Acting Judge Wallis also points out that
Willie Coetzee,
Constitution restraints are often drafted in extremely
Partner,
Shepstone & Wylie However, this clear situation has been wide terms to cover all eventualities and
somewhat thrown into disarray by Judge that the Court should be quite prepared
Davis in a recent Cape High Court case to partially enforce a restraint provided
in which he examined the effect of the it does not give rise to an injustice. An
Constitution on restraints of trade. example of this would be reducing the time
period or the geographic area. Therefore,
Employers should He concludes that, given the importance if the conduct complained of falls within
placed by the Constitution on the dignity the terms of the restraint, the court must
carefully review the of work, an employer must justify the enforce the restraint within the principles
limitation on that right when seeking to of public policy and grant appropriate relief.
wording of restraint enforce a restraint. He thus creates the
agreements impression that he believes restraints are
prima facie invalid unless the employer can
Review
Restraints by their nature are extremely
prove that they are justified. difficult to advise on, particularly if
He also examines the wording of the regard is had to the differing views of our
restraint in question and comes to the judges. Although, the approach of Acting
conclusion that unless the wording is Judge Wallis is in our view preferable,
precisely applicable to the circumstances, we would strongly advise employers to
the Court will refuse to apply the restraint carefully review the wording of restraint
by limiting it in some or other appropriate agreements and only to contemplate legal
manner. action where they have a clear protectable
interest which is being threatened.

58 BusinessBrief August/September 2009


HUMAN CAPITAL

The challenge of change


by Simon Tankard, Director of Executive Education, University of Pretoria’s Gordon Institute of Business Science (GIBS)

A uthor, management guru and rock climber Jim Collins


prefers to describe the current economic tough times as
“extraordinary times”. His work illustrates the opportunities in
something one’s born with? “Part of it can be learned by putting
yourself under pressure, and some of it is just innate.”

turbulence and the type of leadership required to spot those Right now the pressure is on. The South African economy has
opportunities and grab them successfully. The past 50 years already felt the effects of the global economic crisis and while we
have been incredibly prosperous and many of today’s business may be undecided as to the extent of the impact here, there is no
leaders are inexperienced when it comes to managing through a doubt that the bigger picture has changed and local businesses,
prolonged period of uncertainty and all the changes this presents. their leaders and teams need to start changing the way they
think, hire, fire, plan, strategise and operate in order to make it
Panic often results in a reaction typified by freezing budgets and through.
following short-term cost-saving measures - at the expense of a
strategy to realign the business with new market opportunities. Professor Karl Hofmeyr, Director of Company
Specific Programmes (CSP) at the University
A favourite metaphor of Collins’ is, “Almost across the board, of Pretoria’s Gordon Institute of Business
people are worried. As a rock climber, the one thing you learn is Science (GIBS) puts it well, “In times like
that those who panic die on the mountain. You don’t just sit on the these, the speed of learning has to be
mountain. You either go up or go down, but you don’t just sit and faster than the rate of change.”
wait to get clobbered. If you go down and survive, you can come
back another day. You have to ask the question, what can we do It is a big learning curve we are
not just to survive but to turn this into a defining point in history?” embarking on but an exciting one.
The type of leader Collins’ believes businesses need in order to The businesses that survive this
see beyond the ‘tough’ and spot the ‘extraordinary’ is what he transition will be the ones that
calls the Level 5 Leader. prepare for and embrace the big
changes coming and meet the
“Level 5 leaders are differentiated from other levels of leaders in challenges head-on.
that they have a wonderful blend of personal humility combined
with extraordinary professional will. Understand that they are In Collins’ view “… the
very ambitious; but their ambition, first and foremost, is for the possibility of seeing that
company’s success. They realise that the most important step (uninterrupted prosperity) again
they must make to become a Level 5 leader is to subjugate their in our lifetimes is very, very low.
ego to the company’s performance.” What we’re experiencing now,
get used to it! It’s life, and it’s
The question to Collins is, can Level 5 Leadership be learnt or is it the normal life.”

Forget the training and perform!


by Bernadine Reynolds, Managing Director, Hi-Performance Learning (HPL)

South Africa’s ongoing efforts to train its way out of the While the traditional approach to training and skills
deepening skills crisis by using formal, traditional training development had its place in the industrial age when change
methods won’t achieve much. The current focus on training occurred relatively slowly, today’s rapid pace of range
should be shifted to a focus on performance. requires a whole new training paradigm. What is taught in the
classroom today is often obsolete in the workplace tomorrow.
Businesses spend considerable time, effort and money
on training their staff in order to speed up their time to Yet organisations keep throwing money at the ‘tried, tested
competence. However, the desired end-result of the training and failed’ way of doing things because they do not think
should be workplace performance. Yet the focus of every there is an alternative.
conventional training programme is on ‘learning’.
If the desired outcome is to optimise an organisation’s work
Research has shown time and again that 80% to 90% of what force, conventional training programmes need to be replaced
is invested in training is lost because people do not remember with organisational ‘wells’. These wells support specific-skill
or cannot apply what they have learned. Indeed, conventional development through smart workplace support. They are
training’s track record in terms of improving performance, designed with change in mind and placed strategically within
especially at the organisational level, is poor. the work environment.

60 BusinessBrief August/September 2009


Services SETA

Services SETA and the Association of


Business Executives South Africa join forces
The Services SETA and the Association of Business Executives practising and aspiring managers and executives. In addition, through
South Africa have joined forces to promote the Continual Professional its affiliation with ABEUK professional certification, abeSA provides
Development (CPD) of people in the field of management. a route to further study through Bachelor’s and Master’s degree
programmes as well as other professional courses through universities
The Association of Business Executives (ABE) is a professional body all over the world.
established in 1973 in the United Kingdom (UK). A Regional Chapter,
subsidiary, was formed in South Africa in 2008 (abeSA). abeSA serves Certification and Continuous Professional
its members with a focus on the development of people in the field Development
of management, and the professional certification of people against As a Certified Team Leader (CTL), Certified Supervisor (CS),
specific criteria. Certified First Line Manager (CFLM), or, Certified General
Manager (CGM) members are expected to map and implement a
The Services SETA partnership with ABE gives people an opportunity personalised Continuous Professional Development Plan (CPDP)
within junior and middle management to be certified against annually.
the various membership levels within this association. Services
SETA levy paying companies may This personalised plan is completed
apply for this membership for their with the support of your employer
employees who are currently working and experts in the community of
in managerial positions, or who are management from abeSA. It will
aspiring managers. be expected that each member keep
a record of all learning activities,
The following criteria from judgments on them and the practical
abeSA are relevant to the inputs of the lessons learned.
member: Evidence of how learning has been
• Membership with abeSA with applied in real situations is critical.
recognition of status in the UK, Learning activities can include
- Student attendance of learning programmes,
- Associate workshops, conferences, enrolment in
Nicola Young, Ivor Blumenthal, Jonathan Swindell, formal qualifications or undertaking
- Member Peta Broomberg and Dr Hendrick J Botha. of research. It is important to ensure
- Fellow
that these activities are recognised by
• Certification of managerial experience at the following levels; abeSA in fulfilling requirements of your CPDP.
- Certified Team Leader
- Certified Supervisor The Services SETA is offering its member companies the
- Certified Front Line Manager opportunity to get involved with the professional body. All a
- Certified General Manager company would need to do is identify management employees (or
• Development of a continuous professional development plan for each aspiring managers) within their various departments, and notify the
member Services SETA of their participation. The Services SETA will then
fund the assessment and membership of the employee with abeSA.
Members will receive: This is an opportunity not to be missed!!
• Quarterly subscription to magazines
• E- Newsletters A certification ceremony was held on the 3 July 2009 to acknowledge
40 learners who have already entered this management programme.
• Opportunities to attend workshops and conferences
The Services SETA would like to encourage more employees to get
• Opportunities to study further on internationally recognised
involved. To find out more information please contact Nicola Young on
programmes
Nicolay@abesa.co.za or Peta Broomberg on petab@serviceseta.org.za
• Networking opportunities within the field of Management
Association of Business Executives

The primary objective of abeSA is to promote their members by Peta Broomberg


allowing them access to obtain awards in the UK and issuance of Services SETA
South African designations of managerial certification to become more Tel: +27 (0) 11 276 9647
effective managers who are recognised and sought after in business. Fax: +27 (0) 11 276 9660
abeSA is unique among professional bodies as it provides Cell: +27 (0) 82 572 2478
opportunities for business education, and professional certification to Web: www.serviceseta.org.za
HUMAN CAPITAL

Telling stories for growth


by Peter Christie and Nikki Friedman Course Directors, UCT Graduate School of Business

S torytelling is more often associated


with kindergarten than the world
of business, but companies are fast
Steve Denning – former Programme
Director of Knowledge Management
at the World Bank – storytelling, in an
who you are, enhancing the brand,
transmitting values, creating high-
performance teams, sharing knowledge,
waking up to the widespread benefits of organisational context, works because it taming the grapevine, leading people in
organisational storytelling. creates an emotional response that leads to the future.
to real learning and action. It catches,
Storytelling can be used to influence and maintains, people’s attention in a Storytelling is a crucial tool for
others and lead more successfully. It can way that simple fact-sharing cannot; management and leadership, because
also equip businesses with the tools to stories simply anchor facts into the often, nothing else works. Charts leave
develop and communicate a unique and memory more easily. listeners bemused. Prose remains
congruent organisational story. unread. Dialogue is just too laborious
Storytelling is often the best way for and slow. Time after time, when faced
Recent years have seen stories leaders to communicate with people with the task of persuading a group of
popularised in the business world – with they are leading. Why? It is inherently managers or front-line staff in a large
several businesses finding creative ways well adapted to handling the most organisation to get enthusiastic about
to put the power of words to effective intractable leadership challenges of a major change, storytelling is the only
use. Popularised to a great degree by today – sparking change, communicating thing that works.

Chair sanction overturned


By Felicia van Rooi, Partner, and Nicole Chetty, Candidate Attorney, Eversheds

A n employee pleads guilty to committing fraud


amounting to hundreds of thousands of rands. The
chairperson of the disciplinary enquiry decides to impose
the employer to overturn the sanction imposed by the
chairperson of a disciplinary enquiry. The labour appeal
court found that the dismissal was procedurally unfair and
a sanction of a final written warning. The employer is not awarded 10 months’ compensation to the employee.
happy with the sanction, as it feels that it cannot trust the
employee anymore and that by retaining the employee The labour courts seem to be more lenient towards
in its employment it might create a precedent among employers in the public sector. They have found in a
employees, that if they committed fraud they would get number of cases that because the state as an employer
away with a final written warning. Can an employer in deals with public funds and taxpayers monies, it should
these circumstances overturn the sanction imposed by have the flexibility to overturn and second guess sanctions
the chairperson of the disciplinary enquiry? Generally in imposed by chairpersons of disciplinary enquiries. It,
the employment law context, employers are bound by however, has to be in the public interest to do so.
the sanction that is imposed by the chairperson of the
disciplinary hearing. Employers in the private sector can only overturn the
sanction imposed by the chairperson of a disciplinary
A case of point is County Fair Foods (Pty) Ltd v CCMA enquiry if their disciplinary code provides that the sanction
and others. The employee was charged and found guilty constitutes a recommendation. Even if the disciplinary code
for assaulting a fellow employee. The chairperson of the provides for this, employers must provide well motivated
disciplinary hearing imposed a sanction of a final written reasons as to why it was necessary to overturn the
warning and unpaid suspension. County Fair was not sanction to a more severe sanction, should the employee
happy with the sanction and decided to overturn it. It decide to approach our judicial system for relief.
dismissed the employee. The labour appeal court had to
decide whether employers can overturn the sanction of Employers are therefore advised to carefully consider
a disciplinary chairperson should they not be satisfied the role and powers they want the chairpersons to have
with the sanction. The labour appeal court stated that if in their disciplinary hearings and provide for this in their
an employer’s disciplinary code makes provision for the disciplinary codes in order to avoid a situation where they
decision of the chairperson of a disciplinary enquiry to will have to keep in their employ an employee who through
constitute a recommendation, then the sanction can be his or her conduct has destroyed the trust relationship
overturned. County Fair’s disciplinary code did not permit between them.

62 BusinessBrief August/September 2009


HUMAN CAPITAL

Training – Luxury or necessity?


by Ian Yoel, Regional Director, Edexcel

M any companies view corporate training as a luxury rather than


a necessity or a key strategic resource. A common but largely
unfounded corporate concern is that staff that are empowered
•B
company for a longer period;
 uy-in from the top - management is responsible for establishing
training schedules within the company. They must therefore be
with training and skills development tend to leave after the committed to developing an atmosphere dedicated to continual
company has invested this money in their personal growth, and learning and education. If performance appraisals effectively
join a competing organisation. So how can the corporate world identify training needs and these are then met, employees have
benefit from conducting effective corporate training? a far greater chance of achieving success; and
• Alignment with corporate goals - training should go hand-in-hand
A company’s success depends greatly on the collective skills of its with the company’s strategic plan, as it can involve interpersonal
employees, and those companies that invest in employee training skills development such as conflict resolution, effective
and development tend to outperform those that do not. For the communication, quality management and team building.
organisation to fully benefit from this spend employees should
view themselves as learners, constantly updating their skills and Before you start incorporating a training regimen into your
knowledge and thereby contributing towards reaching not only company’s strategic plans and budget, you have to assess current
personal but also organisational goals. staff performance and productivity levels. Involve the entire
team of employees and ask them what they believe is holding
Companies can benefit from investing in corporate training the company back. Then determine what skills your employees
in the following ways: lack to do their jobs more efficiently. And how is their lack of
• Improved recruiting - a company that values comprehensive knowledge and/or skill affecting general performance? There
training programmes and is focussed on fostering an are many ways to conduct training including utilising corporate
environment where employees realise their growth potential, will training providers, incorporating self-paced training, introducing
always be a more attractive option for high calibre staff; mentoring or even computer-assisted or web enabled training.
•H  igher retention - if an employee knows that a company values Decide which training option would be best suited to you and your
their personal growth they are more likely to remain with the employees’ specific objectives.

Services SETA and the Association of


Business Executives South Africa join forces
“The Services SETA and the Association of Business Executives South Africa have joined forces to promote the Continual
Professional Development (CPD) of people in the field of management.” Ivor Blumenthal (CEO; Services SETA)

Are you a Services SETA member company?


YES: You need to identify management or aspiring managers within your organisation who
would benefit from membership with an international professional body,
and would benefit from continuous professional development opportunities.
The Services SETA will fund the membership and assessment of the employee with abeSA.
Contact: Nicola Young from abeSA Nicolay@abesa.co.za or Peta Broomberg from the Services SETA
on petab@serviceseta.org.za for more details and membership application forms.

CALL CENTRE: 0861 10 11 48


Ser vices House, 14 Sherborne Road, Park town • ht tp://w w w.ser viceseta.org. za/
FEATURE - BUSINESS SOFTWARE

BUSINESS
SOFTWARE
Is business software
coming of age?
In an effort to deal with the ongoing changes
in a dynamic and fluid environment, business
stakeholders need to invest in the best
software possible to take their businesses to
the next level. This software must be able to
translate a business vision into a realistic set of
practical steps and then deliver the appropriate
solution into the day-to-day operations of
an organisation. The question remains, are
decision makers objectively choosing the best
software for their businesses?

64 BusinessBrief August/September 2009


FEATURE - BUSINESS SOFTWARE

vision to provide business data processing in real-time, not


in batches as was still the IBM mindset. The five had noticed
that during their time at IBM, many customers wanted the
same kind of business applications and that those customers
were developing the software they needed for themselves
in-house.

T he business software market has grown rapidly over the


years and has become a part of our daily lives. Everyday,
each one of us makes use of an ATM, a spreadsheet, or an
They figured that a SAP system could become successful
by offering a generic solution that could be customised
to individual needs, but with a focus on real-time data
application that connects to a database system, a booking processing and the data presentation at the terminal. Within
system or an accounting package. This feature aims to a year, they had developed a financial accounting package.
discuss aspects of how far software has come over the This component would form the foundation for the company’s
years, the advancements of Business Intelligence (BI), first system: R/1. SAP, as the company eventually became
Client Relationship Management (CRM), Enterprise Resource known, continued to build on R/1, and in 1979, released R/2.
Programmes (ERP), the advantages of Open Source Software R/2 was incredibly successful in Europe because it coped well
(OSS), disaster management and how to go about choosing with the multiple languages and currencies of that continent
the right software package for your business. and because SAP made it available as modules.

The test of time Accounting was one of these modules, human resources
One of the first business applications ever developed was an another, manufacturing processes a third and logistics a
airline booking system. With ticket offices all over America fourth. Customers with mainframes were surprised to note
and long waiting lists for commercial air travel in the mid that R/2 used the time-sharing facilities of IBM’s operating
1950s, American Airlines noted that it was inevitable that systems, which meant that they could work on their data
there were going to be mistakes and delays correlating directly, similar to the standard login prompt of today,
the two. In conjunction with IBM, the Sabre system was rather than sending batches of work down to the computer
written. It took 10 years and $30million to develop, but when department for processing.
completed, made a huge difference to the day-to-day running
of the Airlines, giving it efficiency and the edge it needed. A demand for SaaS
Software as a Service (SaaS) is a model of software
The term “software” was not really understood until the deployment whereby a provider licenses an application to
1960s when IBM released its System/360 series that clearly customers for use as a service on demand. This type of on-
differentiated hardware from software. By 1969, the need for demand licensing and use alleviates the customer’s burden
programmers who dealt purely in software had become so of equipping a device with every conceivable application and
large that IBM spun off its own internal software division as reduces traditional End User License Agreement software
an entirely separate entity. maintenance, patches and support complexity within
organisations.
In 1972, five former IBM employees, Dietmar Hopp, Hans-
Werner Hector, Hasso Plattner, Klaus Tschira and Claus Managing Director of Liquid Thought, Roger Strain, explains
Wellenreuther did just that. They created a company with that the SaaS model has its roots in the payroll bureaux of
the name of Systems, Applications and Products in Data the 1970s and the application service providers of the 90s,
Processing. They were a German-based operation that had a but the mechanics of delivering the service were always a

BusinessBrief August/September 2009 65


FEATURE - BUSINESS SOFTWARE

hurdle. Today’s resurgence of SaaS eliminates the need to make large


is due partly to the recent global capital investments in hardware and SaaS is not a new concept but with
bandwidth explosion, which means it is software licences. Pay-per-use options the current economic conditions and
possible to deliver more data and more also make it easy to scale operations changing times, companies need to
functionality, and cheaper than before. up and down in response to changing look at maintaining profitability by
requirements, making for lower risks sharpening their focus on costs and
Bandwidth is only part of the story, and more predictable costs. eliminating the unnecessary ones.
with the other part being that software
providers have finally worked out “This flexibility also offers very rapid CEO of the Emerge Group, Jean
how to use the Internet effectively speed to market, operations can be Moncrieff points out that now more
to deliver functionality, whether it’s up and running in the time it takes to than ever, companies’ directors are
through web services or new rich recruit and train employees, without compelled to look for cost-cutting
browser technology. waiting for complex infrastructure to opportunities in their organisations. So,
be installed and configured. A third, as much as this is not the first time
“Security concerns are also no longer related benefit is the hassle-free factor; that we have had a recession, there
an issue. The range of new options it’s the service provider’s job to keep are a number of combining factors that
made possible by better technology the service up and running at maximum make this one a shot in the arm for
and better bandwidth includes sharing efficiency, and to have the skills on SaaS.
secure space on an off-premises server, hand to do that,” adds Strain.
having your own dedicated server off- Moncrieff says, “Among those factors
premises or even having a third-party is the maturity of the SaaS model and
managed server at your own premises. the availability of better connectivity.
Independent hosting can also confer These are key elements lacking in early
a market advantage, particularly attempts to achieve remote software
for companies that handle sensitive delivery. The Application Service
customer data,” says Strain. Providers of the early 2000s, for
example, had a perfectly reasonable
There are several factors model in theory. In practice, it didn’t
driving the move to hosted really work as the billing and usage
software services. models were obscure while the
First, it bandwidth available at the time
was not capable of supporting
reasonable performance.”

Managing Director of
White Wall Web, Peter
Flynn, adds, “The key
components for SaaS
to become a reality
include a remote
server, web
access and an
application
that works
better
than the
original version that is installed on “The advanced BI technology focuses on
the end users desktop. With data the same types of issues that a social
throughput increasing and the pricing networking application addresses i.e.
of bandwidth dropping continuously, I connectedness, information on hand,
believe all the ingredients are available networking.
to launch SaaS as a reality and to
create an entirely new industry and Rose remarks that operational BI
business approach to the way things makes the technology more integrated
were done in the past. Ultimately, in with transactional applications for
the future all software will be web- agile responsiveness and is thus
based and accessed through various more directly connected to business
devices by users, an approach which, processes. “The obvious challenge to
compared to investing in on-premises these considerations is that of security,
solution, minimises costs, reduces the more pervasive the information
time to delivery, alleviates upfront the more difficult it is to ensure that
cash-outlay and allows for OPEX verses the types of deep insights that are
CAPEX budget allocations. SaaS also now being delivered onto mobile BI
reduces maintenance issues and platforms do not end up in the wrong
increases the frequency of release hands. Operational BI talks to merging
of upgrades along with a host of the analytical capability of the IT team
additional benefits.” with the operational savvy of the people
on the ground and embeds BI in the
One of the more prominent roles SaaS fabric of the business delivering the right
will play in today’s business arena is information to the right people at the
enabling the remote workforce and, as right time, which has been the vision of
ongoing research conducted by White BI since its inception,” she adds.
Wall Web and the forecasts that can be
assumed based on current trends show, According to Dave McWilliam, regional
by 2015 there will be approximately 15- manager for BI and PM at IBM South
million remote or mobile Internet users Africa, businesses are always conflicted
and 42-million cellular users in South between building a more efficient
Africa. organization or a more compliant one.
“A by-product of compliance is better
“Bandwidth proliferation, coupled with insight into an organisation, but this
the fact that Internet as a platform is relies on an effective understanding of
widely trusted, makes for a favourable good, clean, trusted data. Information
SaaS environment and we envision is a company asset, one that is
high levels of adoption over the essential to the efficiency of any
coming months. Technical advances organization. As MDs and boards are
like Cloud Computing, H(ardware)aaS, taking a more healthy interest in their
P(latform)aaS and virtualisation are companies’ performance, they are
also indicators of future growth in this looking to the financial systems to lead
arena,” says Flynn. the way,” says McWilliam.

BI for competitive advantage CEO of the I5 Group, Glen Ansell


For many years, Business Intelligence shares these sentiments and highlights
has been about point solutions, that the IT trends over the next five
departmental solutions, individual years are that software as a service will
productivity tools and analyzing data become a way of life within IT going
to get a better understanding of how forward. “Virtual data centres will
a business operates. According to become a standard practice in South
Group IT Director of Smollen Holdings, Africa, on demand processing becoming
Colleen Rose, the trends are moving a part of day-to-day practice and social
toward pervasive information that networking penetrating the market
provides insight capability wherever substantially such as Facebook, which
the person is, gathered from multiple means instant messaging, networking,
sources and delivered in actionable, marketing, knowledge transfer and
understandable, agile ways. selling,” says Ansell.
FEATURE - BUSINESS SOFTWARE

CRM a “hot commodity” human intelligence is still required issues, improved customer service and,
A successful CRM solution should to understand customer behaviour, as a result, the lowering of day-to-day
enable a company to simplify its analyse it and then conceive targeted operational costs.
business transactions as far as campaigns that will drive the lifetime
possible and to achieve customer value of the customer. According to Fenner, a true aspiration
advocacy. Companies need to think of of CRM is to create content and
the interactive experience from their CRM is hot on the heels of the applications that are available for
customers’ point of view. worldwide web in terms of reinvention customers and other stakeholders to
and according to Strategic Sales not only help themselves, but also to
“This is particularly true, when we Director of Softline Accpac Keith help others. As Africa demands more
consider the impact of globalisation and Fenner, CRM is a hot commodity, which online capability, it is imperative for
growth in the uptake of the Internet is drawing attention from all corners of business to deliver a platform that suits
because today’s consumers are now business. the customer.
more sophisticated, educated and
discerning. This increased level of “Businesses rely on customers to keep ERP – critical or risky?
awareness coupled with instant access them afloat, so it stands to reason that Effective and comprehensive customer
to an abundance of information on both money spent on customer retention is participation at the right level of the
products or services and competitors money well spent. Those already riding organisation is critical to get ERP
makes the requirement for real CRM a the second wave of CRM are looking implemented correctly and to ensure
business priority,” says MD of Digital for even more powerful solutions, the client’s satisfaction. Most cost
Solutions, Yaron Assabi. while those who are still sitting on overruns occur when a client fails to
the sidelines realise that CRM is an provide his best people to participate in
Assabi adds that CRM is not merely a essential business tool. CRM drives preparation, planning and blueprinting
solution, but a strategy that should ERP. This new wave of CRM, which of a solution.
be aligned to the company’s mission, extends into the entire stakeholder
vision, goals and business objectives. space, means that various departments “When the outcome of the blueprint
CRM technology is merely a tool and of an organisation, such as sales, is not satisfactory, the ERP solution
companies need to take an educated customer care and marketing, are becomes risky as the input provided
approach when choosing a technology sharing all the information they collect by the organisation on its policies,
solution that will suit and promote their from interactions with customers processes, and procedures were not
CRM strategy. with the unified view of improving the best. ERP costs can be curtailed
customer service. This collaboration and contained if the customer makes
Additionally, while technology such of input results in increased customer available the most knowledgeable and
as a web-centric or multi-channeled satisfaction and loyalty,” says Fenner. skilled team,” says MD of Cornastone,
approach has made it easy to gain Hamilton Ratshefola.
insight into customer behaviour, If used effectively with the right
technology, collaborative CRM will Since most ERP systems are process-
actually solve two business critical driven, they must be implemented
in consultation with people who are
familiar with all processes in the

68 BusinessBrief August/September 2009


FEATURE - BUSINESS SOFTWARE

organisation. Most customers are


inclined to put forward available
people to participate in the design,
Speech analytics: raising the customer service bar

T
when they should be putting forward he use of speech analytics in a contact centre environment is fairly widespread,
their best people. The result is that but its use in a post-call survey is a new application with important benefits for
when the blueprint for the solution companies wanting to raise the bar in customer service.
is presented, there is unhappiness
and dissatisfaction, which requires “Speech analytics is able to detect a customer’s mood, monitor his/her tone and react
everyone to go back to the drawing to key words (e.g. swear words) in real time. Using speech analytics in a post-call
board. And that is when the costs start survey, the contact centre can automatically detect how that customer is feeling, not
to soar. necessarily from the content of their responses, but from the tone,” says Interactive
Intelligence’s regional sales director, for UK, Middle East and Africa, Dave Paulding.
All corporates are looking for alternate
ways to cut costs in the downturn in If the contact centre decides that the customer is upset, it can be programmed to
the world economy. One of the ways in
transfer the call immediately to a team leader or supervisor who can deal with the
which to do so is by the implementation
problem there and then. This is revolutionary for problem resolution.
of an ERP Payroll software solution,
says Dave Teron, MD of Paywell.
Even without speech analytics, post-call surveys have gone a long way to help
companies get a realistic view on customer satisfaction levels. A survey of 362
Teron recently read an American survey
companies conducted by Bain & Company in the US in 2006 revealed a startling
of 650 companies that revealed:
incongruity. Companies were asked if they were delivering a superior service, and
80% replied “yes”. Their customers were asked if they were receiving a superior
•9  5 % used Creditors control
service and 8% replied “yes”.
• 9 4 % used Stock control
• 93% used General Ledger and
Debtors control
Over the past few years, contact centres have woken up to the fact that they need
And only to do more to get an accurate view of their customers’ experience of their service.
• 18% used the ERP Payroll and As technology has advanced, companies are choosing post-call surveys over mailed
• 8% used the ERP Human Capital questionnaires and follow-up calls as they have a relatively high response rate – 10%
Management modules. to 15% vs. 2% in mailed surveys – they are cheap to implement, and companies can
get the results quickly.
Because the modules are individually
tailor-made to meet the customers’ But while post-call surveys enable the company to get a view on service areas that
requirements, every time there is could be improved, as well as input into agent training that may be required, the
a change to your requirements, the customer who received the bad service is still leaving the contact centre with a
ERP vendor will have to change the problem.
software’s source code. This will be
done at considerable cost to you, the With the use of speech analytics in a post-call survey, the company still gets the
user. feedback on areas for improvement, and is also empowered to take active steps to
change a customer’s experience from a bad one to a good one.
This applies specifically to the payroll
module, where on-going changes are Another benefit for using speech analytics in post-call surveys is that contact
required for statutory purposes, trade centres can completely customise their post-call survey settings to take an action
union demands or the company’s own appropriate to their organisation. Some vendors offer a self-configuration option
employment policies. using a set-up wizard, so it is not necessary for the contact centre to call out a
technician every time that want to change their post-call survey.
Even small changes to your Payroll
will require source code changes, re- For companies wanting to change the dynamics in their customer relations and raise
compilation and testing which again will the bar customer satisfaction, speech analytics in post-call surveys is a critical step.
FEATURE - BUSINESS SOFTWARE

not only be extremely expensive but take days or even weeks to complete.
also have time constraints. •P
 ayroll data cannot be restored
without restoring the entire ERP
Teron adds that many corporations database and subsequent data
believe that it is desirable to have “on- re-captured.
line real time” interfaces between the
Payroll module and other ERP modules, HR and Payroll
but says that what is not realised – do your
by management is that the payroll homework
information is very rarely required The vast majority of
in the ‘integrated’ needs of the accounting and payroll
corporation on a day-to-day basis. programs perform similar
functions. Does this mean you
In these sophisticated environments cannot go wrong when it comes
there are a number of pitfalls that are to choosing accounting and payroll
overlooked when the decisions are software? According to CEO of Softline,
made to purchase these solutions. The Ivan Epstein, there are differences
biggest one is, what is the true cost of among programs and the information
the ERP solution? they deliver, as well as companies
that develop accounting and payroll
• I t is critical to know up-front what software.
the costs will be for implementation
services and maintenance charges. When looking for the best solution for
• M inor amendments, such as a simple your business, Epstein advises that
change to a Union deduction, must you take a close look at the company
be done via a database Administrator, that develops the software and find out Can your software expand as your
usually overnight. more about its levels of back-up and business grows? This means finding
• M ajor source code updates, such as service, as well as its vision for the out whether the software manufacturer
the Medical Aid Capping, are only future, in terms of its own products has a family of products that you can
done by the vendor and implemented and the software industry as a whole. upgrade to over time in a logical, easy,
via a database Administrator and can Scalability is another important issue. and cost-effective manner? And, can
you add elements to enhance the
existing software?
South Africa could create jobs
by entering $56bn software testing market “Not doing enough homework is one
of the most common mistakes people

S outh Africa needs to move faster to seize opportunities in the $56bn computer
software and systems testing services market.
make when selecting accounting and
payroll software. Analysing and then
selecting this type of software takes
“India, which has been the preferred market, is battling to cope while South Africa time and effort, and information
with its reputation for innovation and high standards in information technology is critical to selecting the most
is lagging in seizing opportunities in an area of the global economy that is not appropriate system for your business,”
faltering, but is growing,” according to Liza van Wyk, CEO of management and says Epstein.
skills-training organisations AstroTech and BizTech
In South Africa, there is a need for
IT expert, Arthur Goldstuck of World Wide Worx says that there is not sufficient a change and better use of financial
usability testing done in South Africa and developers often convince clients that all and accounting systems. People and
is in order and once in use costly errors occur. businesses have become more cost-
conscious and therefore it is vital to
International IT industry consulting firm, Ovum says, “Software testing services invest in the ability to have easier
will grow at a compound annual growth rate of 9.5 percent from 2008 to 2013, access to the information in their
faster than most other (information technology) services.” More companies are financial and accounting systems. This
outsourcing testing services, according to Ovum. will enable greater control and insight
into businesses.
“This gives South Africa, with its excellent software developers and information
technology companies, a gap to create work and opportunities in an increasingly “Companies have always needed
important field,” Van Wyk says. “Although India has been the favourite provider, a financial package to run their
due to the high demand of testing requests, India is no longer coping and more businesses but they often do not
testing services jobs are going to places like China, Malaysia and North Africa.” have proper insight into what various
systems can offer them. Using BI in
“In our current economic times we need to maintain market share and customer conjunction with a financial solution
satisfaction and therefore testing is essential. This is also a field that is outsourced can change the way a company does
by major groups globally and South Africa needs to move to gain market share,” business as well as prevent the kind
according to Van Wyk. of situation we find ourselves in, as

70 BusinessBrief August/September 2009


essentially – efficient analysis of data
is vital to financial projections,” says
Softline Pastel MD, Steven Cohen.

He says that using BI to complement


an existing financial solution
would go a long way for financial
services organisations to improve
performance and meet their fiduciary
responsibilities. Most of the large
financial services organisations
already have ERP systems and so they

Survival of
have all the information that they
need to make appropriate decisions.
They just do not have the tools that
can help them make sense of the
information – because ERP collects
rather than connects information. BI,
in contrast is better at connecting

the fittest.
information that has already been
collected.

“With a greater understanding of the


flexibility and speed that financial and
accounting systems offer, as well as
their benefits, in terms of decision
making, companies are likely to make
better management decisions with

Evolve with SA’s


each improved implementation. If
that is all that this recession achieves,
it may be worth it,” says Cohen.

OSS reduces costs


Open Source Software offers ways
for businesses to, if not entirely
most cost-effective
replace the organisation’s more
propriety systems, then at least
execute new initiatives and move on
ERP solution.
to new schemes that fly under the
organisation’s planned budget radar,
says CTO of Connection Telecom,
Steve Davies.

In fact, in 2008, the State IT Agency


(SITA), which is responsible for In today’s tough economic climate, it’s survival of the fittest. With Pastel
providing IT services to the South
African government, indicated that Evolution, SA’s most cost-effective ERP solution, you’ll be able to manage
the agency would use OSS as one
of the strategies to reduce costs in your resources more efficiently, streamline your business processes and
improving IT services. It has been
said that organisations that decide adapt. Visit www.pastelevolution.co.za and EVOLVE.
upon OSS over propriety software
tools can reduce their total budget
spend by 50% to 60% over a period
of three years.

“The adoption of OSS into an


organisation can offer a range
of benefits and advantages. An
enormous strength of OSS is its
flexibility component. Typically, an
organisation wants to use their
invested IT or a specific ICT tool
to differentiate themselves. While
FEATURE - BUSINESS SOFTWARE

an off-the-shelf package offered to CEO of training company, AstroTech, game-style technique to permit
organisations may be able to meet 70% Liza van Wyk said, “The virus or worm someone to command it remotely.
to 80% of what is required to achieve called Conficker or Downadup, is spread Each day it generates a new list of
this, the package is essentially not by a Microsoft Windows vulnerability, 250 domain names. To control the
tailored to meet their specific needs, by guessing network passwords and botnet, an attacker would need only
which can result in a percentage of the by hand-carried consumer gadgets to register a single domain to send
overall cost being wasted. OSS allows like USB keys. Worms like Conficker instructions to the botnet globally,
an organisation to improve and adapt harness infected computers into greatly complicating the task of law
applications accordingly, all depending unified systems called botnets, which enforcement and security companies
on how the business would prefer to then accept programming instructions trying to intervene and block the
use them,” says Davies. from their clandestine masters. Many activation of the botnet. Computer
computer users may not notice that security researchers expect that
Don’t neglect disaster management their machines have been infected, and within days or weeks the bot-herder
Last year, computer experts issued computer security researchers said who controls the programs will send
warnings about what they said was they were waiting for the instructions to out commands to force the botnet to
the worst Internet virus yet, a worm materialize, to determine what impact perform some as yet unknown illegal
that is stealing personal and corporate the botnet will have on PC users. It activity.
information and using computers to might operate in the background, using
infect others. Warnings have intensified the infected computer to send spam or “A cleverly managed worm could disable
because millions of computer users infect other computers, or it might steal a good deal of the world’s computers,
have still failed to install relevant the PC user’s personal information”. devastating economies and companies
patches that could protect them. and so it is essential that companies
The program uses an elaborate shell- revisit their disaster management
programs and if they don’t have
them they need to create them. With
computers, as an example, there are
some essentials that not all companies
have in place. System data should
be backed up regularly and should
designate the location of stored data,
file-naming conventions, media rotation
frequency and method for transporting

72 BusinessBrief August/September 2009


FEATURE - BUSINESS SOFTWARE

data offsite. It is good business practice to store backed- adopt a software package that will improve business efficiencies,
up data offsite in commercial data storage facilities that costs and save time. It is therefore vital that the company
are specially designed for this,” Van Wyk says. align itself with a reputable organisation that understands the
company’s needs and is committed to developing solutions that
Van Wyk said that growing challenges around climate will meet the company’s vision for strategic customer experiences.
change was seeing pressure on companies to manage
insurance effectively, more flood, rain, hail, earthquake
and fire damage is being recorded globally and it has CONTRIBUTORS
put pressure on companies and individuals to revisit
insurance policies and to ensure they have adequate Liquid Thought Paywell
protection. 021 422 2616 011 453 8841
Emerge Group S oftline South Africa
The workplace has become a complex environment; 012 348 1385 011 304 1000
those in charge of disaster management have to consider
White Wall Web Softline Pastel
everything from a disruptive strike to a client slipping
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on a wet floor and getting injured while visiting, to
acts of terrorism or simply bad luck. Having a disaster Astrotech Connection Telecom
management and recovery plan in place reduces risk 011 453 5291 011 287 2000
by making teams aware, and ensures that if misfortune
Smollen Holdings Nfold
strikes the company is better able to recover rapidly at
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Both function and finance are important when evaluating Digital Solutions I5 Group
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and by how much. There are also other factors in the
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“We encourage you to allocate weightings to your


decision criteria before issuing a request for proposal
to alternative software suppliers. It’s important for
managers to agree on what basis a winner will be
selected. This takes some of the subjectivity out of
the decision and helps you reach a consensus more
quickly. Even subjective things can be rated during your
evaluation, such as which solution your team likes best
on a scale of 1 to 10,” says Sandy Pullinger, MD of nFold.

Pullinger mentions that one can also compare suppliers


on a function vs. finance matrix or use more qualitative
measures such as your overall impression of the solution
vs. the supplier. A matrix helps you to express visually
what you want to convey about the contenders. We
often facilitate the selection of a supplier short list
this way. We first discuss the relative advantages and
disadvantages of each supplier and then see how they
compare on the matrix.

“For soft issues such as how the team feels about the
software, we use smiley face secret ballot survey forms
to assess honest opinions. Smiley faces are good for
customer references too – an essential part of the
complete supplier evaluation. You might even want to
add a site visit to the decision matrix, for short-listed
suppliers. This allows you to quiz their customers face-
to-face and see the software in action,” she adds.

A final word…
We all know that the pace of technological innovation
will continue to accelerate, so as we enter times of
economic uncertainty, it is imperative that businesses
INFORMATION TECHNOLOGY

Selecting your ISP


By Eugene van der Merwe, Chief Executive Officer, Snowball Effect

The burden of increased choice in internet service providers band is preferred by WAPA as it is a proven
is making the right decision to suit your needs. That much has commodity technology which provides for
become apparent with the proliferation of not only service the low-cost extension of connectivity to
especially those areas where copper or
providers but also technologies that enable a fast, reliable and
fibre connectivity is not available. When
secure internet connection. Making the right choice now requires dealing with a good ISP, it should be in a
an appreciation of the technologies that are available and a sound position to assist you to make the right
assessment of your use case. choice based not on the technology it
advocates, but rather on your specific

W hen choosing an internet service


provider (ISP), South African
consumers are undoubtedly price-sensitive
In terms of technology, the primary
connections are ADSL, 3G (and its
derivatives, such as HSDPA), iBurst,
use-case.

The next essential element for the ISP


and this is frequently the most important WiMAX and WiFi on the ISM band, used by customer is service quality. Many internet
priority. This is something reinforced by the Wireless Access Providers’ Association consumers only come to realise the
the media, which is constantly harping of South Africa. importance of service quality after they
on about the admittedly high cost of have chosen a service provider that does
connectivity. However, while cost remains Consumers should look at the implications not deliver the required level of service.
an important factor, consumers are of the technology to be used, including
encouraged to look beyond this when the cost of ‘CPE’ (customer premise Accessibility and the quality of call centre
making a decision. The Internet has equipment), the ability for the technology support are important in this regard.
become as important a service for most to deliver a strong signal indoors and the Typically, it is when things go wrong that
of us in the home and office as electricity bandwidth cap. people interact with their service provider.
or running water is. As a result, quality That means the call centre has to be
and use case should also be prime WiFi on the ISM (Industrial, Scientific staffed with appropriately experienced
considerations for technology and service and Medical; these are radio frequencies people and it should never be over-busy.
provider selection. previously reserved for these markets)
Even when downgrading or cancelling a
contract, the quality of the contact centre
experience is critical if the ISP is looking to
invest in long term positive perceptions of
Consumers are its ability to deliver sound service. Some
organisations appear to use a frustrating
encouraged to look cancellation procedure to dissuade
customers from exiting.
beyond costs
People absolutely rely on the Internet and
are getting more clued up. Simultaneously,
there are more choices available in the
South African market than ever before.
Service providers have to respond by
upping their game especially with regards
to how they meet the increasingly
sophisticated needs of their customers.
The days of a two-year contract as a
cushy tie-in are over, as are the days of
convincing customers to sign up to a given
technology without its delivering clear
benefits to suit the use case. Customers
are increasingly looking to exercise their
right to choose and good service providers
are delivering that choice.

Eugene van der Merwe,


Chief Executive Officer,
Snowball Effect

74 BusinessBrief August/September 2009


INFORMATION TECHNOLOGY

Achieving converged, smarter


communications
by Scott Gilbert, Kathea, the Jabra representative in SA

I n the 1990s it was foretold that a digital revolution would


take place, and that old media would be pushed aside by
‘new’ media. While the dot.com crash may have prolonged
The ways it is used
Bluetooth technology is just one example of the abilities of
convergence. However, convergence does not only influence
advancements, it certainly never hindered developments and the technology tool itself, but the ways in which they are
today we are definitely reaping the many benefits of smarter used within an organisation. It is therefore important to
communication mechanisms. But what defines smarter? If we adapt to and instill a strategic culture towards smarter
consider that most employees have desk phones in the office, communications throughout the company. This is done by
mobile phones in their pockets, and IP phone services, like Skype, identifying the key business drivers for the adoption of
coupled with emails and texts, and maybe even IM (instant convergence, which should include:
messaging), blog posts and social networking – many businesses
have realised that all this communication may just be a bit too •P
 roductivity – why further complicate matters when,
much and could even hinder productivity! through convergence, modern forms of communication can
be adapted to individual lifestyle and enable centralised
Over-complicated? and unified communications. By making it easier and more
In fact, as technology has advanced at a rapid pace and new comfortable to communicate, convergence, enables and
devices or gadgets are continuously being launched in the encourages employees to indulge in reaching their full
market, local communications can almost be summed up as potential.
‘over-complicated’. Our history shows that rather than waiting
for the uptake of a technology to ensue and examining where •C
 ost optimisation – rather than expending your
markets are believed to be headed from there; those technically communication spend on a multitude of technologies and
inclined were developing their next innovative ‘fix’! The irony in gadgets, invest in technologies that promote convergence,
this approach is that convergence was born, and thank goodness enabling a centralised business model and reducing
for that! overheads and costs of communications – ultimately
generating value and ROI.
Integration
Essentially convergence is the recognition of the need to integrate •C
 onsistency – business success seems to become more
various products to form one multi-use device that has the personified by one-on-one interaction with customers and
advantages of all the communication mechanisms that flood partners, and there is a resulting need to remember that
employees’ daily lives. consistent communication in any business is a building
block to solid customer and partner interaction. It is for
More than just a concept, convergence is the promise of this reason, among many, that careful steps are taken
simplifying communications and interactions. If done right, it can in evaluating and implementing strategic technologies to
also be a real boom to productivity and can give the flexibility of ensure this communication does not “fall by the wayside”.
allowing people to work wherever they are, including at home.
This in turn presents fruitful ground and opportunities for all •C
 ompetitiveness - in today’s demanding business
employees to make both business and personal ‘lives’ easier, environment, companies are continually challenged with
more convenient and more enjoyable. However, this raises some differentiating themselves to increase market share. By
questions - which devices, which services and who to provide investing in technologies that will not only address the
them? And what technologies are we going to use to converge it current required efficiency enhancements demanded by
all? your business, but the long term growth your organisations
will need to remain competitive, your business will thrive
Wide selection and realise true competitive advantage.
Well, currently there is a multitude of technology available that
enable a transformation to take place in our communications and How individuals communicate with one another on a business
information sharing. Bluetooth technology, for instance, has taken and social level is directly influenced by the technology made
the challenge of true convergence head on. Bluetooth technology available to them. Businesses are understanding and widely
is indicative of mobile, multi-functional communication, and supporting the need to deliver converged communication
the multi-pairing of devices that enables the creation of a mini platforms to employees. They understand that by combining
network - ensuring that communication is a step away, be it over the best technology and design, convergence has become an
a laptop, desktop, desk phone or mobile phone. Additionally, innovative tool that provides necessary flexibility, creates
Bluetooth offers seamless integration and minimal complexity easier and constant communications and in turn, assists in
when connecting with other devices, therefore saving precious assuring high productivity and efficiency standards – all while
time and offering an immediate return on investment (ROI). staying connected. Smart and simple.

76 BusinessBrief August/September 2009


Black or white?
by Michael Powell, Product Marketing Manager,
Kyocera Mita SA

I t is no secret that the original equipment cost for


printers and copiers is only part of the overall cost.
During the expected life of the product, there are
maintenance costs and, most importantly, the costs of
consumables to keep the printing and copying running.

While there is not much you can do about paper costs,


apart from managing usage, customers find that there
are a number of possibilities regarding toner or ink –
sometimes even spare parts as well. Looking at price
alone, some of these seem very attractive. Some offer
products at a fraction of the price of authorised products,
with anything up to an 80% saving.

What the customer needs to consider before they buy


such products is what risk of additional expenses they
might be looking at. Losing the maintenance warranty
on your equipment is a major risk which becomes almost
inevitable if you use unauthorised consumables. Beyond
that, there are the extra risks of increased downtime and
more frequent maintenance cycles.

Whatever you might save in running costs will almost


definitely be cancelled out by lost productivity and paying
for equipment repairs that would have been covered by
your contract if you stayed with genuine consumables.

Let us be very clear about the type of products that


are involved. Once you are not buying the authorised
manufacturer’s product from a genuine dealer or vendor,
you will be buying either a “compatible” product or maybe
an actual “counterfeit” product that appears to be the real
thing but is not.

This is best understood in terms of grey market and black


market products – descriptions that are familiar from
other market sectors. The “compatible” products are
made by large companies who have their own reputation
to protect. Although they might not offer a complete
guarantee that their products will work without any
problems, they will support them with some sort of after-
sales backup and they have an investment in making sure
that customers are kept happy. These are what you might
call grey market operations.

On the black market, you find less reliable products that


really offer no support if anything goes wrong. Sometimes,
these are fraudulently packaged to resemble or look like
the authorised manufacturer’s product.

Using genuine consumables and parts removes all the


above risks. The equipment will have longer maintenance
cycles, the costs will often be covered as part of the
contract agreement and there is no risk that warranties
will be invalidated.
INFORMATION TECHNOLOGY

People integral to ERP success


by Paul Marketos, Managing Director, Bluekey Software Solutions

T here is absolutely and unequivocally no substitute for


experience when it comes to implementing Enterprise
Resource Planning (ERP). Without the right partner to make it
really up to the client to do their homework early on and make
sure they find a partner offering the right fit for their business
and for what they want to achieve.
happen, even the greatest software can fail.
Word-of-mouth and previous client references are excellent ways
Like any major technology deployment, implementing ERP of assessing potential partners and establishing whether they
can be extremely complex. Things can go terribly wrong if the have the right mix of skills and experience when whittling down
implementation is not fashioned and managed by experts who the short list.
know what they are doing. And, the stakes are high. A bumpy,
drawn-out implementation costs money, and few companies Unfortunately companies often find out too late that they’ve
can afford to abandon an ERP project after time, money and chosen the wrong ‘guy for the job’. Signs that the partner
resources have been invested. is not up to scratch include amongst others poor project
management; milestones and deadlines are not achieved; poor
Companies can, and should, expect to see a return on their communication; poor understanding of the client’s business; lack
investment in ERP quickly, within two years at most. For quick of responsiveness and inflexibility to changes in project scope.
success and quick ROI, excellent software must be coupled with
an excellent implementation partner. Software alone does not It is not always easy, or ideal, to bow out of a failing partnership,
make a solution. so the decision to dismiss an implementation partner should not
At a time where consulting fees often match the cost of the be taken lightly. It can be costly to start a project from scratch
software itself, companies should regard their selection and with another implementer, so, depending on how far the project
investment in a partner as important as their investment in the has progressed, switching partners might not be feasible.
software. At the end of the project, a client should feel like they
have received a return on their investment in a partner. Avoiding an unpleasant situation like this, which could ultimately
put the implementation at risk, means doing the due diligence
There are a number of ERP implementers in the country. Most and ensuring that the right company for the job is chosen at
vendors list their accredited partners on their websites, but, it is the outset.

Social networking: Saint or Sinner?


by Teryl Schroenn, Chief Executive Officer, Accsys

T he pervasive quality and immediacy


of online social networking seems
to have arrested the attention of
itself very well to businesses as an
automatic, cost effective and simple
way to advertise and attract attention.
technology and initiatives that empower
individuals and groups, there has to
be a degree of responsibility. The
corporate South Africa. So much so that onus is on the company to determine
the concept of utilising digital forums The reality is that more companies are policy to regulate access to social
to talk to the market, boost sales, assimilating their profiles and placing networking resources and to better
generate leads and advertise services them on these websites to secure manage the process of what is being
is now considered by many to be a online presence. The introduction of communicated. Information remains
serious element of overall marketing Twitter and LinkID services has added a business’ most prized asset – to
strategy. But, does this represent a a new dimension to modern corporate encourage freedom to interact digitally
boon or Pandora’s Box for companies? communication and networking. is one thing, to do this with no policies,
channels of responsibility or checks
There has been a considerable growth Today the business environment involves in place is simply asking for trouble.
in popularity surrounding initiatives engaging existing clients and prospective
like Facebook and Myspace, which business partners using online channels. The situation at present is that there are
offer any end user free access to – as It is a step-up from email and the obvious marketing benefits associated
well as the opportunity and ability to basic fact is that business is being with social networking for businesses to
manage – his or her own Internet space. conducted through online social forums. capitalise on. However, the success and
It was simply a matter of time before experience will be influenced significantly
businesses copped on to the strength It is about striving for and attaining by quality of product, reliability of the
of online social networking forums to higher levels of visibility, of reinforcing forum, the existence and strength of
up levels of exposure, generate leads competitive advantage by know what policies and procedures/ checks in
and encourage referrals. The nature is being said, when and by whom place, and dexterity with which decision
of the Internet is such that lends in the market. But, as with any makers approach the situation.

78 BusinessBrief August/September 2009


SEMINARS & CONFERENCES

SEMINAR & CONFERENCE CONTACT DETAILS DESCRIPTION

Professional Administrative and Secretaries CBM Training Providing the tools to cope with the
Conference Magaliesberg increasing demands being placed on
16 – 18 August 2009 Tel: 011 454 5505 administrators.
Email: training@cbm-training.co.za

The OHS Act and the Responsibilities SA Labour Guide The application and purpose of the
of Management Cape Town Occupational Health & Safety Act and
18 August 2009 Tel: 012 661 3208 how management needs to respond.
Email: info@labourguide.co.za

Economic Scenarios for South Africa and what Endeavor A session for entrepreneurs interested in
these mean for SA Entrepreneurs Johannesburg what might lie in the future for them and
19 August 2009 Tel: 011 463 0992 how they might respond.
Email: info@endeavor.co.za

The Company of the Future and the People Global Leaders The genetic make-up of the company of
Within Johannesburg the future presented by Dave Ulrich and
19 – 20 August 2009 Tel: 011 575 6142 Lynda Gratton.
Email: marcel@globalleadersevents.com

Advanced Credit Management EES-SIYAKHA Examines the role of the credit manager
25 – 26 August 2009 Johannesburg and the credit department.
Tel: 011 726 3040
Email: ryan@ees.co.za

10th Annual BHF Southern African Conference Board of Healthcare Funders The conference focuses on the National
2009 Sun City Health Insurance (NHI) debate and what
30 August – 2 September 2009 Tel: 011 537 0236 this could mean for healthcare in South
Email: zolam@bhfglobal.com Africa.

Implementing Skills Development The Portfolio Consulting Group Update on skills development and an
3 September 2009 Johannesburg exploration of the new occupational
Tel: 0861 754557 learning system.
Email: bookings@tpcg.co.za

Project Management Imsimbi Projects are being used in organisations


9 – 11 September 2009 Johannesburg to achieve new levels of performance,
Tel: 011 678 2443 new products and services at less cost
Email: tammy@imsimbi.co.za than routine operational activities.

Business & Franchise Opportunities Expo Thebe Exhibitions & Projects Offering companies and franchisors
11 – 13 September 2009 Midrand, Johannesburg the opportunity to meet potential new
Tel: 011 549 8300 investors.
Email: renee@tepg.co.za

Pan African Health Expo & Conference 2009 CVL Consulting The National Health Insurance scheme
17 – 19 September 2009 Midrand, Johannesburg and its likely impact on healthcare.
Tel: 021 713 3360
Email: bettermc@fairconsultants.com

Scenario Planning Square Circle Consulting Getting ahead in business through


21 September 2009 Cape Town predicting possible future scenarios.
Tel: 082 494 8771
Email: info@squarecircle.co.za

20th ECSAFA Anniversary Conference 2009 ECSAFA/SAICA/SAIPA Conference of the Eastern, Central
21 – 23 September 2009 Johannesburg and Southern African Federation of
Tel: 011 621 6620 Accountants.
Email: thembir@saica.co.za

Public Relations for Office Professionals Siyanqoba The role of office professionals is moving
8 – 9 October 2009 Cape Town/Johannesburg increasingly close to public relations
Tel: 012 998 3668 officer.
Email: olga@siyanqoba.co.za

PAYE School BDO Spencer Steward Practical advice on how to reduce risk,
29 – 30 October 2009 Midrand, Johannesburg ensure compliance and add value to
Fax: 011 488 1701 your business.
Email: ktshikomba@bdo.co.za

BusinessBrief August/September 2009 79


CONTRIBUTORS ASSETS & INVESTMENTS

Cannon Asset Managers - 011 463 3140


Imara - 011 550 6200
JSE - 011 520 7000

A
s a service to our readers, P3 Investment Group - 011 979 1216

we have listed this issue’s PPS Investments - 021 680 3600

contributors, together PricewaterhouseCoopers SA - 011 797 4000

with their contact numbers. Sanlam Home Solutions - 0860 122 345

Should you require more


information or consultation on
BANKING & INSURANCE
these topics, please contact the
company or firm concerned.
Absa Digital Channels - 011 350 4421
Alexander Forbes Insurance - 012 452 7221

MANAGEMENT Centriq - 011 268 6490


IntegriSure Group - 0860 055 055

Cliffe Dekker Hofmeyr - 011 290 7000 Liberty Life - 011 408 8716

Maestro Performance - 011 886 6455 PPS Insurance - 011 644 4200

PricewaterhouseCoopers SA - 011 797 4000 Pro Sano Medical Scheme - 011 883 5644

UNISA Centre for Business Management - 012 429 4586


Wits Business School - 0861 000 927
Zurich - 011 370 9111
MARKETING & SELLING

Acceleration - 021 487 1380


LEGAL Interbrand Sampson Group - 011 783 9595
Newspaper Advertising Bureau - 011 889 0600
Cliffe Dekker Hofmeyr - 011 290 7000 Red Ribbon Communications - 011 764 2582
Mazars Moores Rowland - 021 405 4000
Werksmans Incorp. Jan S de Villiers - 011 535 8000

HUMAN CAPITAL

TAX
Eversheds - 011 286 6900
Edexcel – 021 532 6000
BDO Spencer Steward - 011 488 1700 Gordon Institute of Business Science - 011 771 4000
Deloitte - 011 806 5000 Hi-Performance Learning (HPL) - 011 259 4200
Garlicke & Bousfield - 031 570 5300 Shepstone & Wylie - 031 302 0111
Softline Pastel Payroll – 011 304 1000 UCT Graduate School of Business - 021 406 1922

FINANCE & EQUITY INFORMATION TECHNOLOGY

Accsys - 011 719 8000


Bowman Gilfillan – 011 669 9000
Bluekey Software Solutions - 021 671 4606
Deneys Reitz - 011 685 8500
Kathea - 011 844 9900
Ernst & Young - 011 772 3000
Kyocera Mita SA - 011 540 2600
Institute of Directors in Southern Africa – 011 430 9900
Snowball Effect - 021 880 2228
SAICA - 011 621 6600

80 BusinessBrief August/September 2009