Corporate Governance

This assignment will answer three questions. First: is the “apply or explain approach” followed in South Africa merely the result of historic circumstances or is such inherently “better” than “comply or else” approach. Second: “apply or explain” with regard to directors and their decisions and, Third: based on the above two questions which approach is most convincing and why.
Question 1
With regard to the South African situation, South Africa is known as a developing post-colonised country. Corporate governance is “a particularly salient issue in emerging markets attempting to compete for investors and capital with established markets where investors are less concerned about the quality of corporate governance practices” (Andreasson, 2002: 2).This statement rules out the possibility of a “comply or else” approach to corporate governance, and as a result “comply or explain” approach is the most suitable approach for South Africa. Due to South Africa being considered as a developing country our infrastructure for the law of “comply or else” approach would be difficult to uphold and enforce due to the severity of the legislation.
Furthermore the investors are less concerned about the quality of corporate governance practices and if we were to have a practice such as the “comply or else” approach then it would not be successful to implement in South Africa. The King report also states further that “the danger is that the board and management may become focused on compliance at the expense of enterprise” (2009:5). Due to there being so many factors that are detrimental to the success of an organisation in a developing country, profits are already challenging without having to shift the focus of management. South Africa was colonised by the United Kingdom and inherently this would have an effect on the way we do business, be it in the past, in the present or in the future. The UK-based approach, that is, the “lighter” “comply or explain” approach has thus been