Outsourcing vs Labour Brokering

Especially in South Africa labour brokering is often confused with outsourcing and the biggest culprits in promoting this myth is the labour brokering industry itself. Now I would like to state very clearly that I am not against labour brokering and I am a firm believer that there is an important place for the industry in South Africa. That said I think it is prudent to ensure that the two very different industries are not confused.

Firstly, labour brokering is the provision of staff on an outsourced basis, whilst outsourcing is the fulfilling of a function within which a staffing solution may be provided. The methodology and profit generation of these industries is vastly different. Allow me to explain in slightly more detail.

A labour broker earns its revenue from employing and deploying as many staff members as possible. The profits are generated from invoicing their clients more than what they pay the employee. The biggest reason a company is willing to pay a premium for this service is the “passing-on” of risks associated with employing staff and in some cases the increased costs, if any, can be justified by the decreased administration requirement.

A true outsourcing company, on the other hand, generates its revenue from addressing the need of the company within a function at as low a cost as possible and charging the client a premium for that service. Usually at a lower rate than employing staff to fulfil that function. The focus of the outsourcing company is therefore not on their clients staffing requirement but rather on the function that needs to be fulfilled.

So in other words the outsourcing company generates its margin from increasing its efficiency and by leveraging the intellectual capital within the company. For example using better software and more expensive staff than what its clients could afford and sharing these resources with more than one client. On the other hand the labour broker generates its margin from its administrative abilities and from decreasing legal risk.

So which one should your company choose? Simple, it depends on your need. If you require a warm body and do not want litigation risk and the administrative head ache of employment, labour brokering is a viable option for you. If you on the other hand require a function within your company to be managed more effectively and at lower cost outsourcing should then be looked at.

In conclusion, both industries have an important place in the South African economy and address the needs of companies to reduce risk and potentially costs. That said they should not be confused or pit against each other.

Ignorance or Ignoring

King III, the good for proper corporate governance, was published on the 1st of September 2009 and the codes apply to all entities. This is very different to the old King I and King II reports that was only applicable to public or listed entities. The question I however want to ask today is whether the property syndication industry are working along these ethical guidelines.
I firmly believe that they are probably not. This, to me, is evident from the constitution and guidelines of the Public Property Syndication Association (PPSA) that does not mention compliance to any of these codes. Two of the syndication companies I have had dealings with namely Blue Everest Investments and City Capital (Capital Investments), both of which are now defunct never conformed to King I or King II and it did directly apply to them as public companies. Further the Financial Services Board (FSB) also does not mention it at all as one of the 1.8 licence requirements.

Now the next question we have to ask is why? Is it ignorance or just ignoring it. Is it because the cost of compliance is excessive? Well before you answer that question for yourself, let’s look at why compliance to these codes are, at least in my opinion, important.
The King reports are all about conducting an ethical and transparent business. It is about disclosing all the facts to all stakeholders, giving access to required information, it is about accountability of company directors, it is about thinking of others. The codes also places strong emphasis on independent directorship and active shareholder participation. In conclusion it is about playing open transparent cards and honest commentary to everyone involved and respected writers like Bruce Cameron and Deon Basson has been claiming that is the last thing that they are doing.

Now that you have some information to make up your own mind on why the property syndication industry may not be applying these codes let’s focus on being active in demanding the application of the codes. Financial Advisors, Regulators and the public in general should demand the application of King III in all syndicated companies and fractional ownership schemes so that we insure that it is not avoided by ignorance. This will then make it extremely clear which promoters is ignoring ethical, transparent and honest business practices.

If you want to find out more about King III, the New Companies Act or the Consumer Protection Act visit http://www.sinkorswim.co.za/ or contact john@sinkorswim.co.za

Are Financial Advisors ready for the new challenges?

The New Companies Act brings opportunity the Consumer Protection Act brings some additional strain whilst the proposed Protection of Private Information Bill will place additional strain on marketing methods and additional responsibility on database management within the financial services practice. This is a clear indication that 2010 and 2011 is going to be a very interesting time for financial advisors and business owners alike.

That said, I had to ask the question are Financial Advisors ready for these paramount changes and the opportunity and challenges that it holds. The extremely interesting part is in a quick survey, conducted with 40 companies that have attended the Sink or Swim Seminars, only about 15% of them had a active relationship with a financial advisors and most of these were merely related to pension funds and medical aids on not to any other business critical issues.

Even more over I was surprised that in a phone call to about 20 brokers only one offered business risk insurances, and I am not referring to asset insurance. Now the question I have is why don’t business owners have relationships with financial advisors and why don’t financial advisors focus on providing these key risk insurance instruments to their client base.

In recent years we have seen how the pendulum have swung in favour of the consumer and I have to wonder if Financial Advisors will now also be found wanting if their clients are not properly insured for these business critical risks. Never mind the massive opportunity that lies in this market segment.

2010 and beyond

Nostradumus, in his lost book of images, allegedly predicted the end of the world and humankind in 2012. Although I am no psychic nor do I care much for predictions it does not take much psychic powers to predict the end of the business world as we know it in 2010 for South African business people.

The promulgation of two critical acts namely the Consumer Protection Act and the New Companies Act does change everything we know about corporate and business law in South Africa but even more over the more aggressive prosecution of the Employment Equity Act and the criminalisation of the Competitions Act is also set to make your life as company director more strenuous and just plain scary.

It is rumoured that the commission has been instructed to fine a minimum of 270 companies during 2010 for non compliance to the Employment Equity act and to prosecute aggressively whilst critics believe that the criminalisation of the competitions act will have extremely negative effects on business. Another portion of the New Companies Act is Section 6,Business Rescue and Compromise with creditors, and I am off the opinion that it will have a massive impact, at least in the short term, on the credit environment in South Africa. Where does this leave company directors?

Simply it places a huge burden on company directors and officers and does open them to a tsunami of potential litigation, regulatory fines and stakeholder scrutiny. Therefore I am of the opinion that Financial Advisors are going to play a more vital role in the daily business life of directors. In a recent “survey” done by Sink or Swim only 15% of the respondents have a trusted and active relationship with a financial advisor. Similarly in a couple of phone calls to brokers it became apparent that they do not offer nor understand business and intangible insurance products that they require.

Now the important questions that we need to answer is, can I as a financial advisor be held liable if my clients business is not properly insured for these risks? Is it the prudent move to avoid the issue? Am I ready for the changes? Financial Advisors already have a tough time with the need to comply to FICA, POCA, FAIS and soon the consumer protection act. How will this impact your business and the inherent risk that you take in your daily activity.

To find out more about the New Companies Act and the Consumer Protection Act visit http://www.sinkorswim.co.za/

King III Anounced

“Governance in the past was about board effectiveness, currently it is risk management whilst the future of governance is King III” Lindie Engelbrecht of IODSA (Institute of Directors South Africa).

On the 8th of September Webber Wentzel in association with IODSA gave us a brief overview on the newly launched King III and the methodology and mindset behind creating it. The two most powerful messages, in my humble mind, was the fact that King III has taken an “apply or explain” approach and the fact that we in South Africa will now enter into an “All inclusive stakeholder environment”. The key question is was does this mean.

Apply or explain effectively destroys the “tick the box” concept as was the norm in compliance and governance. This change in mindset from “do or else” is definitely an aim at giving governance a more positive approach. The part that I personally enjoyed the most was the fact that it now forces company officers and directors to actually think about every aspect of King III in their compliance. Thus not comply or explain, but the apply your mind and explain what and how you did it.

It is international standards that all stakeholders in companies are regarded as important in the business. However the shareholders rights come first !!! The New Companies Act changes that all together. All stakeholders are now equal and their rights are protected in line with Constitution and the Bill of Rights.

Overall King III is not only a new international benchmark in corporate governance but also a progressive look at responsible directorship and elevating the position of directors into a more and more professional world.

Fore more information about King III and The New Companies Act please visit www.sinkorswim.co.za