The global financial crisis has caused companies to
critically examine their risk management practices.
The world’s finance and insurance houses – with
their sophisticated systems, mathematical models
and layers of approval – considered themselves
impregnable to disasters. However, if institutions such
as Lehman Brothers can go bankrupt, with others
such as AIG and Royal Bank of Scotland needing
huge cash injections from government to survive,
it is apparent that even the most advanced risk
management systems are subject to human frailty.
It is no longer sufficient to ensure employers have the funding
for a project and that we obtain financial guarantees from our
subcontractors. What happens if our insurance company collapses
during the project? Or the financial institution that provides our
bonds closes its doors? In both instances, we would be in breach of
contract and considerably out of pocket. More than ever we need
to examine all facets of our business and ensure we have
appropriate risk mitigation measures in place.
The year ahead will require us to conduct such a critical
examination. The King III Code of Conduct comes into effect in
March and we anticipate the new Companies Act will be legislated
sometime later in the year.
Basil Read endorses the principles set out in King III. Each chapter
has been allocated a responsible executive to champion the
principles contained in the code. King III workshops will be held in
the first half of 2010 to brief management on the code and how
Basil Read intends achieving compliance.
Although signed into law on 8 April 2009, the Companies Act
No 71 of 2008 has still to come into force, anticipated to be around
1 July 2010. We have taken cognisance of the provisions in the act
which impact on the way we will function as a business in future and
are amending our policies and practices to ensure compliance.
Two major acquisitions were made in 2009; the Gerolemou/Mvela
group and TWP Holdings Limited. TWP is a significant departure from Basil Read’s traditional business model since its niche
expertise is in the field of design – civil, structural, architectural
and process. While this provides the group with strong design build
capability, it also brings both new forms of risk and opportunity
into our business and operational risk management plans.
In line with the group’s growth strategy, Basil Read has established
locally registered entities in Nigeria, Uganda and in Abu Dhabi in
the United Arab Emirates. Comprehensive risk reviews have been
undertaken on contracting in these areas. We are mindful of the
problems experienced by construction companies operating
in these territories in the past and have created a template of
acceptable commercial terms and conditions against which each
opportunity is critically evaluated.
Basil Read continues to engage Grant Thornton to carry out the
internal audit function. Areas for audit are identified from the
company risk register, which is reviewed three times a year and
re-evaluated from first principles annually. Audits were carried out in
2009 on tendering and estimating, sales and debtors, subcontractor
management and the effectiveness of the company’s disaster
recovery plan. All shortcomings have been addressed and
recommendations implemented where necessary. The extraordinary
growth in the number of employees has highlighted the need to
familiarise new recruits with our policies and procedures.
Basil Read uses Marsh (Pty) Limited as both its placing and
servicing broker. Marsh is the world’s leading insurance broker
and risk advisor and gives Basil Read access to global professional
services. Insurances are renewed annually on 1 January each year.
We continually review our insurance portfolio against the group’s
growth, changing risk profile and global best practice. We are
satisfied that our level of cover is commensurate with corporate
good governance and the expectations of our shareholders.
Tip-offs Anonymous provides a service for our stakeholders to
report possible incidents of fraud or corruption without fear of
retribution. In 2009, 18 calls were received, six of which required
further investigation. Only one of these required disciplinary action.
We have reviewed and re-issued our business conduct policy and
guidelines to reinforce acceptable and unacceptable behaviour.
The risk and audit committee meets four times a year and continues
to provide leadership and guidance in risk management and
governance to the operations of the group.
Marsh conducted a risk-bearing capacity analysis on Basil Read in
August 2009. This analysis is defined as the ability of a company
to absorb additional risk-based volatility in its operational results
without detrimental effect to key plans and strategies in operational
status and financial resources in any given year over approximately
a three-year static time horizon. Marsh was comfortable with the
level achieved, commenting: “Although this level breaches some of
the critical parameter results, the breaches are negligible and viewed
in the context of the balance sheet, cash flow statement and other ancillary information such as anticipated growth, this level can be
seen as sufficiently prudent.”
Basil Read has renewed its membership of the Engineering and
Construction Risk Institute (ECRI), an initiative started by the
World Economic Forum. ECRI provides a platform to share risk
management best practices across the engineering and construction
industry. Through ECRI, we are able to share in the lessons learnt by
global giants such as Fluor Daniel, Bechtel and Technip.
In the 2008 annual report we provided detail on our current
risk management practices. While we continually fine-tune these
practices, we are satisfied they provide an effective risk management
system and adequately address risk management needs within
Basil Read.
Goals for 2010
- Current risk identification, evaluation, monitoring and reporting
is done via simple spreadsheets. We have investigated a number
of enterprise risk management software programs and will select
and roll out such a system in the first half of 2010.
- Given the size of the group and the nature of our activities,
we will appoint a dedicated risk manager.
- We will continue our risk-training seminars – aligning our
procedures with ISO 31000.
- King III workshops will take place in the first half of 2010.
Norman Milne
Commercial director |
