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Quarter 4, 2017 Issue

2017 REAL ESTATE REVIEW PG. 05 KENYA’S 2017 MACRO-ECONOMIC ENVIRONMENT PG. 17 MICROMANAGEMENT HURTS YOUR BUSINES PG. 20


CYTONN TOwERS


Table of Contents

04

05

Editor’s Comments

2017 Real Estate review

17 19

Role of IT Governance In The Investments Industry

CYLP Graduants Feature

09

What makes a successful brand?

23

11

Automation is a Journey -The Case of Cytonn Investments

26

12

Make your struggle become your story

27

Book review

13

Kenya’s 2017 Macro-economic Environment

28

Changing Fortunes for the Internal Audit Practice

Micromanagement hurts your busines

30

Fun Page and Crossword

16

Pictorials Q4’ 2017 Review

Interview section


Editor’s Note End year is here with us and as is tradition, it is a time for reflection, taking stock and hopefully amid all the holiday cheer, making plans for the next year. As a country we were faced with the downside of this year being an election year. We have had the economy on a slow because of the uncertainty that surrounded the election. Looking back, this also exposed our ugly underbelly. Unfortunately, this is the same year we brought out the negative connotation of the word tribalism. This is because of all the negative exchanges that were made on social media. On the upper side, this year has shown that, as a nation, we have come of age. We proved our political maturity and showed the world that Kenya is truly a remarkable country as far as settling political differences is concerned. We stood up strong and showed the world that we are the investment hub of the region and that no politicking can distract us from achieving the best in returns for all. As any serious investor will tell you, the best time to invest is when others are distracted. A good number of people were distracted this year, so as a company we did what we know best, we invested heavily. On a personal level, I urge us to take stock of our lives as well. We should candidly look at the gains and the misses we have had this year and make the necessary adjustments if we are to make it to the next level in the new year. In this issue, we look back at the year that has been, both the gains and the losses. Enjoy! From the editors’ desk. Teresiah King’ara

SUB-EDITORS

DESIGN AND LAYOUT

Elizabeth N. Nkukuu Patricia Wanjama Daniel Mainye Anne Wanjiru

Owingah U. Joseph


2017 Real Estate review John N. Keya Research Assistant

2017 has been a turbulent year for the Kenyan economy in general and the real estate sector has not been spared. This is as a result of the tough operating environment characterized by: I) Low credit supply - Following the enactment of the Banking (Amendment) Act 2015, there has been a decline in credit supply in the market with private sector credit growth declining to around 1.6% in August 2017 from a high of 16.0% in 2016 as banks adopted tougher underwriting standards. The decline in credit supply resulted in a decline in the mortgage uptake for the first time in five years, the number of mortgages in the country declining by 1.5% from 24,485 in 2015 to 24,085 in 2016. Between 2011 and 2016, the number of mortgages had grown with a 5 year Compound Annual Growth Rate (CAGR) of 11.1%. II) Reduced investment activity in the real estate sector – This is mainly as a result of the wait and see attitude adopted by investors due to the extended electioneering period. Data from the Kenya National Bureau of Statistics indicates that the value of buildings approved in the country declined by 18.4% between January and July 2017 compared to the same period last year, with buildings worth Kshs 149.5bn being approved in 2017 compared to buildings worth Kshs 183.2 bn that were approved in 2016. The real estate sector witnessed a decline in performance with commercial office rental yields declining by 0.3% points from an average of 9.4% in 2016 to 9.1% as at Q’3 2017; Retail yields in Nairobi declined by 0.4% points from an average of 10.0% in 2016 to an average of 9.6% points as at Q’3 2017. In the residential sector, the price appreciation rates declined by 3.6% points from 7.4% in 2016 to 3.8% in 2017. In this review, we cover the year 2017 in real estate in brief, starting with the trends across the various real estate themes, the key highlights that made news in the real

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estate sector in 2017, the performance of the various themes year to date and conclude with an outlook for 2018.

KEY TRENDS In the Residential Theme; 1. Increased adoption by developers of innovative payment plans for buyers; such as tenant purchase schemes as well as instalment buying. This is in a bid to increase affordability of houses. In a tenant purchase scheme, a buyer is given access to a property upon completion for occupation upon payment of a deposit. The rest of the payment is done as the client lives in the house. In instalment buying, a buyer starts paying for the property on or before beginning of construction and makes payments regularly until the development is complete, upon which they make a final deposit and acquire the ownership of the property. 2. Gated community concept – In a bid to seek community living and cut costs through shared resources such as security and facilities management, buyers are increasingly buying houses in gated communities and thus more and more are being developed to match the demand. Upcoming gated communities include: The

Alma and Taraji Heights in Ruaka, The Ridge in Ridgeways and Amara Ridge in Karen all by Cytonn Real Estate as well as Loneview Apartments and Classix @ Fourways by Suraya.

In the Retail Theme; 1. Online shopping – Online shopping continues to gain traction in Kenya boosted by increased mobile connectivity as well as faster delivery, with online stores like Jumia reporting increased sales volume by 58.0% over the last five years and physical stores like Naivas investing Kshs 180 million in e-commerce in a bid to reach tech savvy customers. The move towards online shopping is seen as a strategy to gain competitive advantage and generate more revenues. 2. Green malls – More retail centres are going green as a way of being environmentally friendly and also to offer a safer shopping environment which is expected to increase occupancy rates. For instance, in the year under review, the Hub Karen Mall announced plans to install a 450 Kilowatt solar electric power generating plant as part of its going-green initiatives. 3. Entry of international retailers - Foreign retailers such as Carrefour, The Game and

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Botswana’s Choppies have been able to penetrate the market with considerable success supported by a widening middle class, efficient distribution channels and financial woes for some local retail chain stores.

In the Hospitality Theme: 1. Serviced apartments is a concept that is currently trending and is expected to shape the hospitality industry in Kenya. The supply of serviced apartments grew at a 5 year CAGR of 23.6% between 2011 and 2016 and is expected to continue with the same trajectory in the future. Current occupancies stand at over 90% in Nairobi. 2. MICE – The Meetings, Incentives, Conferences and Exhibitions segment (MICE) continues to gain dominance in the Kenyan hospitality theme, for instance, according to the economic survey by the Kenya National Bureau of Statistics (KNBS) 2017, between 2015 and 2016 foreign and local delegates increased by 36.1%, from 196,253 in 2015 to 268,401 this year. International delegates increased by 41.9% indicating increased conference tourism. Notable international conferences held in the country this year include: The American Society of Travel Agents (ASTA) annual meeting in February and the AIDF Aid and Development Africa Summit 2017.

Pinnacle Towers expected to be the tallest building in Africa upon completion, the 40 floor Montave and the 35 floor Cytonn Towers launched in October this year.

Land 1. Value addition through agribusiness - In order to attract buyers, developers are putting up agribusiness concept dubbed “Kilimo Biashara” as a value add to the plots on sale and offering returns on seasonal basis to clients. Some of the services provided are agricultural activities, agri-insurance and complete farm management services.

KEY HIGHLIGHTS Theme Residential

1.The launch of key residential developments in the country including: the 10-acre Ridge and the 100 acre RiverRun by Cytonn Real Estate, Tatu Waters in Tatu City by Rendeavour Group, the 337 acres 3,000-unit project by Superior Homes that comes in addition to the 450-unit Green Park Estate at Stoney Athi and the Osten Terrace gardens by Urithi Housing Cooperative in Joska.

Commercial

1. Cytonn launched a 35 floor triplex complex in Kilimani – Cytonn Towers that will offer a cumulative 174,139 square feet in retail, commercial office, duplexes, serviced apartments, penthouse suites and a hotel with a ballroom of 600 seating. 2. The award of the Hass Tower tender to Chinese State Construction Engineering Corporation (CSCEC). In the first quarter of 2017, the development is expected to be the tallest building in Africa.

Commercial Office 1. Serviced offices are emerging trends in the commercial office space theme. The serviced office concept has grown in popularity among users due to the convenience and flexibility it offers as a business is able to operate on the go and get just the amount of space it requires. Among developers and providers, it is attractive due to the high returns it offers with average rental yields of 13.4% at 66.1% occupancy against conventional office space yields of 9.2% at 88.1% and the low supply accounting for only 0.35% of the total office floor space in Nairobi. 2. High rise developments– Developers in Nairobi are currently engaging in a battle for the skies with a number of high rise developments complete or in the pipeline including the 33 floor UAP Old Mutual Towers which opened this year. Going forward developments in the pipeline include the 70 floor

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Highlights

3. Garden City announced plans to start construction of a 600,000 square feet business park adjacent to Garden City Mall. Retail and Industrial 1. The Opening of Two Rivers Mall in Q’1 2017, the is the largest shopping Mall in East and Central Africa offering over 700,000 square feet of lettable retail and office spaces. 2. Signing of an MOU for the development of a USD 1.9 bn project by the Kenyan government and a Chinese firm, Gongdong New South Group Ltd. The Chinese firm intends to construct a 700-acre special industrial zone in Eldoret. 3. French based retailer, Carrefour taking space that was previously owned by Nakumatt at the Thika Road Mall. Hospitality

1. Sarova Group of hotels opened a 3-star hotel in Nakuru – Sarova Woodlands. The establishment that is located in Milimani will be the 2nd hotel in Nakuru by the group in addition to the Sarova Lion Hill Game Lodge.

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PERFORMANCE The performance of different real estate themes slowed down, attributable to the extended electioneering period. The returns are however still attractive indicating the huge potential that the real estate sector has. The following is a summary of performance according to the various real estate themes:

Real Estate Sector Performance Summary in Nairobi 2016-2017 Node

Occupancy 2016

Occupancy 2017

Rental Yields 2016

Rental Yields Q’3 2017

Change in Yields YTD

Retail

89%

81%

10.0%

9.8%

0.2%

Commercial Office

88%

85%

9.4%

9.1%

0.3%

Residential

83%

91%

5.2%

5.6%

0.4%

The real estate sector still offers attractive returns with average rental yields of 9.6% in retail, 9.1% in commercial office and 5.6% in residential. This is despite a softening in 2017 that saw yields in the commercial office and retail themes decline by 0.3% and 0.4% respectively year to date, as a result of low activity due to the wait and see attitude adopted by investors during the electioneering. period

CONCLUSION In conclusion, our outlook for real estate remains positive supported by strong fundamentals such as the high returns generated from the sector of on average 25% over the last five years, positive demographic trends with population growing by 2.6% annually and an urbanisation rate of 4.4% p.a, an expanding middle class and infrastructural development opening up new areas for development. Nonetheless, the market is expected to pick up following the conclusion of the elections and the expectation of political normalcy to resume in 2018.

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What makes a successful brand? Victor O. Ooko Digital Marketing Assistant Jerry McLaughlin (founded Branders.com) defines branding as the perception someone holds in their mind about you, a product, a service, an organization, a cause or an idea. In contemporary business sense, branding can make or break the performance of your sales team, and ultimately your business if not done correctly. In pursuit of a unique identity and value proposition, correct branding aims to change perceptions from skepticism to genuine loyalty to your products, amidst stiff competition. So, what makes a successful brand?

1. Unique brand identity. Businesses are obligated to stand out from the crowd. Whereas this may be a tall order, standing out entails having that unique value proposition that sets your business apart. Safaricom, for example, may bank on reliability due to its expansive coverage. Cytonn banks on its ability to deliver above average returns on investments to their clients. The unique brand identity need not be revolutionary. Figure out what you can do better than everyone else within your niche and in the words of Jack Welch, ‘Execute like hell�. Do not forget to use this proposition in communicating your brand identity.

2. Inspire passion and commitment. Selling is ultimately dependent on what your target audience feels and thinks about your product. The enthusiasm with which the brand leadership, and ultimately ambassadors, have when talking about and even interacting with their product determines how well it sells. The passion one has towards a brand ensures loyalty, even where a business faces hardships. It is therefore important that your brand

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inspires passion and commitment from your clients - this is delivered by your sales agents and state in general.

3. Understand the target audience. Businesses cannot appeal to everyone; therefore, understanding your target market enables you to align your marketing strategy. The focus here is on who your product targets and how you can get through to them. Identifying your target audience will inform the channels you can use when contacting them based on select profiling demographics. Targeting a specific niche also makes it easier to determine what appeals to them the most, which in return helps your business maximize on sales and realize higher profits.

4. Consistency in quality. We all know about one-hit wonders; in the music scene for example. Few amongst us, however, will think much of a brand lacking in consistency. When you set high quality of products and services, it is important that you stick to that throughout. Whereas it is more difficult for consumers to assume brand loyalty, it is even easier for them to notice the slightest drop in quality of products and services offered. Such a move unfortunately provides ready fodder for your competitors.

5. Competitive teams. Competition is guaranteed in any industry that one decides to venture into. Brands like Coca-Cola who had almost annihilated their competition never relent. They continue to hire the best and motivate their staff to desire more than what they already have. This culture of existing to constantly improve underlines the need for competitive teams in driving the agenda of the brand. Competitive teams will devise new sales and marketing strategies that ensure the product secures a wider reach within the target market. They also increase consumption and product loyalty through constant innovation to improve the quality of the products and services provided.

6. Effective leadership. Behind every successful brand is a leader who understands the core objectives of the company. Effective leadership entails inspiring, motivating and guiding team members to dig deep within and deliver their best for the good of the clients and the brand. Enterprises with effective leadership always stand out, exuding high confidence to investors and delivering on clients’ promises.

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Automation is a Journey-The Case of Cytonn Investments George Kinuthia Business Systems Analyst 2017 has been a big year for automation. It is the year we have seen driverless cars hit the streets in the US, hotels being run entirely by robots in Japan, and the ‘internet of trashcans’ in Asian cities- trashcans with sensors that notify garbage collectors when full, preventing overflowing in the process. Organizations have also taken note of the benefits that automation of processes offers such as a reduction in operating costs, performance enhancement, and boosted employee productivity among others. Cytonn Investments has not been left behind. In conjunction with Cytonn Technologies, the firm has been at the forefront of spearheading automation of its processes all dedicated to the ultimate vision of becoming Africa’s leading investment manager by consistently exceeding client expectations. The firm has undergone several automation makeovers in the year that has seen it improve its document management with a cloud-based storage and sharing platform, secure its project sites with CCTV and biometric logins, and launch a Research and Deal Origination System that helps the research team to better manage their research processes. Automation in Cytonn did not begin in 2017 but has always been a core fundamental aspect of the firm driven by the need to make processes more efficient. In its early days, in a bid to better handle our clients and offer them the best and most efficient investment services, the Cytonn Relationship and Investment Management System was developed. This system also enabled clients to get timely and consistent reports. Naturally, with increased superior service came more clients. This, in turn, led to the firm hiring more staff to cater to these clients. An increase of Staff meant that in order to properly manage their records, performance, and matters such as leave days and pay, a HR system (Cytonn Human Resource Information System) had to be developed to

cater for this. Increase in staff numbers led to more branches opening, which then necessitated automation to come in to link these offices together, ensuring seamless communication. An increase in staff also led to more clients, joining as investors through our Financial Advisors and in a bid to track and follow up with them a Client Relationship Management System was developed. Cytonn’s automation journey reveals a key lesson useful to any firm considering automation; there must be a need for automation which when addressed makes a process more efficient. Throughout our automation journey, we have come to learn and appreciate the following takeouts: Automation cannot replace deep domain knowledge and expertise. Rather, it can only enhance it by making it easier to access and work with.

Automation will only work when there is already a strong process in place to automate. Therefore, management teams have to ensure that all processes are well defined with clear and measurable outputs, as weak processes translate into weak solutions. Understanding one key process at a time is recommended, as it enables you to get a deeper understanding of the process, the key actors and their roles. This then enables the team to offer viable, beneficial and sustainable solutions.

preferred and agreed medium. Informed stakeholders are more collaborative and this helps the automation move smoothly. The success of any automation is ultimately determined by user adoption. It is therefore important to ensure that users are adequately trained on how to use the system. Regular check-ups to get their feedback is also recommended.

Automation ensures there are no errors in the process and this frees time for experts to focus on core issues when embarking on automation.

In conclusion Cytonn Technologies has implemented the above steps in all of its automation projects with resounding success. Automation never stops. We are always on the lookout to make our processes more efficient and can confidently ascertain that thanks to the automation efforts ongoing. In view of this, Cytonn Investments is well positioned to take the industry by storm in 2018.

Automation only works if the technology team is deeply embedded within the process. Cytonn Technologies is well aware of this fact hence there exists a Business Systems Analyst team that is dedicated to understanding the business processes first in order to develop viable, beneficial and sustainable solutions. A standalone technology team cannot deliver meaningful automation, as they are not conversant with the processes.

There is need to involve all stakeholders closely before any automation efforts commence, and they must be engaged throughout the automation period. This can

be done through regular updates using a Sharp cents

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Make your struggle become your story Victor Ondiwo Human Resource Assistant Each one of us tends to have well laid out career goals that they work towards. If you don’t have any, then you are definitely missing something in your life- direction. As a child, most people ‘knew’ who they wanted to be professionally when they grow up. They had career goals. How often do you relook your career goals and how much effort do you put into realizing them? Every quarter of the year it is anticipated that you have made progress and it is important to sit back and give yourself a quarterly review. Have you performed well? Good for you. Not performed well? not to worry, there is always room to improve. How many times have you picked something along your career path and dropped it almost immediately simply because it didn’t interest you or you didn’t like it? Well, this is one big mistake we make unknowingly that hinders our career growth. We all want to do what we like, that which makes us happy. Most of us like the easy things in life. How many times do we get such chances? What you like and what you want to become is always hard to come by while that which you don’t like is always available. Most of us believe that they have to follow what they did in school or something closer to it. Who said that if you studied Law then you have to practise it? Chances are, you’d even make a better auditor than most who studied it. Let’s then concentrate on this thing that you don’t like and ask yourself a very important question, “What if I use this thing that I don’t like as a stepping stone to reach what I like?” Now look back at all the chances that you let go simply because it was something you did not like. While doing what you don’t like comes with all manner of unpleasantries, most opportunities come as a result of doing your best at what you currently have. Reading the biographies and autobiographies of most successful CEOs like, James Mworia, CEO of Centum Investments, who started off as an intern and was in charge of filing reveals this. He did not despise this task but instead, he

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took this chance to learn about the company’s operations in preparation for becoming its top manager and Mary Barra, who started as an intern at General Motors and has risen through the ranks to become the firm’s CEO. Dan Akerson, GM’s retiring CEO, said Barra has brought order to chaos at GM,

and driven change in how GM conceived new vehicles and brought them to market efficiently and at lower cost. You’ll realize that they took a chance at what you’d least expect them to try, and it is these chances that propelled them to where they are currently.

This comes as simple advice, especially to the millennials - pick a struggle and do your best at it. You will be opening up more opportunities to be seen in the process and gain the chance to be finally entrusted with what you like. Give your struggle a timeline after which you should sit back and review your progress. Watch closely what exemplary performers with the same struggles do and emulate this. Your struggle doesn’t have to move the same line or pattern as theirs but when there is progress, put even more effort. When the time is ripe, you will reap your harvest and in the end, you will realize that you didn’t have to like it, but needed to be good at it. Most successful people did not have it easy when starting. They experienced hurdles, unexpected twists and turns, and this made them successful in life. As we pick our life struggles, let us remember, easy come easy go.

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Kenya’s 2017 Macro-economic Environment Maurice Oduor Investment Manager - Public Markets The year 2017 was characterised with a stable economic environment despite few shocks and political uncertainty. A number of Macro economic factors remained largely stable, signalling relatively stable economic growth. However, the effect of the prolonged electioneering period following the historical nullification of the August 8th presidential election results by the Supreme Court, which led to fresh presidential elections on 26th October, cannot be wished away and will affect on the performance of the economy even in 2018. Below we look at the performance of the Key economic indicators in 2017;

1. GDP Growth GDP growth for 2017 is likely to come in at between 4.7% - 5.2%, having grown by 5.0% in Q2’2017 compared to 5.8% in 2016. The GDP growth so far has been on account of subdued performance in the agricultural and manufacturing sectors, which collectively accounted for 33.6% of the GDP as at Q2’2017. The Financial Services sector, which contributes 6.1% of the GDP, also recorded a slowdown in growth mainly on the back of the effect of the Amendment of the Banking Act in 2016, which stipulated the loan and deposit pricing framework. This has had an adverse effect on the credit to private sector growth which will in turn affect the economic growth. Despite these, the continued expenditure on infrastructure development, the recovery of the tourism sector, and continued growth of the construction sector are expected to continue supporting the growth of the economy.

2. Inflation The first half of the year 2017 was characterised with high inflationary environment mainly driven by the food basket component of the Consumer Price Index (CPI). Inflation rates hit a high of 11.7% in May before receding to 4.7% in the month of November. For the remaining part of the year, we expect inflation rates to remain subdued because of the improved food supply as a result of rainfall that was experienced in major parts of the country. Despite this, we expect the overall annual inflation rate for the year to come in above the government upper bound target of 7.5%. Below is a graph highlighting inflation movement during the year.

4. Currency

3. Interest Rates Interest rates remained relatively stable during the year with the Central Bank of Kenya (CBK) Monetary Policy Committee (MPC) maintaining the policy lending rate at 10.0% throughout the year. The yields on

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the 91 day Treasury bill remained relatively stable having started the year at 8.6% and currently at 8.0%, a 60 basis point change during the year. Yields on government securities in the secondary market were on a downward trend with longer dated papers recording the most drop in yields. The performance of the bond market stands at 13.4% year to date according to NSE FTSE bond index. The graph below shows the change in yields since the beginning of the year;

Despite the political headwinds, the Kenya Shilling remained relatively stable during the year and has recorded a depreciation of only 0.7% on a year to date basis. This was on the back of sufficient dollar reserves, which currently stands at USD 7.1 bn having hit a high of 8.3 bn in the month of April. Remittances also remained stable during the year having recorded a growth of 3.5% for the first eight months of the year from a similar period last year, and together with the recovery of tourism, supported the performance of the shilling. The chart below shows the performance of Kenya

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shilling against the dollar in 2017;

by Safaricom Ltd given its 43.4% weight in the market. Despite this impressive performance, the market was not immune to shocks in the economy and this was manifested by the performance of the market when the Supreme Court nullified the presidential election results, when the market indices dropped by more than 5.0% in one hour. Though currently trading almost at par to historical levels of 13.4x P/E, there are still opportunities in the stock market for the long term investors. Below is a chart showing the performance of the stock market segmented into different major events during the year;

5. Corporate Earnings The year 2017 was a tough year for corporate earnings in Kenya, mainly as a result of the tough operating environment that was brought about by the uncertainty around the general elections. Banks were also struggling with the effect of the interest rate cap law, that adversely affected the interest income. Most Banks were forced to change strategy in terms of the mode of operations in order to manage cost and protect their profitability. As at H1’2017, banks reported a drop in profitability by 13.8% while insurance recorded 5.6% drop in profitability. The overall earnings growth for all the listed entities in 2017 is expected to come in at 6.0% mainly supported by Safaricom Ltd which currently accounts for 43.4% of the NSE market capitalisation. Despite this, we expect slow earnings growth in 2018 in the financial services sector as banks fully adopt IFRS 9, which is coming into effect in January 2018. The chart below summarises the historical earnings growth for the listed banks and insurance firms over the last 3 years;

As depicted by the economic indicators above, Kenya has remained resilient to economic shocks that prevailed during the year despite contraction in economic growth, and remains attractive for investments supported by the macroeconomic stability and a positive outlook in the long-term. Given Kenya’s diversified economy, we expect a rebound in economic growth in the year 2018 and stability in the medium term.

6. Stock Market Performance The stock market has rallied in 2017, with NASI gaining 29.1% on a year to date basis, mainly supported by the performance of the banking sector stocks and Safaricom limited which have recorded a return of 31.1% and 39.7%, respectively and overall accounting for 71.2% of the market. Key item to note in the performance of the stock market in 2017 is the concentration risk that is now posed

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Micromanagement hurts your busines James K. Kamau Funds Operations Assistant Micromanagement is the type of management whereby the manager closely monitors or supervises the work of his/her subordinates. While having an element of control as a leader is essential to any given business, applying micro-management as a permanent strategy would definitely yield undesirable results in the long run. There are several negativities that are brought about by this form of management which nullifies its relevance for any forward looking business entity. First of all, micro-management transfers accountability to the manager from the employee / subordinate. This simply means that any unforeseeable occurrences in form of risks are fully borne by the manager at the expense of the employee. Micro management therefore results in laxity and complacency on the part of the employee which negatively affects the general health of the business. It also creates an ideal environment for incompetency to thrive among employees, which is in itself counteractive to the business. Secondly, micro-management bottlenecks the whole process of tasks execution given that the manager has to periodically review all the employees’ work. It therefore lowers the production rate of the business, underutilizes individual capabilities of employees and lowers general productivity. Micro-management therefore ends up creating numerous time lapses, due to employees awaiting for approval from their supervisor or manager. This wasted time, if well utilized, could greatly increase the aggregate profitability of the business. The other way in which micromanagement negatively affects one’s business is through lowering of employee morale. There is no emergent need that warrants frequent interference of an employee‘s duties by their supervisor. This is because besides monetary motivation, employees really crave for job satisfaction, and this entails being autonomous and accountable for their work while getting management support.

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Therefore, any management intervention of this sort erodes employees’ confidence and it demoralizes them. As a result, they feel intimidated to challenge the status quo, which in this case is the prevailing management system. It is for this same reason that some of the company’s most talented employees in such an environment would opt out of the business in search of a working environment that is not only challenging, but also enables them to unleash their potential and growth.

being wasted as remaining employees scramble to correct the mess left behind. In conclusion, coming up with a comprehensive healthy work environment is quite an esoteric task. However, I believe it is quite doable given that others have done it before, yielding impressive outcomes. Mutual trust between supervisor and the supervisee must be founded to prevent and deal with the cancer of micro-management.

Micro-management also limits thought diversification among employees, since it insists on things being done in the supervisor/manager’s own way. Unfortunately, one person’s experience, ability, creativity and style are limited to specific fields. This means that in case there are any changes in the market dynamics, the same-old styles are more likely to prevail leading to losses which could have otherwise been prevented had the management adopted a more inclusive perspective in handling the changes in the market landscape. If in any event if the micro-manager exits his or her position, the department or the company is often left in shambles thanks to his or her failure to create a long term, sustainable and predictable process which can be run independently in his/her absence. The result is time and money

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Role of IT Governance In The Investments Industry Edward Ochola Innovation Assistant Information Technology (IT) governance is a sub-category of corporate governance whose main focus is the effective application of information technology in business. Information technology can be very useful in achieving high returns for an investment firm as well as efficiently managing the risks that the business might face. According to the Harvard Business Review, it is imperative for the board to establish how much their company relies on cost-effective, uninterrupted, secure operating technology systems. Also, the board must determine how much it relies on IT for its competitive edge through systems that provide new value-added services and products to its customers. Finally, it should consider the implications IT has on overall operations. Governance institutes such as the Information Technology Governance Institute (ITGI) in partnership with other bodies, provide academic and strategic support and guidance to help businesses and institutions to better grasp the principles required to be able to employ the effective application of IT governance within their respective jurisdictions. The ideologies and practices defined in this article are meant to be applied within the investment industry by firms of any size and featuring any kind of specialization as is consistent with the industry standards. The purpose of IT governance in the investment field is fivefold: Firstly, to align IT investments and priorities with the goals of the company; secondly, to prioritize and manage requests thereby boosting returns on investments; thirdly, to anticipate and curb major risks and threats that the company may face; fourthly, to ensure responsible utilization of resources and assets; and finally, to improve IT organizational performance. To achieve these five objectives, the organization or business needs to come up with strategies. Information Technology Gover-

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nance Institute has outlined five I.T governance strategies that have often been used to achieve IT governance in the Investment Industry. These strategies include: - Strategic alignment, Value delivery, Risk management, Resource management and Performance management. Strategic alignment ensures that IT initiatives and standards support the goals of the investment firm. This could involve proactive investment in IT by a management team that understands the needs of the business- this would help in coming up with innovative IT strategies. Common industry practice ensures that IT is incorporated in the strategic planning process, corporate objectives are aligned with IT infrastructure and an IT steering committee is involved in critical decision making. Choosing investments astutely and managing them throughout their life cycle falls under the scope of Value Delivery. The aim is to ensure that maximum value is obtained from investment in IT. Effective value delivery ensures that IT initiatives are completed on-time, on-budget and according to set expectations. This involves identifying project drivers and goals, as well as service delivery drivers and goals. Value delivery also includes overseeing project management and delivery goals and facilitating communication of information technology value. Common practices in this area entail IT project tracking and reporting among other actions. When IT is offered as a service it must guarantee utility- the ability of the service to remove constraints or increase the performance of the customer, and warranty- the ability of the service to operate reliably. Risk Management ensures two critical actions: First, the protection of IT assets and secondly, disaster recovery and continuity of operations including security and information integrity. Therefore,

institutional risk appetite must be set with respect to IT, and policies determined on how to deal with information security and IT risk among other things. Common practices include: established change control procedures; defined IT risk appetite and mitigation strategies integrated into the enterprise risk management framework of the investment firm; in addition to regulatory compliance processes and existence of a data governance framework. Resource Management, as the name states, involves managing of resources while examining the optimization of IT resource use and allocation- how the institution manages and delivers critical IT resources. This involves overseeing resource allocation and portfolio management and managing hardware and software assets.

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Tracking of service delivery, budgeting controls and IT asset management are just some of the tasks undertaken under the purview of resource management. Disposal of IT equipment and accessories has also become a key industry concern, prompting environmentalists to advocate for better ways of disposal for e-waste. Performance Management encompasses the tracking procedures put in place by IT staff. Constant monitoring and analysis of feedback ensures corrections or additions are made to guarantee optimal operation of the systems. Guaranteeing customer fulfilment, keeping up expected service levels, gauging commercial value on service delivery and nurturing IT process improvement initiatives are just some of the activities undertaken in performance management. In conclusion, stakeholders also have specific roles integrated within these strategies. This ensures that the full potential of the role of IT governance in investments is realized. Stakeholders include the Board of Directors, Senior Management, External/Internal Audit, Third Party Service providers and Regulators. It is key to note that to achieve success in the implementation of IT governance in the investments industry, the highest form of synergy amongst all stakeholders is indispensable.

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Cytonn Young Leaders Program(CYLP) CYLP Graduants Feature

About CYLP Cytonn Young Leaders Programme (CYLP) is an intensive, competitive 12-week training programme that exposes fresh university graduates to the office environment and culture. It exposes participants to challenging and fulfilling career options, with an emphasis on leadership and problem solving. The programme commenced in January 2015, with an inaugural class of 6 investment interns. So far, CYLP has trained over 485 fresh graduates, with Cytonn absorbing 31% of the said graduates,while others have joined reputable organizations. We have collaborated with various universities and we always take the opportunity to mentor university students on career growth and leadership.

Joseph Kimemia

Digital Marketing Analyst

What job position do you hold and what does it entail on a daily basis? I am curently a Digital Marketing Analyst. My job entails initiating, implementing and managing effective digital marketing strategies in the online space. These strategies are aimed at enhancing the brand’s image & awareness, communicating to our clients and stakeholders, acquiring new clients and providing an avenue for the public to engage with Cytonn. Working with a team, we use different channels such as Search Engine Optimization, Search Engine Marketing, Social Media Marketing, Affiliate Marketing, Mobile and Email marketing to execute the set strategies. What did CYLP present for you? CYLP was more of a boot camp to me. During the three months of rigorous & intense training, the programme offered me a chance to launch a career in Digital Marketing and Brand Development in general. I was also able to create networks and work with people from diverse professional & cultural backgrounds.

Highlight of CYLP? Supervising a successful internship class under the programme right after completing my internship has been one of my major highlights as I got the opportunity to enhance my leadership skills. - Joseph Kimemia, Digital Marketing Analyst

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Highlight of CYLP? My greatest take from CYLP is the exposure to the work environment. Not only do you learn the processes of the firm but you actively participate in them. At the end of the internship, you are well equipped to handle the roles of your assigned department. The program developed leadership skills in me, made me learn the importance of team work, instilled in me a strong work ethic and a resilience to consistently deliver timely and excellent results in my daily tasks.

Caroline Musau

Business Development Assistant

- Joshua Mwanjama, Fund Operations Analyst

Joshua Mwanjama

Fund Operations Analyst

What job position do you hold and what does it entail on a daily basis? I am currently a Business Development Assistant. My day to day job entails execution of departmental business development and administrative roles. This mainly ranges from policy creation and implementation, tracking and monitoring individual financial advisor’s performance, recruiting Financial Advisors and coming up with retention strategies for the firm’s Financial Advisors. What job position do you hold and what does it entail on a daily basis? I am currently a Fund Operations Analyst. My job in summary entails portfolio administration. It involves maintaining a delicate balance between clients’ investment returns while keeping track of the funds generating the Company’s assets under management. I execute a series of transactions sent through from the firm’s individual and institutional clients ranging from new & additional investments to terminations of previous ones. Then, I act on the advisement of the Investment team to source for lucrative investment horizons that would optimize the return of the funds from clients. These ranges from Real Estate, the Stock market, financial institutions, Commercial Papers and Private Equity. I actively interact with all the mentioned stakeholders through our client services and distribution teams and I’m constantly at hand to answer all queries pertaining our partners’ contribution towards the fund. What did CYLP present for you? The Cytonn Young Leadership Program provided a door for me to enter into the corporate world. Straight from campus with nothing but book-knowledge and ideologies, the program gave me an environment for learning on the job, to actively participate in decision making and appreciate first-hand, the glitz and glamour of working in a fast-paced investment world. To me, CYLP was the starter pack I needed to launch my career and set the dominos in motion to achieving my professional ambitions.

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What did CYLP present for you? CYLP opened a whole new horizon for me. It presented endless learning opportunities; from market research to financial modelling to investment analysis, all of which are invaluable. In addition to enhancing professional competencies, CLYP presented a good platform for developing interpersonal skills, which are just as important in the work place.

Highlight of CYLP? The highlight of CYLP was developing the ability to laugh at my own mistakes and more importantly, learning from them. I also met amazing people, who played a big role in shaping the person I have become. - Caroline Musau, Business Development Assistant

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The biggest risk, is not taking any risk. In a world that's changing really quickly, the only strategy that is guaranteed to fail is not taking risks. - Mark Zuckerberg


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Pictorials Q4’ 2017 Review

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1. An Alliance High School student posing for a photo during the Career Day Mentorship by Cytonn Investments at Alliance High School. 2. Holliness K. Lumbi, a Legal Assistant making her remarks during the Cooperative brainstorming meeting held at Bonds Garden Restaurant. 3. Daniel Mainye, Business Manager - Cytonn Technologies and Patrick Mumu, Assistant Investments Analyst, posing for a photo during the Q2 Company and Market Update Client Cocktail held at Villa Rosa Kempinski.

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4. Edwin Dande, Managing Partner and CEO Cytonn Investments Management Plc engages a student during the Alliance Boys Career Day Mentorship. 5. A group photo of Cytonn Investments staff during the Cooperative brainstorming meeting held at Bonds Garden Restaurant. 6. Reuben M. Mabishi, Investment Analyst addressing participants during the Cooperative brainstorming meeting held at Bonds Garden Restaurant. 7. Dr. Vincent Ogutu, Deputy Vice-Chancellor (Planning and Development) of Strathmore University, makes his speech during the Cooperative brainstorming meeting held at Bonds Garden Restaurant.

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8. The Chairman, Cytonn Investments Management Plc Board Prof. Daniel Mugendi engages with a client during the Q3 Company and Market Update Client Cocktail held at Villa Rosa Kempinski.


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9. Mzee Wesley Ondieki, Financial Advisor, engages a client during the Q3 Company and Market Update Client Cocktail held at Villa Rosa Kempinski. 10. Wesley O. Ogada, Unit Manager, engages clients during the Q3 Company and Market Update Client Cocktail held at Villa Rosa Kempinski. 11. Jennifer W. Nduati, Chair, The Alma Board addresses client queries during the Q3 Company and Market Update Client Cocktail held at Villa Rosa Kempinski.

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12. Leah Wangechi, Business Administration Associate and Maureen M. Salim, Cytonn a Unit Manager pose for a photo during the Company and Market Update Client Cocktail at Villa Rosa Kempinski. 13. Clients pose for a photo during the Q3 Company and Market Update Client Cocktail at Villa Rosa Kempinski. 14. Thomas F. Onyango, Unit Manager at Cytonn Investments Management Plc engages in a conversation with a client during the Q3 Company and Market Update Client Cocktail held Villa Rosa Kempinski. 15. Patricia Wanjama, Partner, Head of Legal and Company Secretary makes her speech during the Q3 Company and Market Update Client Cocktail held at Villa Rosa Kempinski.

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16. The Chairman, Cytonn Investments Management Plc Board, Prof. Daniel Mugendi, makes his speech during the Q3 Company and Market Update Client Cocktail held at Vila Rosa Kempinski.

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17. Our Managing Partner and CEO, Edwin Dande, poses for a group photo with Cytonn eHub Season 2 participants. 18. Edwin Dande, Managing Partner and CEO at Cytonn Investments Management Plc during the Mindspeak Interview with Aly-Khan Satchu of Rich Management. 19. Golf Participants pose for a photo during the Sigona Golf Club event.

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20. Shiv Arora, Financial Controller, tees off during the Muthaiga golf day held at Muthaiga Golf Club. 21. Madhav Bhalla, Cytonn Investments Management Plc Board Member awarding a participant during the Sigona Golf Club event. 22. Antti-Jussi Ahveninen, MSc, Cytonn Investments Management Plc Board Member makes his speech during the Q2 Company and Market Update Client Cocktail held at Villa Rosa Kempinski. 23. Clients following in attentively during the Q2 Company and Market Update Client Cocktail held at Villa Rosa Kempinski.

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24. Polycarp Igathe, Nairobi County Deputy Governor, makes his speech during the launch of the Cytonn Towers Kilimani project held at Villa Rosa Kempinski. proceeding of the launch

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Interview with Moses Njuguna 1 Tell us about yourself My name is Moses Njuguna, a graduate of B. Com Finance Option, currently pursuing MSC Finance-Investment option at The University of Nairobi alongside my CPA designation. I am passionate about service to others, a virtue I have learnt to uphold from my high school’s motto ‘’Free to Serve’’.

2. What is your role at Cytonn Investments? I am a Financial Advisor and my work entails acting as an intermediary between potential investors and the viable returns offered at Cytonn Investments. I also take clients through their investments journey by helping them to decide on where they wish to diversify their portfolio by linking them with solutions offered by Cytonn Investments in the scope of alternative markets.

3. What does it take to be a Financial Advisor? As a financial advisor you need to have expansive market knowledge when it comes to investments and you should be quick to identify the kind of investments a client is looking for even before they realize it. This will help you walk with them along their investments journey and help them grow their portfolios. This role also requires a spirit of persistence and resilience to cushion you through the various economic cycles.

4. How and why did you go into Financial Advisory? I started off my career in financial consultancy and training immediately after graduating from the university and then decided to scale it up by joining the Cytonn team as a Financial Advisor. I find it interesting as the field offers a steep learning curve. Additionally, the take home is good as you get to dictate your pay cheque.

5.What is the importance of a Financial Advisor in a company dealing with Real Estates and Investments? A Financial advisor’s role involves pushing the company’s products and various real estate projects to the market. It is about creating lasting relationships with clients and following up and growing the company’s clientele.

6.Describe for us a typical day at work. My day at work starts as early as 6:40 am. Each day is different from the other. Each is filled with activities such as prospecting, meeting both potential and existing clients, training incoming financial advisors and constantly updating myself with company products and market trends. Additionally, I have taken a voluntary leadership role as the staff welfare representative where I channel staff concerns to management for proper action.

7. If you were not a Financial Advisor, you would be…A gospel DJ 8. Anything you wish you would change in your life? There is nothing I regret as all the choices I have made have contributed to who I am today, both wrong choices and right choices.

9. Who inspires you? I am inspired by a number of people from various walks of life. Key among them is the late Dr.Myles Munroe who strongly advocated for a purpose driven life and dying empty having given your all. The other person is Chris Gardner whose resilient life is depicted in the famous movie “The Pursuit of Happiness”.

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Good to Great; Why some companies make the leap… and others don’t Jim C. Collins describes how companies grow from good to great. He focuses his research on 15 companies to define indicators of companies moving from Good to Great. Collins found out that disciplined people, actions and thoughts are significant in companies’ ability to move from Good to Great. He points out the top level 5 leaders who have a blend of professional will and personal humility. They are hardworking, self-effacing, quiet, reserved and diligent. They always believe that the right people are the most important asset. They get the right people on the right seats, the wrong people off the bus, then figure out where to drive the bus. They channel away from themselves their personal needs and settle on the larger goal of building the company. Collins emphasizes that we should not always shift blame to the leadership of the company but seek to gain deeper understanding of what makes great companies keep holding on to their values. Culture plays an important role in transforming a company from Good to Great. Collins maintains that all companies have discipline; some have discipline while others have a culture of discipline. A culture of discipline is critical because it creates an environment where people can work within a defined system. Further, having disciplined people will not

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attract hierarchy. No need of bureaucracy when you have disciplined thoughts and no need of excessive controls when you have disciplined actions. Good to great companies normally don’t consider technology as a primary tool of transformation even though they are pioneers in application of technology. Technology is used as an accelerator to transformation. Collins brings out the concept of a fox who knows many things ,while a hedgehog knows only one big thing. The fox pursues so many ends at the same time, they are diffused in thoughts. They never convert their so many ideas into one concept. The hedgehog on the other hand focuses on the major complex idea, converts it into a simple basic principle. Collins maintains that we must never lose hope. We must face the situation as it is and have that unwavering faith with the difficulties we face. Good to Great companies demonstrate commitment to face the truth and to prevail. Moving from Good to Great is an accumulation of interlocking steps until a breakthrough point is reached. No matter how hard the transformation journey may be, the end result matters. The journey to greatness is not a single action or program or solitary break or killer innovation. It is about moving in one direction, turn after turn, and building a momentum until a point of achieving breakthrough. This results in accumulation of positive outcomes that serve in bringing in investments and earning staff loyalty.

explains how to turn good companies to ones that have great sustainable results. To be able to make a shift from good to great and last, there is need to have purpose and core values beyond making profits. Companies need to exist for a higher purpose than focusing on producing profits. Built to last ideas normally bring a company beyond sustaining its iconic values.The purpose is to take a company with great results and turn it into an enduring company.

Author: Jim C. Collins Reviewer: Naum Kosgei (Human Resource Assistant)

Collins maintains that moving from good to great is not the end. Much more needs to be done to last as a great company. The book

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Changing Fortunes for the Internal Audit Practice Tilly Ouma Internal Audit “The only time you look back is to see how far you've come” The year has witnessed significant business disruptions with hitherto risks assumed to be low, metamorphosing into critical risks with catastrophic effects. On the flipside this has also brought about potential opportunities; though these have been few and far between. PwC’s 13th annual State of the Internal Audit (IA) Profession Study had a surprise revelation this year with 44% of the Stakeholders surveyed concurring that Internal Audit adds significant value. However, this is a drop from 54% in 2016, and the lowest level reported in the five years the metric has been tracked. One of the emerging industry concerns is the high level and multi-disciplinary skill sets required for an effective IA function. Some of the significant happenings of 2017 that have necessitated IA input include:

1. Cyber Security: The elephant in the room The global Wannacry attack, which was reported to have infected more than two million computers in over 150 countries, brought cyber resilience and information security into sharp focus in 2017. Assuming that boards were already thinking about prioritizing cyber assurance, Wannacry and later Petya, a global attack that followed shortly after, escalated this item to the top of audit committee agendas for 2017. Moreover, judging from the trends, this will continue to be a high priority area even through 2018. In light of this, Central Bank of Kenya issued a Cyber Security guidance note to banks and financial services in August 2017 from which IA functions in other sectors could borrow a leaf. Installing basic controls, adopting a framework that suits the organization and position-

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ing internal audit to assess the effectiveness of these measures have been essential to reaching a modest level of cyber risk maturity. IA functions should ensure awareness and preparedness in order to ensure that the rising cases of cyber risks are mitigated. In addition to controls, technical defenses and security audits, company-wide training and awareness programs are essential as they constantly lead to an embedded cyber-culture.

2. Risk Management : A top concern for audit committees The effectiveness of the organization’s risk management program has emerged as one of the top most concerns of the audit committees. With the business environment navigating from local to global, the ensuing risk exposures can catastrophically impact on an organization. Current key risk exposures include: market, regulatory, financial, political and terrorism. According to a global survey run by KPMG in 2017, more than 40 percent of the audit committee members think their risk management program and processes “require substantial work,” and a similar percentage say that it is increasingly difficult to oversee major risks. Third-Party risk has also become a board

level agenda item as a result of growing global regulatory attention around the use and control of third parties for key business activities. Third-party ‘ecosystems’, also known as the ‘extended enterprise’, are becoming sources of strategic advantage and the scale with which its taking place in financial services has increased significantly. Inconsistency in approach and weak controls around third-party risk management can result in significant financial, reputational or regulatory damage. In a bid to manage third party risks, many organizations have continued to perform due diligence, ensure regulatory requirements and assess compliance with existing third-party policies and procedures. Moving forward, the IA function will be required to increase its assurance coverage on third party risk.

3. Regulatory Compliance Locally and globally, companies regardless of industry, are being bombarded with new regulatory requirements that have significantly increased compliance challenges leading to misses and near-misses. The financial crisis that have time and again negatively impacted on financial institutions globally have largely triggered this. Costs and complexity in the nature of compliance as well as the frequency of regulatory changes has made the process more complicated. The Internal Auditors have been called time and again to provide assurance on Sharp cents


compliance to ensure the organization is not negatively impacted by the ensuing penalties. This has also significantly affected the role of Chief Audit Executive’s (CAE’s)in organizations. In aligning to the changing business environment, the Institute of Internal Auditors’ (IIA) has continued to review the International Professional Practice Framework (IPPF). The current standards were released on 1st October 2016 and subsequently took effect on 1st January 2017. The key changes were: • Inclusion of two new standards on the changing role of CAE, • Alignment of the standards to core principles and • Updates to the existing standards IA teams should perform their audits in line with the 2017 IPPF and aligning them to the current business environment.

4. The Culture Conundrum Corporate culture has by now established itself as a boardroom priority. In 2017, many organizations, particularly in the financial service lost the public’s trust and have been forced to work hard to rebuild their reputations. The issues and incidents that jeopardized their reputations have largely been attributed to direct or indirect result of poor corporate culture. Building a strong culture and tone at the top is crucial for minimizing reputational and compliance risk. This is one area that the IA will need to focus on in the coming years.

5. Fraud and Corruption Fraud has been a major concern for the IA functions this year. This is because, fraud affects organizations of all sizes regardless of the industry, generating a significant direct impact on organizations’ bottom lines and damaging corporate culture. The 2016 Global Fraud Study by Association of Certified Fraud Examiners(ACFE) estimated that a typical organization loses 5% of its revenue in a given year as a result of fraud. Developing an anti-fraud program and establishing an ethical culture within the organization is the best deterrent. Internal auditors do not need to be fraud experts but, as stated by Standard (1210.A2), they are required to have sufficient knowledge so as to assess the fraud risks and give mitigations to management. Initiatives like setting up the whistle blowers program will be an essential tool to flag out fraud issues and handling them before they get out of hand. It's been an intriguing year and we can only anticipate that next year will be more demanding. The IA function in 2018 will have to be more adaptive to the changing business needs and resilient, to position itself as a strategic advisor and consultative partner.

According to the Chartered Institute of Internal Auditors, there are at least four potential audit options for assessing corporate culture. Every organization can select an option that works for them, whether dedicating a work program specifically to the topic or taking a broad view by incorporating cultural measurements into existing audits. What matters is finding an approach that works for your IA function. Remember, when managed well, corporate culture can become a strength that sets any organization apart from its competitors.

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Christmass jokes

1. Dear Santa, just leave your card under the tree. 2. I think as you grow older your Xmas list gets shorter, because the things you want can’t be bought. 3. The worst gift is a fruitcake. There is only one fruitcake in the entire world, and people keep sending it to each other. 4. Who is Santa Claus married to? Mary Christmas! 5. What did Adam say on the day before Christmas? It's Christmas, Eve! 6. Don't you hate that awkward moment when Santa Claus has the same wrapping paper as your parents!

“This is interesting, 70% of the respondents to our survey said they don’t respond to surveys.” Business Quotes

"Being powerful is like being a lady. If you have to tell people you are, you aren't." Margaret Thatcher "Only one man in a thousand is a leader of men, the other 999 follow women." Groucho Marx "I don't want any yes-men around me. I want everyone to tell the truth, even if it costs them their jobs." Samuel Goldwyn

"Sell the problem you solve not the product you offer.” Dave Schools

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