The King Report III on Corporate Governance for South Africa™ (“King III”) was replaced in its entirety by the King Report IV on Corporate Governance for South Africa™ (“King IV”) on 1 November 2016 and became effective for all financial years commencing from 1 April 2017 with immediate effect. King IV remains voluntary except for listed companies and those required to comply by law.
Rationale behind upliftment of King III
Even though smaller enterprises are not required to comply with the provisions of King IV, market trends reflect that smaller enterprises are adopting best governance practice and principles to ensure openness, transparency and efficient stakeholder management.
The rationale behind the upliftment of King III was as a result of paradigm shifts in the corporate world to an inclusive capitalism approach, ensuring long term sustainable capital markets and wider transparency. King IV further addresses the understanding of legitimate and reasonable stakeholder expectations and the management thereof.
The key major difference between King III and King IV is the change from the “apply or explain” culture to a “apply and explain” culture. King IV places more accountability on the governing board and does away with the tick box approach. This will impact companies required to comply with King IV marginally, specifically in relation to integrated reporting requirements.
King IV has been simplified to 17 principles including 208 recommended practices. It further introduces additional sector supplements to address potential governance variables specific to the following sectors:
Small and medium enterprises; and State owned companies.
Fundamental concepts of King IV
Significant increase in reporting to provide open and wider transparency.
The accessibility thereof to entities across various sectors.
Easier interpretation and implementation thereof in organisations.
Focus on an outcomes based approach in achieving efficient governance.
The balancing of the composition of governing bodies and independence.
Delegation to management.
Delegation to committees.
Corporate governance services to the governing body and the importance of competent professionals to provide guidance thereon.
Performance evaluations of the governing body.
The Social and Ethics Committee.
Understanding the complexity of risk and strengthening of the oversight thereof.
Compliance and the continual monitoring of the regulatory environment.
Enhanced accountability on remuneration policies with specific focus on such being fair and responsible as well as addressing gaps between executives and those on the lower end of the pay scale.
Provision to provide a separate non-binding advisory vote on the remuneration policy by shareholders.
Introduction of a combined assurance model and exercising judgement on the effective control environment.
Potential forthcoming mandatory rotation of audit firms as well as views on audit quality;
Implementation of a responsible and transparent tax policy.
Large emphasis on shareholder activism.
Adoption of dispute-resolutions and associated processes.
In the coming weeks, we will be analysing and discussing King IV and the 17 principles in order to equip organisations in practically implementing effective good governance.