South Africa publishes draft King Report IV on Corporate Governance
The King Report on Corporate Governance is a ground-breaking code of corporate governance in South Africa. Building on three previous versions issued in 1994, 2002 and 2009, the fourth revision (King IV) was published on 15 March 2016 for public comment.
The first King Report was published in response to the increasing concern over corporate failures and the perceived need for a formal code of corporate governance. It was intended as a code of good practice that emphasised the responsibilities of company directors with regard to corporate governance. The second and third King Reports expanded and built on their predecessors.
The code is non-legislative and is based on principles and practices. However, many of the principles are now embodied as law under the 2008 Companies Act of South Africa. The philosophy of the code consists of the three key elements of leadership, sustainability and good corporate citizenship. It views good governance as essentially being effective and ethical leadership.
Scope of King IV
There have been significant corporate governance and regulatory developments, locally and internationally, since King III was issued in 2009. The new version builds on the King III principles, but is more principle-based and follows an outcome-based rather than rule-based approach. This is in line with current international sentiment which promotes greater accountability and transparency.
Although South African listed companies have generally been applying King III, other entities have experienced challenges in interpreting and adapting King III to their particular circumstances. The King IV Code has been structured as a framework that can be applied more easily across both listed and unlisted companies, profit and non-profits as well as private and public entities. It includes additional guidance to various categories of organisations and sectors such as small and medium entities, non-profit organisations, public sector organisation and entities, municipalities and pension funds.
All principles are phrased as inspirations and ideals that organisations should strive towards to achieve good governance outcomes.
It is envisaged that King IV will be completed in the second half of 2016. Providing for a two-year-period for drafting and another year’s grace period to allow organisations to implement, King IV will probably become effective from mid 2017.
The new version of the King Report offers a more practical and principle-based approach to good corporate governance. If implemented effectively it should provide more transparency as it is simpler and more user- friendly to apply the principles.
For more information, contact:
Nexia SAB&T, South Africa
T: +27 (0)21 596 5400