There have been significant corporate governance and regulatory developments, locally and internationally, since King III was issued in 2009 and this was the main reason behind the decision of the King Committee on Corporate Governance to introduce a revised Code. King IV is principle-based and follows an outcome-based rather than rule-based approach. It speaks to the expressed view that the application of the Code should contribute to the performance and health (sustainability) of the company. King IV aims to establish a balance between conformance and performance. The Code seeks to reinforce corporate governance as a holistic set of arrangements that concerns itself with ethical leadership, attitude, mindset and behaviour. There is a clear focus on transparency and targeted disclosures in all areas, specifically in the introduction of far more extensive executive remuneration disclosure requirements than ever seen before.
King IV brings a more refined focus in terms of the obligation of the organisation to be accountable and transparent as well as the accountability of the company to broader stakeholders within the society. This philosophy is centred on three paradigm shifts in corporate governance from “financial capitalism to inclusive capitalism, from short termism to long term sustainability and from silo reporting to integrated reporting.”
The Board must take ultimate responsibility for the company as a juristic person and needs to be accountable. King IV emphasises the role of the company in society and its obligation to behave as a responsible citizen. The Board must assume ultimate responsibility for this obligation and has to embed this ethical character and culture in all the strategy, plans, processes and performance of the company. It is critical that the Board understands their obligations with regard to ethical character and culture and the Code specifically states that this obligation cannot be delegated. The intrinsic value of the broader stakeholder, as opposed to only the shareholder, in the creation of value remains prominent in King IV. The philosophy of integrated thinking is embedded throughout the Code and the practice recommended by the Code is to present the company’s material information in an integrated manner by issuing a report annually. King IV will include sector supplements that provide specific guidance to SME’s, NGO’s Public Sector Organisations and entities, municipalities and pension funds, in addition to the traditional audience of listed, public and large private companies:
King IV is more prescriptive with regards to the content of the terms of reference/charters of board and audit committees. These must set out the composition and rotation of membership, the overall role and associated responsibilities of the committee, the delegated authorities (including the extent of the committee’s decision-making powers), tenure, resources and access to information and meeting procedures. The group governance framework now has to include the delineation of the rights and role of the holding company, the extent of delegation by a subsidiary of certain functions to a holding company’s committee, the extent of adoption of governance and operational policies across the group, engagement by the holding company with subsidiary boards before directors are elected to the subsidiary boards, and structures and procedures with regard to information-sharing amongst group entities. This will undoubtedly require companies, at the appropriate stage in the future, to review their charters and framework documents to ensure compliance with King IV’s recommendations.
King IV applies a principle-and-outcome based approach, and moves away from a tick-box approach. The 75 King III principles have been consolidated into 16 principles, each linked to very distinct outcomes. The focus in King IV is clearly on ensuring that the application of the principles achieves specifically identified outcomes. Each principle is supported by a limited number of recommended practices, and requires specific disclosures. In line with international developments, remuneration has received far greater prominence in King IV. King IV recommends the establishment of a social & ethics committee (SEC) as a prescribed Board committee as best practice for all organisations.
• This article was contributed by Sigrid Tjijorokisa, Group Company Secretary and Head: CSI of Standard Bank.