The King Committee on Corporate Governance in South Africa and the Institute of Directors in Southern Africa (IoDSA ) have today, 1 November, released the King IV report on corporate governance (King IV).
Hailed as the first outcomes-based governance code in the world and modelled on the International Integrated Reporting Framework, King IV reduces the 75 principles contained in King II to 16 and has an additional 17th principle applicable to institutional investors.
“The overarching objective of King IV is to make corporate governance more accessible and relevant to a wider range of organisations, and to be the catalyst for a shift from a compliance-based mindset to one that sees corporate governance as a lever for value creation,” Mervyn King, chairperson of the King Committee on Corporate Governance in South Africa, said.
The Johannesburg Stock Exchange will now consult market participants with a view to incorporate King IV within listing rules. King IV will come into effect for organisations whose financial years start on or after 1 April 2017, which means those with a year-end of 31 March 2018 will be the first to report under the new Code.
Richard Howitt, CEO of the IIRC, said: “South Africa has a unique history where inclusion and integration have been fundamental to building the pillars of a modern corporate governance system. Today, South Africa sets a new standard of corporate governance for developed and developing economies alike. I am delighted that the Code so clearly embeds Integrated Reporting, which will help businesses and investors to meet their stewardship responsibilities, incorporate sustainable development as a core part of their strategies and contribute towards a more inclusive economy.”
King IV is moving organisations decisively away from simple compliance to achieving certain outcomes, a development which Lance Tomlinson, Africa assurance leader at EY welcomed. “Even mature adopters of King III will need to think hard about how they will adapt their current corporate governance regimes in the light of King IV. A sound methodology will be essential.”
In a nutshell, with the advent of King IV companies, and all entities that embrace the benefits of corporate governance, need to consider what they intend to achieve by adopting corporate governance. This will include the context of the applicable corporate governance framework that exists in legislation and regulation for certain entities/sectors, and then develop and apply their corporate governance practices in a manner that will deliver the expected governance outcomes, Tomlinson explained.
“Apply and explain” also means that the organisation’s governing body must demonstrate how it has applied consideration to achieving those outcomes rather than simply implementing practices without that purpose in mind. All of this is good, but at a practical level it poses challenges,” he continued. “Organisations will need to find ways of adapting or further developing their current practices to deliver the outcomes envisaged by King IV, which we believe could become something of a minefield if there isn’t a plan in place.”