KING IV: SIMPLE BUT FEARLESS
Aimed at promoting the highest standards of corporate governance in South Africa, the King Report on Corporate Governance (King I) was published by the King Committee on Corporate Governance in 1994.
The report was the first of its kind in the country and, 22 years later, King IV was released this week.
As innovative as King I was, changing local and economic environments necessitated that King I be updated. In 2002, King II was launched. Moving away from the concept of a single bottom line, King II proposed that organisations move towards a triple bottom line foundation, focusing on the economic, environmental and social impact that a company had.
Seven years later, King III became essential because of the highly anticipated new Companies Act, the evolution of trends in international governance, and a big focus on the reporting of large corporates and their effect.
Fast-forward to today, and there have been significant corporate governance and regulatory developments, locally and internationally, since King III was issued, making it a little out of date.
Since King III was launched, it has also come to light that not-for-profit organisations, private companies and entities in the public sector have experienced challenges in understanding and the application of the recommendations outlined in King III, thus a more inclusive document was needed.
What companies need to understand is that King IV doesn’t represent a significant difference in the philosophical thread of its predecessor, but has instead refined the concepts of King III.
Simplification and ease of interpretation and access will be a key tenet of King IV.
The way that this will be achieved is by clearly differentiating principles from practice recommendations – principles are said to be stated as higher-order objectives. The new code is practical and simpler, with a robust approach to ethical corporate governance. Most noteworthy is how King III’s “apply or explain” rule has become “apply and explain” in King IV. Reporting on the application of King IV’s principles and application is imperative, making it both a code of corporate governance and a business tool, where organisations can access their business strategy and practices. Each principle is linked to a specific outcome. These are ethical culture, performance and value creation, adequate control by leadership, trust, good reputation and legitimacy. King IV encourages companies not only to use historic data to formulate strategy, but to be forward thinking and holistic in their approach to business and governance. The following seven points outline some of the biggest concepts in King IV:
1. Risk and opportunity governance is a new concept in King IV, and is based on the belief that risks can be seen from different perspectives.
2. There will be significant focus on stakeholder inclusivity and responsiveness.
3. Technology and information are recognised as the building blocks of a business in King IV.
4. The board is ultimately responsible and accountable for ethical governance. 5. Dispute resolutions don’t end at the point of resolution. 6. Auditing committees must take into account the audit firm – client relationship, significant management and audit partner rotation and non-audit services rendered to the client – when overseeing auditor independence.
7. Reports from internal audit, external audit and the board are no longer enough, and must now include reports from line managers and specialists.
King IV promises to integrate business in a way that uplifts and empowers organisations and their stakeholders. Only time will tell if this rings true.
Dartnall is head of governance services at BDO Statucor