KING IV: SIM­PLE BUT FEAR­LESS

CityPress - - Business - SHANTEL DARTNALL busi­ness@city­press.co.za

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and reg­u­la­tory de­vel­op­ments, lo­cally and in­ter­na­tion­ally, since King III was is­sued, mak­ing it a lit­tle out of date.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

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