King IV emphasises ‘accessible’ governance
The King Committee on Corporate Governance in South Africa this week released its fourth report, which showed that the compilers of the code had baulked at giving shareholders the right to block directors’ remuneration.
The latest version of the report does not give shareholders a binding vote in determining executive remuneration.
Mervyn King, chairperson of the King committee, said shareholders had no responsibility and no liability to the company. “Shareholders are transient.”
On average, shareholders hold their shares in listed companies for four to six months, and ownership of listed shares can be transferred within 25 seconds.
“Shareholders should not be [a] substitute for the remuneration committee of the board,” King said.
He added that if there were a significant number of shareholders who voted against directors’ remuneration, the board should go back and hold discussions with the dissenting shareholders and then disclose the nature of these engagements.
The King IV code recommends that shareholders of companies be given the opportunity to pass nonbinding advisory votes on remuneration policy and implementation.
The code states: “The remuneration policy should record the measures that the board commits to in the event that either the remuneration policy or the implementation report, or both, have been voted against by 25% or more of the voting rights exercised by shareholders.
“An important introduction in King IV is that the remuneration of executive management should be fair and responsible in the context of overall employee remuneration. It should be disclosed how this has been addressed.
“This acknowledges the need to address the gap between the remuneration of executives and those at the lower end of the pay scale.”
According to King, “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 mind-set to one which sees corporate governance as a lever for value creation”.
Stephen Kennedy-Good, a director at Norton Rose Fulbright South Africa, said that, given the change in the law governing companies, it was time for the King report to be updated.
The reduction in the number of principles was a good move, he added. While the King III code comprised 75 principles, King IV has been whittled down to 17 principles. An issue with the code was that it was a self-regulating document with no body to enforce the code, KennedyGood said. “The King code does not enjoy the force of the law,” he added. Deloitte directors Nina le Riche and Johan Erasmus posted this comment on the firm’s website: “We believe the new code represents a positive step forward in that it is principles- and outcomesbased, and it takes the challenges and realities of today’s business world into account.” This week the JSE issued its new listing requirements for public comment. The King report has broadened its language to go beyond listed company and business-specific vocabulary. It has also provided supplements to make it easier to adapt the code to different industry sectors, including government and nonprofit organisations. King IV takes effect at the start of organisations’ financial years – from April 1 2017. What differentiates the King IV code from that of King III, which came into effect in 2009, is “a change from share value to shared value”, according to King. Ansie Ramalho, lead author of the King IV report for the Institute of Directors of Southern Africa, said: “Principles are fundamental to good corporate governance.” She alluded to a move away from rules-based compliance to a “stakeholder inclusive” approach.