King IV em­pha­sises ‘ac­ces­si­ble’ gov­er­nance

CityPress - - Business - JUSTIN BROWN justin.brown@city­

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.

Mervyn King

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