King IV lays down the law

The Institute of Directors in Southern Africa (IoDSA) on Tuesday launched a draft report of King IV – the new code on corporate governance – for public comment. The 75 principles that applied under King III have been reduced to 16 and it is expected that King IV will have wider application to non-listed entities, such as state-owned enterprises and non-profit organisations.

The King reports on corporate governance are so named because of the involvement of former High Court judge, Mervyn King S.C., an internationally acclaimed expert on corporate governance.

“Corporate governance is a very dynamic discipline and since issuing King III in 2009, there have been so many developments internationally and locally that we have had to cater for,” explained Ansie Ramalho, King IV project lead, at a launch event in Johannesburg.

“The philosophical underpinnings in King III are echoed in King IV,” Ramalho said.

Among the primary differences between King III and King IV is the requirement to apply and explain, as opposed to apply or explain. Essentially, this means that application of the 16 principles is assumed and companies will be required to provide a high level overview of the practices that have been implemented, and the progress made in the journey towards giving effect to each principle.

King IV advocates a “stakeholder inclusive” approach, Ramalho noted. This recognises that companies are integral parts of societies – as taxpayers, investment vehicles, job creators and talent developers – but also that companies rely on society and the environment in which they operate for growth and sustainability.

“This is where shareholder primacy is not necessarily what happens and all stakeholders’ reasonable needs, expectations and rights are taken into account and balanced in decision making,” Ramalho said. “This changes the business agenda from a focus on business success measured in economic terms to success for the business, society and environment in which it operates. Seeing that over the long term is what sustainable development is.”

The first phase for public comments is open from March 15 to May 15, with a second phase anticipated for the second half of April and expected to last two months.

The final King IV Report will be released on November 1.

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