King IV is here, and it’s bolder than ever
South Africa has updated its corporate governance regulations for listed companies, with the introduction of the new King IV Code of Corporate Governance. This takes effect from 1 November 2018 and replaces the old King III code, introduced in 2009.
Since 1994, when the first King Code was introduced, we have seen thinking on corporate governance steadily evolving. Our new King IV Code represents a further refinement in thinking, away from prescriptive rules and towards principles and outcomes which represent a framework for ethical leadership in all organisations.
And in fact, the changes are welcome. With King IV, we see a renewed emphasis on transparency and disclosure, in line with international best practice. The code also emphasises the critical role shareholders play in holding a company and its board accountable. In keeping with its focus on ethical leadership, King IV recommends that boards establish a social and ethics committee which would look at ethical behaviour and ethics management.
Some of the highlights:
Remuneration receives far greater prominence – a development that may rattle more than a few corporate cages. King III required that remuneration policy should be voted on by shareholders, although this would not be binding. King IV goes further, recommending both the remuneration policy and the implementation report should be tabled for a non-binding advisory vote. The remuneration policy should set out the measures that the board commits to take 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. Such measures should provide pro-active engagement with shareholders to address their concerns. Company boards are now tasked with ensuring fair and responsible executive remuneration practices in light of overall employee remuneration.
There’s also an awareness that information needs to be protected from breaches – a necessary acknowledgment given the centrality of data management to organisations around the world. While King III introduced IT governance to corporate governance in South Africa and demanded that directors be aware of IT risk, King IV deliberately separates technology and information. It recognises information is a corporate asset that forms part of intellectual capital.
King IV further evolves corporate governance philosophy on independence. The previous code, King III, provided a list of disqualifications from independence. However, King IV focuses on the perception of independence by an informed third party, rather than factual independence or a tick-box approach. Under our new code, independence is predominantly a state of mind which is a moral characteristic and legal duty of all directors.