Discuss about the Corporate Governance for Themes and Variations.
A ground breaking booklet of guidelines regarding the operation of organizations and the governance structures in South Africa is the King Report on Corporate Governance (King, 2016). The King committee on cooperate governance issues this report. Till now, four of these reports have been issued, i.e., King I in 1994, King II in 2002, King III in 2009 and King IV in 2016 (Maleszewski, 2017). The following parts compare and contrast between the latest two reports. And based on this, the opinion has been drawn to suggest the improvements which can be made to improve the code of corporate governance, highlighting the key areas which need improvement.
|
Bases |
Similarities |
Differences |
|
Apply and explain |
Both followed the approach of apply or explain |
There is a shift from the approach taken under King III to the one contained in King IV. So, as per the King IV approach, the organizations would have to not only apply these principles, but also explain the measures and its results. |
|
Number of Principles |
The number of principles contained in King III, have been reduced from 75 to 17 in King IV. |
|
|
Remuneration |
Both these contained the provisions regarding the remuneration policies of the organizations. |
King IV goes further and addresses this controversial issue in a more concise way, as it ensures that the remuneration of the executive management remains responsible and fair. |
|
Independence of directors |
Even though both the approaches contained this provision, but the manner of the same has been changed. |
In King III, the approach was to provide a set of criteria for judging the independence of the non-executive directors. In King IV, a list of indicators has been introduced for the same. |
|
Enclosed Disclosure |
Both these contained the requirement of enhanced disclosure. |
The disclosure requirements introduced through King IV are quite broader in comparison to those of King III. King IV specifies the disclosure in relation to the audit committee, each committee of the governing body, etc. |
|
Social and ethics committee |
There was a common provision social and ethics committee in both the approaches (Myburgh and Costa, 2017). |
King IV went on a further step and encouraged the formation of a specific committee for this (Myburgh and Costa, 2017). |
King III provided with a strong foundation for the corporate governance of the world-class level. Even though King IV does not entirely depart from the principles and ethos underlying in King III, it does represent a development in both content, as well as, approach to the King Code in a manner of framing the corporate governance. Hence, the organizations that were following King III would not face many issues in following King IV (Institute of Directors, 2016).
King IV raised the bar upon the implementation and shifted the focus on disclosures and outcomes. This new code was a positive step forward due to its outcomes-based and principles-based and it also considers the realities and challenges which are faced by the business at the present time. King IV bettered the shortfalls of King III and a key example of this is the notion of apply and explain. Under King III the organizations were called to apply or explain but under King IV, the organizations are required to explain the manner in which they have applied the principles. This ensures that the corporate governance is not seen as mindless compliance but something which bears the results when approached in a careful manner, and when the due consideration is given to the situation being faced by the organization (Institute of Directors, 2016).
The approach has changed from rules based to outcome and principle based. And the corporate governance is now concerned with ethical behavior, mindset, attitude and leadership. So, the focus is targeted and is on transparency due to the properly considered disclosure requirements. In line with the international developments, the remuneration now receives greater importance. There is also a new emphasis over the responsibilities, as well as, the roles of the stakeholders. King IV also recognizes the information in isolation of technology as an asset of corporate governance as it is a part of the stock of intellectual capital of the company, and it also confirms the requirement of the governance structure so as to enhance and protect this very asset (Deloitte, 2017).
The underpinning philosophies of King IV include integrated thinking and sustainable development. Even though these concepts were there in King III, but with King IV, an emphasis has been laid down on their interconnectedness. The objective of King IV is to promote corporate governance as a vital part of running the companies and in delivering the governance outcomes for instance, legitimacy, effective control, good performance and ethical culture. The principles of corporate governance given under King IV had made it fit for implementation and accessible across the different organization types and a range of sectors (Coppenhagen and Naidoo, 2017).
King IV has reinforced corporate governance as an interrelated and holistic set of arrangements which have to be implemented and understood in an integrated manner, and has also encouraged meaningful and transparent reporting to the stakeholders. Due to King IV, the current corporate governance has changed not only with its process and structure, but also with the conduct and ethical consciousness. It also links the responsible corporate citizenship to the responsibility of the governing body, do as to make sure that the tax policy of the organization is both transparent and responsible and also takes in account the repercussions to the reputation (EY, 2016).
Even though King IV has brought forward a bold and revolutionary set of code for corporate governance, yet is has failed to address certain key areas relating to this issue. There was a missed opportunity by the King IV code regarding directing the boards in South Africa to focus specifically over the issues of governance which would help the directors in a practical manner for their outgoing activities, in addition to ensuring the ongoing compliance with the Companies Act 2008’s provisions (Levenstein, 2017).
There have been various noble principles in King IV but what is missing, are the specific guidelines which were present in King III. In the approach taken up by King IV, these guidelines have been lost in the mind-shift change. In the transition from King III to King IV, the opportunity to build on, as well as, to highlight the obligations of the directors, regarding making certain the value and financial preservation of the entity has been lost (Levenstein, 2017).
For instance, a great care was taken to make an emphasis over the obligations which the directors had in King III as per the terms of the Companies Act 2008 regarding consideration the business rescue proceedings or the other turnaround mechanisms upon the corporation becoming distressed financially. These codes were placed earlier so as to counter the possible liabilities arising on part of the directors trading in the company under insolvent situations. The directions given in King III were very helpful and ensured that the troubled organizations were in a position to elevate the prospective of these organizations being rescued, along with retaining of jobs and a viable entity being brought back in the economy of South Africa (Levenstein, 2017).
Hence, there is a need to include these provisions, so as to improve the code of corporate governance. This would ensure that the spirit of such codes is met, and the shortfalls are dealt with accordingly.
Conclusion
To sum up this discussion, King III was quite a power packed code for corporate governance, but to improve upon its shortfalls, King IV was introduced. This was a remarkable improvement from the earlier codes and introduced options like apply and explain, which have brought a reform to the corporate governance codes. Though, some of the key points, which worked for the benefit of King III, like the guidelines, are missing from King IV. Hence, there are still areas of improvement needed for these codes.
References
Coppenhagen, V.V., and Naidoo, S. (2017) South Africa: The South African King IV Report On Corporate Governance: Themes And Variations. [Online] Mondaq. Available from: https://www.mondaq.com/southafrica/x/565808/Shareholders/The+South+African+King+IV+Report+On+Corporate+Governance+Themes+And+Variations [Accessed on: 16/03/17]
Deloitte. (2017) King IV: Bolder Than Ever. [Online] Deloitte. Available from: https://www2.deloitte.com/za/en/pages/africa-centre-for-corporate-governance/articles/kingiv-report-on-corporate-governance.html# [Accessed on: 16/03/17]
(2016) Are you ready to implement King IVTM?. [Online] EY. Available from: https://www.ey.com/Publication/vwLUAssets/ey-governance-with-king-iv-2016/$FILE/ey-governance-with-king-iv-2016.pdf [Accessed on: 16/03/17]
Institute of Directors. (2016) Report on Corporate Governance for South Africa. [Online] Institute of Directors. Available from: https://c.ymcdn.com/sites/www.iodsa.co.za/resource/resmgr/king_iv/King_IV_Report/IoDSA_King_IV_Report_-_WebVe.pdf [Accessed on: 16/03/17]
King, M. (2016) The Chief Value Officer: Accountants Can Save the Planet. Saltaire, UK: Greenleaf Publishing.
Levenstein, E. (2017) King IV misses chance to focus on governance issues. [Online] Business Day. Available from: https://www.businesslive.co.za/bd/opinion/2017-03-01-king-iv-misses-chance-to-focus-on-governance-issues/ [Accessed on: 16/03/17]
Maleszewski, J. (2017) Corporate Governance Spotlight— The King Reports. [Online] TCIIA News L Ine. Available from: https://chapters.theiia.org/tallahassee/News/ChapterDocuments/TCIIA_Newsline.pdf [Accessed on: 16/03/17]
Myburgh, F., and Costa, A.D. (2017) The key differences between King III and King IV. [Online] Polity. Available from: https://www.polity.org.za/article/the-key-differences-between-king-iii-and-king-iv-2017-01-11 [Accessed on: 16/03/17]
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