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Updated 30 Sep 2020

Everything you need to know on King IV and corporate governance in South Africa

Your comprehensive guide to the King IV report on corporate governance principles and how it can help you shape your business’s systems and process.

05 April 2017  Share  0 comments  Print

All the answers to your unique business lifestage questions

The King IV code places key emphasis on the concept of inclusivity. It states that organisations are not only responsible for turning a profit for their investors and stakeholders, but critically need to consider their impact on society and the environment too.

Key Differentiators of King IV

The following points highlight the key features of King IV compared to previous versions:

  1. King IV is reduced to 17 principles [the 17th applying to institutional investors only] from 75 principles in King III.
  2. Reducing the principles enables organisations, regardless of scale or sector to embrace good corporate governance.
  3. King IV is a principle- and outcomes-based framework for corporate governance. King III, introduced in 2009, is rules-based.
  4. While King III called on companies toapply or explainhow they implement the King Codes, King IV assumes an organisation’s application of all its principles of good corporate governance.
  5. Organisations must explain (in-detailed systems and processes documentation) how the King IV principles are applied in the business.
  6. King IV places greater emphasis on the business-need for ethical leadership, attitude, mind-set and behaviour.
  7. Is more focused on transparency and targeted, well-considered communication on business decisions made at board, management and day-to-day level of operation.
  8. Remuneration (how your board is paid) receives greater attention in King IV. This is in line with international advances on how companies pay its board members.
  9. King IV recognises, and places emphasis, on how you manage data in your organisation. In the digital age, safe storage, accurate analysis and controlled distribution of data is considered essential.
  10. Directors can be held personally liable for the decisions they make, and King IV aims to elevate a strong culture of accountability at board level.
  11. Although King IV is not a statutory law, it is considered a benchmark for corporate governance, and all listed companies on the JSE must adhere to King Principles.

Related: Everything you need to know on King IV and corporate governance in South Africa 

At its core, King IV is about helping your business move forward in an ethical, effective manner in a fast-evolving global business landscape that’s being disrupted by digital technologies and the influence of social media.

With this in mind, stakeholders, both internal and external, require that companies act in the best interest of all parties concerned – and not just in the pursuit of profit.

“While JSE-listed companies are generally applying King III, non-profit organisations, private companies and entities in the public sector have experienced challenges in interpreting and adapting King III to their particular circumstances. These enhancements aim to make King IV more accessible to all types of entities across sectors.” – Milton Kotze: Chief Compliance Officer for Standard Bank’s Personal and Business Banking and Wealth Business Units

How does King IV affect your business?

King -IV-business -process

  • Your organisation must apply King IV’s 16 principles and provide claims that good governance is being practiced by your company.
  • Your claims must take the shape of clearly defined documentation on systems and processes that highlight how your board of directors make business decisions.
  • You must explain how you followed a defined set of systems and processes around how new IT components are decided upon, for example.
  • If you’re an institutional investor (bank, investment provider), you must also abide by King IV’s 17th principle.  

The Benefits of Good Corporate Governance for Your Business

Mitigate financial instability risks

Financial instability, both locally and abroad, continue to place pressure on companies – big and small.

To make better business decisions, in the face of a new US-president, Brexit, and China’s influence as a global economic powerhouse, for example, you need robust corporate governance principles around financial management.

Mitigate climatic shift risks

South Africa’s agri-sector players aren’t the only ones concerned about the impact of climatic change on their bottom lines. If you’re in manufacturing, you have a key role to play when it comes to environmental-impact management. King IV can enable you to define how you forge ahead in times of climatic uncertainty.

Mitigate Africa, Asia and emerging market risks

The growth of Africa’s and Asia’s populations are seen as key indicators of where revenue growth will be possible for companies.

But, for businesses to succeed in these regions, solid corporate governance structures are needed to ensure that international relations remain lawful and in the best interest of all parties concerned.

Related: Corporate governance and corporate sustainability

The King IV Principles

King -IV-Principles

Principle 1

The governing body (your board of directors) should lead ethically and effectively.

What this means for your business:

  • You and your directors must make business decisions that serve the best interests of the company and not a single, individual stakeholder.

Principle 2

The governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture.

What this means for your business:

  • The tone and culture of operation that you and the board set at the top will permeate into your managerial team.
  • If you lead ethically and an ethical culture becomes intrinsic, your company will naturally align with good governance in the workplace.

Principle 3

The governing body should ensure that the organisation is, and is seen to be, a responsible corporate citizen.

What this means for your business:

  • As leaders of the company, you are responsible for making sound business decisions. But, it’s also recommended that you consider your company’s workplace, its impact on the environment, and its influence on the people located near it and working in it when making decisions.

Principle 4

The governing body should appreciate that the organisation’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process.

What this means for your business:

  • This means thinking holistically, regardless of whether the board’s focusing on short-, medium- or long-term goals.
  • The interconnectedness of life and business in the digital age means that your board must carefully deliberate on how their decisions truly add value to customers’ lives.

Principle 5

The governing body should ensure that reports issued by the organisation enable stakeholders to make informed assessments of the organisation’s performance, and its short-, medium- and long-term prospects.

What this means for your business:

  • Keep it simple, clear, transparent and authentic when it comes to financial reporting, human capital assessments, and general reports – the real numbers matter most.
  • If you make it easy for all members of your board to understand a financial report, for instance, and they are able to make sound decisions based on this, you’re doing things right. 

Related: Your business needs a corporate governance policy 

Principle 6

In the execution of its governance role and responsibilities, the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time.

What this means for your business:

  • Ensure your capital investors make money and see returns on their investments, but also remember that you’re responsible for fair, competitive behaviour.
  • Keeping all interested parties in your business pleased – investors and customers – should be considered essential for success.

Principle 7

The governing body should be comprised of the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance roles and responsibilities objectively and effectively.

What this means for your business:

  • Ensure that your board is well-represented in terms of demographics, age, experience, expertise and the relevant codes (like BB-BEE) that you need to abide by in order to compete in your relevant sector.
  • The business benefit: A diverse board means greater knowledge to draw inspiration and direction from.

Principle 8

The governing body should ensure that its arrangements for delegation within its own structures promote independent judgement and assist with balance of power and the effective discharge of its duties.

What this means for your business:

  • Committees for audit, nominations, risk remuneration and social and ethical impacts must be created by you.
  • You need to delegate to the right people, in the correct positions, based on their skillsets to handle your business-critical decision-making.

Principle 9

The governing body should ensure the valuation of its own performance and that of its committees, its chair and its individual members, and support continued improvement in its performance and effectiveness.

What this means for your business:

  • Host effective internal and external audits that critically analyse your business initiatives, objectives and outcomes.
  • Regularly self-evaluate and ensure that auditing of financials is taking place to guarantee that you have a clear picture of where the business stands at any given point in time.

Related: Why agribusiness owners should implement the King IV principles 

Principle 10

The governing body should ensure that the appointment of, and delegation to, management contribute to role-clarity and the effective exercise of authority and responsibilities.

What this means for your business:

  • Every employee and board member needs to clearly understand how their inputs affect the outcomes of your business.
  • Clear job descriptions and realistic expectations are key. Don’t put pressure, for instance, on your Chief Technology Officer to explain financials when you have a Finance Director in charge of this function.

Principle 11

The governing body should govern risk in a way that supports the organisation in setting and achieving its strategic objectives.

What this means for your business:

  • Risk is becoming more complex, requiring risk oversight to be strengthened.
  • King IV recommends that your risk committee comprises a majority of non-executive members. This recommendation goes beyond what was required in King III.

Principle 12

The governing body should govern technology and information in a way that supports the organisation setting and achieving its strategic objectives.

What this means for your business:

  • Particularly important in the new digital age, your organisation deals with sensitive data that must be stored safely.
  • Consider your data integrity, as sound data leads to accurate decision-making. You need systems and processes in place when it comes to how you store and handle data.

Principle 13

The governing body should govern compliance with applicable laws and adopted, non-binding rules, codes and standards in a way that supports the organisation being ethical and a good corporate citizen.

What this means for your business:

  • If you’re operating in a particular sector that’s heavily regulated, or if you’re in a particular service industry that’s obliged to meet certain requirements, or if you’re using consumer data to drive your business intelligence, you must have systems and processes in place for dealing with regulatory obligations.

Principle 14

The governing body should ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term.

What this means for your business:

  • Fair pay is essential. If you’re appointing board members, managers, or any key stakeholder, you should make the remuneration of that person easy to understand.
  • If you pay fairly, it indicates that you respect all your stakeholders and that the members of the board aren’t simply serving to earn dividends.

Principle 15

The governing body should ensure that assurance services and functions enable an effective control environment, and that these support the integrity of information for internal decision-making and of the organisation’s external reports

What this means for your business:

  • Ensure that your organisation is regularly, fairly and independently audited.
  • This does not mean internal audit committees should cease to exist. Affording internal and external stakeholders a clear understanding of your business’s key indicators displays that you embrace good governance.

Principle 16

In the execution of its governance role and responsibilities, the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time.

What this means for your business:

  • The over-arching theme of King IV entails making better business decisions in the interest of internal and external stakeholders.
  • Enterprises aiming at making an impact in the world must abide by sound corporate governance systems and processes in order to succeed.

Related: Good governance & processes for SME businesses

Principle 17

The governing body of an institutional investor organisation should ensure that responsible investment is practiced by the organisation to promote good governance and the creation of value by the companies in which it invests.

What this means for your business:

  • Principle 17 in King IV is aimed at institutional investors.
  • Banks, investment product providers, and retirement fund organisations, for example, must ensure that they make sound investments when it comes to their customers’ funds.

How Can Standard Bank Assist You with King IV?

  • Standard Bank offers sector specific advice on how to implement good corporate governance in your business.
  • You can contact Standard Bank for assistance on King IV regardless of whether you’re an SME, enterprise, NPO, or SOE.
  • If you’re already aligning with King III’s principles, Standard Bank san assist you in quickly aligning with King IV’s requirements before it takes effect on April 1, 2017.
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