King IV Demands Greater Accountability
2017-04-13
The King IVâ„¢ Report on Corporate Governance for South Africa was launched in November 2016 by the King Committee and the Institute of Directors in Southern Africa (IoDSA). King IV is a set of far reaching principles that go to the heart of corporate governance. The new version is much more meaningful than its precursors and of note is a world leader in establishing corporate governance standards. King IV is effective for financial years commencing on or after 1 April 2017 and replaces King III.
A much more mature philosophy underlies King IV, which firmly focuses on an ethical culture, good performance, effective control and legitimacy. As greater accountability has now shifted to the governing body, more insight is expected of these individuals (as well as all stakeholders) to implement and account for the business practices implemented by a company.
A number of differences are apparent. Whereas King III contained 75 principles, King IV contains only 16 principles applicable to all organisations, and a 17th principle, which is applicable to institutional investors such as retirement funds and insurance companies.
The most significant difference between King III and King IV is that King IV is outcomes orientated. King IV aims to reduce the ‘tick box’ or compliance approach to applying governance practices. The principles stated are basic to good governance, and their application is assumed. Consequently, business entities are required to 'apply and explain', rather than 'apply or explain' as specified in King III. The 'explain' part is a narrative of the practices that have been implemented and the progress made towards achieving each principle. Therefore integrated thinking and reporting is central to achieving the outcomes.
King IV is voluntary - unless prescribed by law or a stock exchange listing requirement. However, the principles are applicable to all business entities irrespective of their form or manner of incorporation including non-governmental organisations, state-owned enterprises, the public sector, and medium to small businesses. But, the application of the principles should be proportional to the size of each entity.
The primary focus of King IV is on transparency and on targeted, well-considered disclosures. This focus, in line with international developments, includes a greater emphasis on remuneration as well as clarity regarding the appointment of board members.
However, King IV also acknowledges that information and technology need to be treated as separate entities. Consequently intellectual capital is regarded as a corporate asset that is in need of governance structures, which protect and develop its content.
Overall corporate governance should be concerned with ethical leadership, attitude, mindset and behaviour.
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