King Report on Governance for South Africa, 2009

KING REPORT ON GOVERNANCE FOR SOUTH AFRICA, 2009

The launch of the King Report on Governance for South Africa, 2009 (King III) and the King Code of Governance Principles for South Africa, 2009 (the Code) on 1 September 2009 elicited much interest and excitement.  With the effective date set as 1 March 2010, all entities now face the daunting task of getting on top of the recommendations contained in King III and the Code. 

A comparison between King II (launched in 2002) and King III reveals a number of material and not so significant differences.  Some of the new or amended concepts addressed in King III include the following:

• Emphasis on leadership and values, integrated sustainability performance and integration of strategy, sustainability and control
• Board has to ensure that the company acts as and is seen to be a responsible citizen
• Board and directors to act in best interest of the company
• Ensure that there is an effective risk based internal audit
• Ensure that the company implements an effective compliance framework and processes
• Commence business rescue proceedings as soon as company is financially distressed
• Majority of board should be non-executives and majority of non-executives should be independent
• Minimum of two executive directors to be appointed to board – CEO and CFO
• Board should be led by independent non-executive chairman (otherwise, consider appointment of LID)
• Additional duties of chairman and CEO spelled out
• Board should appoint audit, risk, remuneration and nominations committees
• Guidance in respect of relationship between subsidiary and holding company
• Extended recommendations in respect of remuneration and share option schemes
• Shareholders to appoint audit committee (in line with Companies Act)
• Extended provisions in respect of risk management
• CEO should be at forefront of adoption or upgrading of risk management plan
• Appointments of CRO (chief risk officer), CIO (chief information officer) and CAE (chief audit executive) recommended and discussed
• Internal audit should provide written assessment of effectiveness of system of internal control performance and risk management
• Emphasis placed on reporting and disclosure of sustainability – require independent assurance
• “Integrated report” should have sufficient information to record how the company has both positively and negatively affected the economic life of community in which company operated during the year under review
• Compliance with laws, regulations, rules and standards dealt with in detail in separate chapter
• Managing of stakeholder relationships addressed in separate chapter

As a result of the new report, all entities will have to, inter alia, revisit the following:

o      The content of the:

§    Board charter

§    Terms of reference of board committees

§    Annual work plan

§    Agenda of board and board committees

§    Governance related policies and procedures

§    Annual report (integrated report)

o      The assessment and, possibly appointment of internal structures  in respect of compliance, IT, internal audit and risk management

Substantial emphasis has been placed in King III on disclosure and entities will have to consider the extent to which its current disclosure practices need to be improved in order to be aligned with these recommendations.  Directors will have to be briefed on the content of King III and the possible impact thereof on the entity. 

All of the above requires commitment, focus and passion in order to ensure that the entity behaves as a corporate citizen as envisaged in King III.  The company secretary is ideally suited for this role and should use this opportunity to add real value to the board and the entity.

ANNAMARIE VAN DER MERWE

SEPTEMBER 2009