paraphrasing 1200 words 3 hours

KING IV DIFFERENCES TO ITS PREDECESSOR

· King IV advocates an outcomes-based approach. Achieving the principles, and therefore ultimately good governance, optimises the organisation to realise the intended governance outcomes: ethical culture, good performance, effective control and legitimacy.

· Clear differentiation is made between principles and practices. Principles are achieved by mindful consideration and application of the recommended practices.

· King IV has been designed and drafted to make it more accessible to users, and also to reinforce governance as a holistic and integrated set of arrangements.

· Broader forms of address are used in King IV, namely “organisations”, “governing body” and “those charged with governance duties”.

· Supplements are provided to help organisations across a variety sectors and organisational types to interpret and implement King IV as is suited to their particular circumstances.

· King IV provides guidance on how to apply the recommended practices proportionally in line with the organisation’s size and resources, and extent and complexity of the organisation’s activities.

· To balance the less prescriptive approach adopted in King IV, there is greater emphasis on transparency with regards to how judgement was exercised when considering the practice recommendations contained in King IV. To reinforce this qualitative application of its principles and practices, King IV proposes an ”apply and explain” regime, in contrast to “apply or explain” in King III.

INTEGRATED REPORTING

The notion of integrated reporting was introduced in King III, but the understanding of it has significantly evolved since then. Integrated reporting is an outcome of integrated thinking and is presented as such in King IV. Reporting, including integrated reporting, is dealt with in Part 5.2 of the Code, where it is positioned as the culmination of a series of leadership responsibilities executed by the governing body. The governing body steers and sets the direction of the organisation, approves policy and planning, oversees and monitors management and then, finally, provides for accountability on organisational performance through, among others, reporting and disclosure.

In order to clarify the standing of the integrated report in relation to other reports, King IV deals with it as one of the many reports that may be issued by the organisation, as is necessary, to comply with legal requirements, and/or to meet the particular information needs of material stakeholders. These other reports include the financial statements, the sustainability report, the social and ethics committee report, or other online or printed information or reports.

An integrated report could be a standalone report which connects the more detailed information in other reports and which addresses, at a high level and in a complete, concise way, the matters that could significantly affect the organisation’s ability to create value. It could also be a distinguishable, prominent and accessible part of another report which also includes the financial statements and other reports issued in compliance with legal requirements.6

When drafting King IV, reliance was placed on the International <IR> Framework as issued by the International Integrated Reporting Council7. The Integrated Reporting Committee of South Africa8 has endorsed the International <IR> Framework as good practice on how to prepare an integrated report and the committee’s further guidance on integrated reporting should be followed.

Balanced composition of governing bodies and independence

Having members of the governing body who are independent in appearance is an essential element in most governance codes. King IV seeks to contextualise the relevance of independence correctly, namely that:

· All members of the governing body, whether they are categorised as executive, non-executive or independent non-executive have, as a matter of law, a duty to act with independence of mind in the best interests of the organisation.

· Although important, independence in appearance is but one consideration in achieving balance in the composition of the governing body.

The overriding concern is whether the governing body is knowledgeable, skilled, experienced, diverse and independent enough to discharge fully its governance role and responsibilities.

The need for the governing body to set and disclose progress towards targets for race and gender diversity has specifically been included in the Code.

DELEGATION TO MANAGEMENT

The King IV Code provides for the governing body to delegate the implementation and execution of approved strategy, through policy and operational plans, to management via the chief executive officer (CEO). Rather than dealing with the establishment of specific management positions for functional areas as was done in King III, the practices in the King IV Code contain recommendations for the governing body to oversee that key functional areas are headed by competent individuals and are adequately resourced.

DELEGATION TO COMMITTEES

King IV, like King III, deals with delegation by the governing body within its own structures. Principle 8 of King IV now clarifies the objectives for these delegation arrangements, which are to promote independent judgement; to assist with balance of power; and to assist with the effective discharge of its duties by the governing body.

In accordance with the drafting convention adopted for King IV, the recommended practices do not prescribe which committees should be established by the governing body – the governing body should judge what is appropriate for the organisation. The practices furthermore recommend that the allocation of roles and responsibilities, and the composition of committees, should be considered holistically. The aim here is to promote effective collaboration among committees with minimal overlap and fragmentation of duties, as well as a balanced distribution of power.

CORPORATE GOVERNANCE SERVICES TO THE GOVERNING BODY

Rather than dealing with the office of the company secretary in isolation, the premise of the King IV Code is that the governing body should ensure that it has access to professional and independent guidance on corporate governance. For most companies, this will be provided by the company secretary. The Code recommends that even those companies and other organisations not obliged to appoint a company secretary should, as a matter of leading practice, consider appointing a company secretary or other professional to provide such services to the governing body.

PERFORMANCE EVALUATIONS OF THE GOVERNING BODY

King III recommended that an evaluation of the governing body, its committees and its individual members be conducted every year. To provide for sufficient time to appropriately respond to the results of such performance evaluations, the King IV Code recommends for a formal evaluation process to be conducted at least every two years. Every alternate year, the governing body should schedule an opportunity for consideration, reflection and discussion of its performance.

SOCIAL AND ETHICS COMMITTEES

Regulation 43 of the Companies Act was issued after King III and does not address the ethics role of the social and ethics committee beyond mentioning ethics in the name of the committee. King IV seeks to expand on this, and the role ascribed to the social and ethics committee is that of oversight and reporting on organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships.

This role includes organisational ethics and cover the statutory duties, but the intent is to encourage leading practice by having the social and ethics committee progress beyond mere compliance to contribute to the creation of value. Accordingly, King IV urges organisations that are not legally required to establish a social and ethics committee, nevertheless to consider creating a structure that would achieve the aims of such a committee.

King IV also recommends a higher standard for the composition of this committee than what is provided for in the Companies Act. The recommended practices thus include that a majority of the members should be non-executive members of the governing body so as to ensure that independent judgement is brought to bear.