The draft King IV Report on Corporate Governance for South Africa 2016 (Draft King IV) issued by the Institute of Directors in Southern Africa (IODSA) was released for public comment on 15 March 2016. KPMG supports good governance in South Africa and has contributed to the inclusive and consultative drafting process of King IV. In addition, KPMG will be providing its formal input into the public comment process. This communique summarises some notable features of Draft King IV. Readers are however advised to consult the full King IV draft available on the IODSA website.
The Draft King IV builds on King III. It has been revised to bring it up to date with international corporate governance codes; to align it to the shifts in the approach to capitalism (towards inclusive, sustainable capitalism with integrated reporting) and to take account of specific corporate governance developments in relation to inter alia effective boards, increased compliance requirements, new governance structures (e.g. Social and Ethics Committee), emerging risks and opportunities from new technologies eg cyber- crime and social media, and new reporting and disclosure requirements.
Draft King IV is structured as a Report that includes a Code, with additional, separate supplements for various sectors and categories of organisations i.e. SME’s, NPO’s, Public sector organisations and entities, Municipalities and Pension funds. These sector supplements will be released at later dates. The Code contains both principles and recommended practices. It is envisaged that the Code principles and intended outcomes will be applicable to all organisations irrespective of their form of incorporation, with the practices to be applied on a ‘proportionality’ basis depending on the nature and size of the organisation.
The final King IV Report is anticipated for release on 1 November 2016.
King IV is outcomes orientated. It places accountability on the governing body (e.g. the board in companies) to attain organisational outcomes of an ethical culture, sustainable performance that creates value, adequate and effective control and sound stakeholder relationships, through the discharge of its responsibilities relating to strategic direction, approval of policy, effective oversight and disclosure.
It aims to reduce the ‘tick box’ or compliance approach to governance. As a consequence of this approach, King IV has only 16 principles (compared to King III which has 75 principles).
These are that “the governing body should:
For all of the above principles, Draft King IV provides recommended practices.
Draft King IV requires an ‘Apply AND Explain’ approach, as opposed to King III which is ‘Apply OR Explain’. This means that application of the principles is assumed, and that an explanation is disclosed on the practices that have been implemented and the progress made towards governance outcomes. Draft King IV provides an example of a King IV Application Register which organisations should use as guidance for required King IV disclosures. The King IV Application Register should be posted on the organisation’s website.
Good governance is beneficial for stakeholders. A well governed organisation inspires the confidence of its stakeholders and lowers the cost of its capitals. Inclusive and integrated governance that is sustainable is good for society, the economy and South Africa. Whilst Draft King IV is not law, the governance outcomes achieved and the practices adopted and implemented, will likely become the criteria by which the required standard of care and appropriate standards of conduct of the governing body and its members are measured.
Please contact the partner or director with whom you interact. Alternatively you can send an email to KingIV@kpmg.co.za whereafter we will endeavour to reply.