It’s been little over a year since the mandatory effective date of the IoDSA’s (Institute of Directors in Southern Africa) latest report – the King IV Report on Corporate Governance ™ – for all JSE listed companies.
Yet multiple smaller businesses and non-profits voluntarily implement the report into their company policy.
Why? Implementing the King Report is a pretty good way to ensure your company policy is up to standard in terms of your governing procedures.
If you’re not familiar with the King Reports: it’s a series of reports (each new report replacing the former) that translate international standards and big-time happenings on corporate governance into set of actionable principles relevant to South African companies.
I’ll be running you through the latest reports, the King IV™; how it will help you ensure the long-term sustainability of your business; and what voluntary implementation would mean for you.
What is exactly is the King IV™ Report and why should you care?
King IV™ is the fourth update of the IoDSA’s King Report on Corporate Governance and, unlike the former versions; it’s explicitly inclusive to smaller companies.
To help smaller businesses implement the report, King IV™ boiled King III™’s 75 vague ethical principles down to 17 simplified principles – each supplemented with recommended practices.
The aim of the report is to tackle modern-day governance issues, that might harm your company in the long run if left unnoticed, and limit them using company policy, management organisation and recommended practices.
Take Principle 14 for example on the Remuneration Governance. The King’s code advises that if only 25% of the company’s shareholders have an issue with the remuneration policy, they be given the right to pass non-binding advisory votes on the matter.
If Company A, implements the recommended practice, they ensure their remuneration is fair beyond reasonable doubt, their act as pro-active gatekeepers to creating just policies.
If Company B, does not implement the recommended practice, unfair remuneration might only come to light years later blowing it into a public indirection that threatens the credibility of your business.
In 2018, saying you didn’t know, isn’t a valid excuse anymore. You need to set systems in place that ensure the governing body keeps tabs on everything.
Most notably, King IV™ allows you to assign accountability and pinpoint mistakes or misconduct ASAP by requiring regular disclosures linked to each of the principles.
The 17 principles cover almost every modern-day governance subject – from fair and unbiased governance composition to the governance of technology and digital information. These disclosures make it increasingly difficult for involved parties to hide transgressions that can damage the company in the long run.
How to make King IV disclosures
Your governing body gets to choose where these King-related disclosures are made. You can do them in print or online; in your integrated report, in a sustainability report, an ethics committee report or split them among more than one – just avoid pure duplication.
The disclosures simply need to be formally approved, publically available and updated at least every year. The mantra of the report, and its recommended practices and disclosures, is “apply the principles and explain the practices”. There’s no need to methodically state whether the principles are being adhered to. It’s your job to explain what’s being done.
What King IV™ does quite differently from King III, is recommending the application of its principles within set timelines, reports and committees within it’s recommended practices.
How to get started on practical implementation of the King IV
It’s impossible to reduce the full King report down to a few steps in one-go.
To give you a feel for what implementation would mean for your business’s day-to-day running, I’ll run you a principle specifically related to your organisational structure and the required disclosures.
You can get the full King IV Report™ with all 17 principles, its recommended practices and its recommended disclosure on the IoDSA’s website.
Although the report is extensive, it’s an easy-read and clearly references applied recommended practices and disclosures for each of the 17 principles.
How to implement Principle 8: Committees of the Governing Body
In this principle, King IV™ advises that the governing body arrange delegation to ensure “independent judgement, assist with the balance of power, and to help the governing body to discharge its duties effectively”.
An example would be to set up a committee, consisting of lower management levels, with clearly identifiable responsibilities and then to measure their progress via reports.
One of the recommended practices include creation an Audit committee (which is statutory for some charger companies) both the head and all the members of that committee be “independent, non-executive members of the governing body”.
It’s recommended that the committee meet with both the internal and the external auditor once a year, in the absence of any members of the governing body.
If you implement the King IV™ recommendations you’ll have an upright and an independent committee that evaluates your company’s financial integrity and ensures no discrepancies go unnoticed by offering that’ll threaten the credibility of your company in the long run.
The recommended disclosure is a statement as to:
- The integrity of your financial statements;
- The quality of your internal audit;
- The effectiveness of your CFO and financial controls;
- The effectiveness of your company’s assurance;
- And whether the external auditor is believed to be independent and whether the audit is of high quality
If don’t follow the recommendations and you don’t appoint a Audit committee or create one using biased members, discrepancies might stay concealed and cause long-term damage that will eventually surface.
The report suggests other committees like a Nominations; Risk Governance; and Social and Ethics Committee.
King IV™ strongly propagates transparency, the delegation of responsibility and the implementation of accountability by putting pen to paper in term of officiated aims, bodies responsible for those aims and the provisions of consistent reports.
That way your governing body has a clear way to identify any issues – as it’s impossible to keep tabs on every area of your business yourself.
Essentially the King IV™ helps you create a measurable outline in your company policy that’ll ensure good corporate citizenship in present-day society and management that actions align with your company’s best interest and long-term sustainability.
In essence the King IV Report™ gives you a voluntary code of internationally and nationally relevant principles and practices.