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KING III Code of Governance for South Africa - some comments

Some comments following a presentation by Lindi Engelbrecht (IODSA) on King III (on 08 September 2009);

·        KING III has been necessitated by the promulgation of the New Companies Act – that brings South African Company Legislation into the 21st Century;

·        KING III is setting a new standard in International Corporate Governance. The KING III Code of Governance for South Africa (published on 1st September 2009) will be the first recommended Governance Framework that takes into account the crisis that has engulfed the world during to the critical last 12 to 18 months – much of it due to issues that relate directly to corporate governance;

·        KING III however does have a uniquely South African emphasise, this includes;

o  The Stakeholder inclusive Model (as reflected in t he New Companies Act) is far more broadly defined than Internationally. Internationally shareholders are given preference/priority over other Stakeholders (employees, creditors, customers etc) – in South Africa ALL Stakeholders are provided with intrinsic value equally;

o  The requirements of Directors to act in the best interests of the company (and by implication its stakeholders) means that the ultimate “compliance officer” in any company is its stakeholders;

o  The requirement to act in the best interest of the company also presupposes acting in line with the Constitution and Bill of Rights – which form the ultimate “test” against which this will be measured – this creates a new paradigm for many corporate leaders and decision makers.

·        The “Apply or Explain” approach to the implementation of King III in any company (which is defined very broadly) is seen as a positive approach;

o  Internationally harsher “comply or else” or even “comply or explain” approaches have been unsuccessful in preventing the collapse of governance and have often merely served to substantial increase the cost of governance;

o  What is meant by “Apply or Explain” is that there is great flexibility in the application of the recommendations to different companies across the business landscape. The primary “responsibility” on directors and decision makers in companies is;

§ To understand the principles underlying the recommendations;

§ To THINK through how they would apply in their own context (company);

§ To DESIGN an appropriate application for them (and be able to explain this application to Stakeholders);

§ It can be read as “APPLY YOUR MIND and EXPLAIN YOUR APPLICATION” approach.

·        Governance is also seen as a JOURNEY and not just a GOAL that can be achieved in one single step.

·        When King III refers to “a BOARD” it is in essence referring to any Executive Decision Making Function in a company – so everyone in business who has any form of Decision Making ability and mandate needs to come to terms with the King III report, understand the new/clarified expectations and standards for Corporate Governance and do some serious THINKING, DESIGNING and IMPLEMENTATION.

We can help! Corporate Initiatives Inc. will help you understand the IMPACT and IMPLICATIONS of the New Companies Act and King III on your business as well as provide you with tools to help you identify what you need to do to move forward.


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