Draft King IV TM Report. A Synopsis

Transcription

1 Draft King IV TM Report A Synopsis

2 Draft King IV TM A Synopsis The Task Team looked to both strengthen the Report with reference to its philosophical underpinnings and to increase its relevance in taking account of various local and international developments affecting corporate governance. The draft King IV TM Report ( King IV 1 ) was released for public consultation on 15th March. This was after more than a year of development work by the King IV Task Team, established by the King Committee for that purpose. IoDSA and the The King Committee is requesting public comment on King IV TM (excluding its sector supplements which are forthcoming) through to 15th May King IV TM Definition of Corporate Governance Corporate governance in draft King IV TM is defined as being concerned with the exercise of ethical and effective leadership by the organisation s governing body. The governing body s overarching leadership responsibilities are: To provide the organisation s strategic direction; To approve policy to implement the strategy; To provide informed oversight of implementation of the strategy and performance achieved; and To adopt sound, appropriate disclosure practices to disclose the organisation s performance and sustainable value creation. Objectives King IV s TM objectives for good corporate governance are: 1. To promote understanding that good corporate governance is integral to the conduct of all business or enterprise. Properly applied, good corporate governance will drive the organisation s achievement of the following beneficial outcomes: An ethical culture; Enhanced performance and value creation; Adequate and effective control; and Trust in the organisation, and its reputation and legitimacy. 2. To emphasise that good corporate governance goes beyond structure and process; more fundamentally it is concerned with ethical consciousness and behaviour. 3. To broaden its acceptance by all organisations, including through making it accessible by organisations of different size and complexity. 4. To re-inforce the holistic nature of good corporate governance as a set of arrangements that are to be implemented in an integrated manner Draft King IV TM Report A Synopsis

3 The Foundations The King IV TM Task Team looked to strengthen the draft Code s philosophical underpinnings and to increase its relevance by taking into account various local and international developments affecting corporate governance. King IV TM builds on King III TM2, and its underpinning philosophies remain aligned with King III TM. More specifically, King IV TM emphasises the contribution good corporate governance makes to sustainable value creation. King IV TM : Reinforces application of ethics in leadership: both in context of the ethics of governance, and the governance of ethics. Gives further prominence to the concepts of sustainable development and corporate citizenship, the organisation as an integrated part of society and stakeholder inclusiveness. Embeds integrated thinking and integrated reporting in the principles and practices of good corporate governance. A Restructured Code There is significant improvement in the structure of the draft Code, which remains a voluntary code. The draft Code is designed to encourage achievement of 17 Principles linked to realising the following benefits as the outcomes of good corporate governance (associated with the objectives mentioned above), i.e. An ethical culture; Enhanced performance and valuecreation; Adequate and effective control by the governing body; and Trust in the organisation, and its reputation and legitimacy. King IV TM also contains recommended practices for the governing body, aligned with the governing body s leadership responsibilities. Properly implemented, these ought to drive achievement of the King IV TM Principles. Diagram showing the interrelationship of governance leadership responsibilities (adapted from King IV TM ) All Rights Reserved EYJHB Draft King IV TM Report A Synopsis 3

4 The 17 proposed King IV TM Principles are set out below (references in brackets). Achieving an ethical culture, the governing body should: Set the tone and lead ethically and effectively (1.1); Ensure the organisation s ethics are management effectively (1.2); and Ensure the organisation is a good corporate citizen (1.3). Performance and value creation, the governing body should: Lead the value creation process, with an appreciation that strategy, risk and opportunity, performance and sustainable development are inseparable (2.1); and Ensure reports and other disclosures enable the organisation s stakeholders to make an informed assessment of the organisation s performance and its ability to create sustainable value (2.2). Adequate and effective control, the governing body should: Serve as the focal point and custodian of corporate governance in the organisation (3.1); Ensure its composition comprises the balance of skills, experience, diversity, independence and knowledge needed to discharge its governance role and responsibilities (3.2); Consider creating additional governance structures to assist with the balancing of power and the effective discharge of responsibilities, but without abdicating the governing body s accountability (3.3); Ensure the appointment of competent executive management, and that the governing body s delegation of responsibility and authority to executive management contributes to effective exercise of that responsibility and authority by executive management (3.4); Ensure that evaluation of the governing body s performance, and that of its governance structures and of persons in key governance roles (governing body members, the Chairman, the CEO and the company secretary), drives continuous improvement of their performance and effectiveness (3.5); Govern risk and opportunity so as to support the organisation in defining its core purpose, and in setting and achieving its strategic objectives (4.1); Govern technology and information so as to support the organisation in defining its core purpose, and in setting and achieving its strategic objectives (4.2); Govern compliance with laws, and ensure consideration of adherence to non-binding rules, codes and standards (4.3); Ensure the organisation remunerates fairly, responsibly and transparently so as to promote sustainable value creation (4.4); and Ensure that assurance results in an adequate and effective control environment, and integrity of reports for better decision-making (4.5). In relation to trust in the organisation, and its good reputation and legitimacy, the governing body should: Ensure, as part of its decision-making in the organisation s best interest, that it adopts a stakeholder inclusive approach that takes into account, and balances, the legitimate and reasonable needs, interests and expectations of the organisation s stakeholders (5.1); and Ensure, for an organisation that is an institutional investor, that the organisation responsibly exercises its rights and obligations, and its legitimate and reasonable needs, interests and expectations, as the holder of a beneficial interest in the securities of a company (5.2). How EY can help? Contact our EY Governance Services specialists to discuss your governance advice and support needs. Contact information Contact information Governance, Sustainability and Integrated Reporting Joanne Henstock - Governance and Integrated Reporting Leader - joanne.henstock@za.ey.com Thomas van Viegen- Associate Director thomas.vanviegen@za.ey.com Kelly Gillman Senior Manager - kelly.gillman@za.ey.com Luveshan Naiker Senior Manager luveshan.naiker@za.ey.com Mandy Jayakody - Manager mandy.jayakody@za.ey.com Integrated Reporting Assurance Risk Governance Remuneration Governance Information Governance Larissa Clark - Partner larissa.clark@za.ey.com Mike Bourne Partner mike.bourne@za.ey.com Cindy Ramokoto - Africa Risk Leader - Cindy.Ramokoto@za.ey.com Ray Harraway - Africa Reward Leader - Ray.Harraway@za.ey.com Adrian van der Merwe - Partner - Adrian.vanderMerwe@za.ey.com

5 Main areas of difference Besides the significant restructuring of the code as outlined above, some key areas of difference between King III TM and King IV TM are contained in the recommended practices of King IV. Ethical characteristics of members of the governing body are described. There is less prescription in relation to independence of the governing body members. Establishing a social and ethics committee with responsibility for oversight of corporate ethics, corporate citizenship, sustainable development and stakeholder inclusivity. Enhanced disclosure of the organisation s remuneration policy and implementation thereof, combined with (for companies) non-binding shareholder voting on the policy and its implementation at certain intervals. Expanded application of the combined assurance model. Increased emphasis on governance oversight of stakeholder relationships and stakeholder engagement (and shareholder relationships for companies). A further key change is in the proposed implementation approach, with the proposed approach being a change from use of the apply or explain basis used in King III TM, to apply and explain for all of the 16 King IV TM Principles (17 Principles in the case of an institutional investor). The recommended practices contained in King IV TM are intended to be sufficient to drive achievement of the related Principles, and in most cases they are adequately framed and explained to achieve that Responding to the King Committee on King IV TM We strongly encourage our clients, all organisations and their governing bodies to respond to the IoDSA and the King Committee s draft King IV proposals. Providing comment on draft King IV may be done by responding to the IoDSA and the King Committee s list of specific comments on the draft Code, which may be accessed through the Institute of Directors of Southern Africa s online response facility (available on its website www. iodsa.co.za), or by submitting written comments directly to the IoDSA and the King Committee. Some key considerations for organisations in responding to the King Committee on the draft King IV TM are: 1. In your view, are the philosophical underpinnings of King IV TM appropriate in the context of corporate governance in South Africa? 2. Is the structure of the draft code appropriate? Is it understandable and clearly navigable? 3. Are the proposed King IV TM Principles appropriate, and in your view do they meet the desired aim of encouraging good corporate governance? Do they address the aspects of good corporate governance that need to be addressed? Are they practically achievable? 4. Are the proposed recommended practices set out in King IV TM adequate to illustrate how the proposed Principles ought to be achieved? 5. Is the proposed apply and explain basis of implementation appropriate? In your view, will it promote more substantive and meaningful application of King IV TM by a wider range of entities (including non-profit entities)? 6. In your view, does King IV TM respond adequately to address the key corporate governance issues that are encountered in the practice of corporate governance and corporate leadership in South Africa today?

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