Corporate Governance and King III - Bowman

1 QUICK GUIDE TO. Corporate Governance . AND king III. Johannesburg 165 West Street, Sandton, Johannesburg PO Box 785812, Sandton 2146, South Africa Telephone +27 (0)11 669 9000 Fax +27 (0)11 669 9001. Cape Town SA Reserve Bank Building, 60 St George's Mall, Cape Town PO Box 248, Cape Town 8000, South Africa Telephone + 27 (0)21 480 7800 Fax +27 (0)21 424 1688. London 7 John Street, London, WC1N2ES Telephone +44 (0)207 084 7460 Fax +44 (0)207 831 3134 Web IN ASSOCIATION WITH COULSON HARNEY. Nairobi Unit A, Nairobi Business Park, Ngong Road, Nairobi PO Box 10643-00100, Nairobi, Kenya Telephone +254 (0)20 386 1686 Fax +254 (0)20 386 1687 Web Table of contents 1. Introduction Good Governance involves fairness, king III adopts an apply or explain'. accountability, responsibility and approach which means that the board The third report on Corporate transparency on a foundation of of directors, in its collective decision Governance in South Africa, authored intellectual honesty.

2 One has to making, could conclude that to follow by the king Committee, has been employ one's practised abilities a recommendation would not, in published as the king Report on and honestly apply one's mind in the particular circumstances, be in Governance for South Africa 2009 an unfettered and unbiased manner the best interests of the company. 1. Introduction 1 8. The Governance elements 3. and the king Code of Governance in making a decision that is in the The board could decide to apply Ethical leadership and Corporate Principles, commonly referred to best interests of the company. the recommendation differently 2. What is ' king III'? 1. citizenship 3 as king III. king III replaces the or apply another practice and still previous king Reports ( king I and This guide highlights some of achieve the objective of overarching 3. Effective date 1 Boards and directors 3. king II) and intends to place South the noteworthy issues arising Corporate Governance principles of Audit committees 5 Africa at the forefront of Governance from king III.

3 Fairness, accountability, responsibility 4. 'Apply or explain' 1. internationally. The introduction and transparency. The Governance of risk 7. to king III states that a new report 2. What is king III'? 5. The link between Governance The Governance of Information on Corporate Governance became The current approach has evolved principles and law 1. Technology 8 necessary because of the new What is referred to as king III' really from the comply or explain' approach Companies Act, 2008, and also comprises the king Report on adopted in king II. The reason for 6. Application of the code 2 Compliance with laws, rules, because of changes in international Governance for South Africa 2009 the change is simply that the king codes and standards 8. Governance trends. ( the Report ), the king Code of Committee believes that the language 7. Key aspects of king III 2. Internal audit 8 Governance Principles for South Africa more appropriately conveys the intent The object of Corporate Governance 2009 ( the Code ) and Practice Notes of the king Code from inception Governing stakeholder relationships 8.

4 Rules is to improve the quality of to king III issued by the Institute rather than comply or explain. The Integrated reporting and disclosure 9 leadership which boards are giving of Directors which provide guidance comply or explain approach could to their businesses. Corporate in regard to the implementation denote a mindless response to the 9. Conclusion 9 Governance guidelines seek to assist of the Code. Code and its recommendations, directors to understand what good whereas the apply or explain' regime Governance requires of them. The Code deals with a number shows an appreciation for the fact As discussed in more detail below, of Governance elements, each of that it is often not a case of whether king III adopts an apply or explain' which is broken down into different to comply or not, but rather approach to Corporate Governance . principles which must be applied. to consider how the principles and This is different from the comply In applying these principles there recommendations can be applied.

5 Or explain' approach adopted by are best practice recommendations To quote from the introduction to king II, but king III continues to in the Code, which are amplified king III: In reality, the ultimate follow a voluntary basis for in the Report. compliance officer is not the Governance compliance. company's compliance officer or 3. Effective date a bureaucrat ensuring compliance As Mervyn king points out in his with statutory provisions, but book The Corporate Citizen, good king III is effective from 1 March 2010. the stakeholders.. Governance requires intellectual honesty and is not simply the mindless 4. Apply or explain' 5. The link between Governance compliance with the guidelines in principles and law a code or the provisions of a statute. As with king I and king II, king III. It is worth quoting from Mervyn follows a voluntary basis The next important point in the king 's book: for Governance compliance.

6 In Governance compliance framework other words there is a code is that there is always a link between Good Governance will not result of principles and practices good Governance and compliance from a mindless quantitive compliance on a non-legislated basis. with law. Good Governance is not with a Governance code or rules. 1. something that exists separately from the principles and the Code to achieving sustainable 8. The Governance elements the Constitution and the Bill A code of conduct and ethics the law and it is entirely inappropriate and consider the best practice economic, social and of Rights and to ensure that related policies must be to unhinge Governance from the law. recommendations and the Report. environmental performance. What follows below is a brief measurable Corporate implemented and its overview of the Governance citizenship programmes implementation measured The starting point of an analysis All entities should by way of Sustainability: It should be understood elements and Governance are implemented.

7 And adherence rewarded. on this topic is the duty of directors explanation make a positive statement that business, society and nature are principles set out in the Code, The company's ethics and officers to discharge their legal about how the principles have been interconnected in complex ways and with some references Corporate citizenship and performance should also duties. These duties are grouped into applied or have not been applied. the sustainability of the company to the Report. sustainability require business be reported and disclosed. two categories, namely: the duty This level of disclosure will allow in this environment should be decision makers to adopt of care, skill and diligence, and the stakeholders to comment on and the primary moral and economic Ethical leadership and a holistic approach to Boards and directors fiduciary duties. As far as the body of challenge the board on the quality imperative.

8 Corporate citizenship economic, social and legislation that applies to a company of its Governance . environmental issues in their The first principle in regard is concerned, Corporate Governance Corporate citizenship: Companies The first principle dealt with in core business strategy. to boards and directors is that mainly involves the establishment The manner of application will differ as persons should operate king III under ethical leadership Increasingly, companies view the board should act as of structures and processes, with for each entity and is likely to change in a sustainable manner. Sustainability and Corporate citizenship Corporate , social and the focal point for and appropriate checks and balances that as the aspirational nature of the Code considerations are rooted in the South is that the board should provide environmental responsibility, custodian of Corporate enable the directors to discharge their should drive entities to continually African Constitution, which is the basic effective leadership based on an Corporate , social investment Governance .

9 This entails the legal responsibilities, and oversee improve Governance practices. It is social contract that South Africans ethical foundation. Good and other social initiatives board having a board charter compliance with legislation. important to understand that the have entered into. Corporate Governance as central to doing business. setting out its responsibilities, apply or explain' approach requires is essentially about effective, Companies no longer treat these that the board should meet In addition to compliance with more consideration and explanation Another key aspect of king III relates responsible leadership. initiatives as merely ad hoc at least four times per year legislation, the criteria of good of what has actually been done to to the importance of integrated Responsible leadership is or nice to have, but as an and monitor the relationship Governance , Governance codes implement the principles and best reporting.

10 The need for integrated categorized by ethical values integral part of their business between management and and guidelines will be relevant practice recommendations of reporting stems from the fact of responsibility, strategy. This in turn supports the other stakeholders of the to determine what is regarded as Governance . The introduction to that normal financial reporting accountability, fairness and business growth. company to ensure that the an appropriate standard of conduct the Code and Report specifically of companies generally provide transparency. To provide this company survives and thrives. for directors. The more established state that: a picture of its financial position at the leadership of companies The board should ensure that certain Governance practices become, a particular point in time, but that should direct the strategy the company's ethics are The next principle is that the the more likely a court would regard Each principle is of equal importance there is a need to provide forward- and operations to build managed effectively.