The King Report on Corporate Governance is a ground-breaking code of corporate
governance in South Africa issued by the King Committee on Corporate Governance.
Three reports were issued in 1994, 2002, and 2009. Compliance with the King
Reports is a requirement for companies listed on the Johannesburg Stock
Exchange. The King Report on Corporate Governance has been cited as "the most
effective summary of the best international practices in corporate
governance". History
In July 1993 the Institute of Directors in South Africa asked retired Supreme
Court of South Africa judge Mervyn E. King to chair a committee on corporate
governance. He viewed this as an opportunity to educate the newly
democratic South African public on the working of a free economy. The
committee's report was to be the first report of its kind in South Africa.
Committee members included Phillip Armstrong, Nigel Payne, and Richard
Wilkinson. Approach
Unlike most corporate governance codes such as Sarbanes-Oxley, the code is
non-legislative, and is based on principles and practices. It also
espouses an apply or explain approach, unique to the Netherlands until King and
now also found in the 2010 Combined Code from the United Kingdom.
The philosophy of the code consists of the three key elements of leadership,
sustainability and good corporate citizenship. It views good governance as
essentially being effective, ethical leadership. King believes that leaders
should direct the company to achieve sustainable economic, social and
environmental performance. It views sustainability as the primary moral and
economic imperative of this century; the code's view on corporate citizenship
flows from a company's standing as a juristic person under the South African
constitution and should operate in a sustainable manner.
King I In 1994 the first King report on
corporate governance was published, the first corporate governance code for
South Africa. It established recommended standards of conduct for boards and
directors of listed companies, banks, and certain state-owned enterprises. It
included not only financial and regulatory aspects, but also advocated
an integrated approach that involved all stakeholders.
It was applicable to all companies listed on the main board of the
Johannesburg Stock Exchange, large public entities as defined by the Public
Entities Act of South Africa; banks, financial and insurance companies as
defined by the Financial Services Acts of South Africa; and large unlisted
companies. It defined "large" as companies with shareholder equity over
R50 million, but encouraged all companies to adopt the code.
The key principles from the first King report covered:
Board of directors makeup and mandate, including the role of non-executive
directors and guidance on the categories of people who should make up the
non-executive directors Appointments to the board and guidance
on the maximum term for executive directors
Determination and disclosure of executive and non-executive director’s
remuneration Board meeting frequency
Balanced annual reporting The requirement for effective auditing
Affirmative action programs The company’s code of ethics
King II In 2002, when the Earth Summit was held
in Johannesburg, King pushed for a revision of the report, including new
sections on sustainability, the role of the corporate board, and risk
management. This revised code of governance was applicable from March
2002. In addition to those types of
organizations listed in King I, it was applicable to departments of State or
national, provincial or local government administration falling under the Local
Government: Municipal Finance Management Act, and public institution or
functionary exercising a power or performing a function in terms of the
constitution, or exercising a public power or performing a public function in
terms of any legislation, excluding courts or judicial officers. As before,
it encourages all companies to adopt the applicable principles from the code.
The key principles from the second King report covered the following areas:
Directors and their responsibility Risk management
Internal audit Integrated sustainability reporting
Accounting and auditing = Legislative Enforcement =
As before, the code is not enforced through legislation. However, it
co-exists with a number of laws that apply to companies and directors
including the Companies Act. In addition further enforcement takes place by
regulations such as the JSE Securities Exchange Listings Requirements.
King III In an interview with Mervin King, he
considered the King II report was wrong to include sustainability as a separate
chapter, leading companies to report on it separately from other factors. In the
next version, the 2009 King III report, governance, strategy and sustainability
were integrated. The report recommends that organisations produce an integrated
report in place of an annual financial report and a separate sustainability
report and that companies create sustainability reports according to the
Global Reporting Initiative's Sustainability Reporting Guidelines.
In contrast to the earlier versions, King III is applicable to all entities,
public, private and non-profit. King encourages all entities to adopt the
King III principles and explain how these have been applied or are not
applicable. The code of governance was applicable from March 2010.
The report incorporated a number of global emerging governance trends:
Alternative dispute resolution Risk-based internal audit
Shareholder approval of non-executive directors’ remuneration
Evaluation of board and directors’ performance
It also incorporated a number of new principles to address elements not
previously included in the King reports: IT governance
Business Rescue Fundamental and affected transactions in
terms of director’s responsibilities during mergers, acquisitions and
amalgamations. Again, the code of corporate governance
is not enforced through legislation. However, due to evolutions in South
African law many of the principles put forward in King II are now embodied as
law in the Companies Act of South Africa of 2008. In addition to the Companies
Act, there are additional applicable statutes that encapsulate some of the
principles of King III such as the Public Finance Management Act and the
Promotion of Access to Information Act. Integrated reporting
The Unites Nations Global Compact and the Principles for Responsible
Investment OECD Guidelines for Multinational
Companies Global Reporting Initiative’s G3
guidelines The United Kingdom Companies Act of 2006
References External links