The Draft Report for Corporate Governance for South Africa (King III or King 3) and the Draft Code of Governance Principles were released for comment on 25 February 2009. Comment should be submitted before 25 April 2009. The practice notes or guidelines (which provide the necessary guidance on the implementation of the code) will not be available for public comment and will be made available on 1 September 2009 together with the final King III.
Who will King 3 apply to?
It applies to all entities – big and small, public and private – on an “apply or explain” basis. The Report states that “In contrast to the King I and II codes, King III applies to all entities regardless of the manner and form of incorporation or establishment.”
The Code states that “All entities should apply both the principles in this Code and the best practice recommendations in the Report. In situations where the board or those charged with governance decide not to apply a specific principle and/or recommendation, this should be explained fully to the entity’s stakeholders. Where entities have applied the Code and best practice recommendations in the Report, a positive statement to this effect should be made to stakeholders.”
All entities and directors should be reading, considering the implications of and if necessary submitting comments on King III.
Where can I get King 3?
The Draft King Report and Code for South African 2009 are available on the website of the Southern African Chapter of the Institute of Directors. You can read them as an eBook or download them. Please let us know if you struggle to access them.
Key points about King 3
Some interesting aspects or key points adopted that stood out for us are:
- Apply or explain basis – you should apply it or give reasons why you have not applied it
- Risk-based approach – as opposed to pure legal compliance[private]
- Integrated Reporting – requires social, environmental and financial reporting
- The financial crisis – page 9
- Sustainability, ethics, and new era risks (such as reputation) are fundamental – page 13
- Alternative Dispute Resolution (ADR) preferred over litigation – page 16 and 122
- IT risks – page 69
- IT governance and IT security – page 17 and 90
- Importance of stakeholder relationships
- Executive remuneration fixed by stakeholders
- Internal audit should play a key role in assessing that controls are adopted
We will be writing more about King III in the future. Michalsons will be reviewing King III and responding on behalf of clients.