The COVID-19 emergency has prompted much media coverage, panic in some quarters and severe market falls. At a time like this, it is vital that organisations act rationally, says Parmi Natesan CEO: Institute of Directors in South Africa (IoDSA).
 
“Boards are responsible for developing strategy and ensuring an organisation is sustainable. An unfolding global emergency like this is not the time to formulate new strategy. Like all crises, this one will pass and a steady hand is what is needed,” she says. “Boards must offer rational leadership that builds on their existing strategy to steer the organisation through these choppy waters.”
 
Ms Natesan advises boards to consider the following points in responding to the crisis:

• Potential impact on the organisation’s ability to function. While the COVID-19 emergency may not have an immediate impact on the organisation, it is important to look at the possible medium and long-term effects. Among these could be the impacts on the organisation’s extended supply chain and thus its ability to achieve its goals. These impacts could be - difficulty in accessing products or components, or employee absenteeism. Boards should look at what their core products or services are and what the critical dependencies are.

As part of this analysis, the board should consider the impact on the six capitals—Human, Financial, Social and Relationship, Manufactured, Intellectual and Natural—that every organisation depends on.

“Every organisation and industry sector has its own characteristics, and so the impacts of a global health pandemic such as this one, will be unique,” Ms Natesan comments.

• Assess the business continuity plan. Once the potential impact of the emergency on the organisation’s ability to function have been established, the board should assess whether the business continuity plan is able to mitigate the risks sufficiently, or whether it needs to be adjusted.
• Update the risk register. If the risk posed by this emergency is deemed strategic, the risk register should be updated and mitigating controls put in place.
• Develop a crisis communication plan. An organisation’s ability to recover when any risk materialises is hugely dependent on how it communicates with stakeholders. To be effective, crisis communications need to be well planned in advance.

“Risks do materialise, and when they do, boards should resist the opportunity to make snap decisions based on saturation and often exaggerated media coverage. This is the time to make sure that the existing strategies are fit for purpose, and then to act in line with them,” Ms Natesan concludes.

ENDS
​
MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@thatpoint.co.za,  www.atthatpoint.co.za
 
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One of the elephants in the room at this year’s State of the Nation Address (SONA) was the conspicuous absence of any mention of the need to appoint the right people to the boards of state-owned enterprises (SOEs). This is worrying because the President spoke at some length about the need for SOE boards to be based on “expertise, experience and integrity” (SONA 2018) and “credible, appropriately experienced and ethical directors” (SONA 2019), says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA).

“Why no mention of SOE boards and the importance of ethical and effective leadership this year? The President said that 2020 would be the year of getting the fundamentals right, but one cannot think of a more fundamental building block than the quality of an organisation’s leadership. As we all know, the crisis at our SOEs has deepened in the past three years, and the quality of the state’s appointments to the boards of some key SOEs remains a concern,” she says.
Government’s ability to turn thoughts and plans into reality also becomes questionable. A clear example of this gap between intent and implementation is the inexplicable delay in publishing the long-promised framework for the appointment of directors to SOE boards. Government committed to finalising the framework by March 2018, and the IoDSA enthusiastically supported this move, giving input into the much-needed piece of work. The framework was approved by Cabinet late in 2018, but the final version has still not been released for implementation.

The framework is of vital importance because the state, as sole shareholder, has the power to appoint directors, and often executives, at SOEs. These appointments are sometimes based on patronage and/ or political expediency rather than what the SOE in question actually needs to fulfil its mandate. To address this, Government should adopt the best practice recommendations outlined in King IV.

“SONA 2020 stressed that the priority was to stabilise the SOEs but it’s hard to see how this can happen if they do not have boards with the right skills, experience and independence. Public confidence is critical in supporting any economic recovery, and that will rely on general acceptance that SOEs have the right leadership, both at board and executive level, and that the lines of accountability are clear,” comments Ms Natesan. “The IoDSA urges Government to take the steps needed to solve the leadership and governance crisis at our SOEs, and give its efforts to return them to effectiveness and provide them the best chance of success.”

ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@thatpoint.co.za,  www.atthatpoint.co.za
 
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Closing off the recent annual ANC lekgotla, President Ramaphosa warned against party leaders interfering with the boards of state-owned enterprises (SOEs). This is welcome statement given the extent of the crises at various SOEs, and the impact they are having on the economy, says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA).

“One of the primary reasons for the state of our key SOEs is poor governance, with the lack of role clarity between shareholder and board a primary concern,” she says. “The President’s call provides a welcome opportunity for both SOE boards and Government as shareholder to reflect on their roles.”

In a recent paper, “Challenging facing public sector boards”, the IoDSA identified a lack of role clarity as one of the main issues affecting board performance. The paper states that “Many of the challenges around public sector board performance can be traced to overreach by the shareholder.”

As sole shareholder, Government is in a position to exert control over the board in a way that is virtually impossible in the private sector.

However, argues Dr Simo Lushaba, a Chartered Director co-author of the IoDSA’s paper, the shareholder would be well-advised to adopt best practice in the way it interacts with the board.

“The shareholder has to accept that it must balance its policy goals with the need to ensure that the SOE is governed effectively, and thus able to perform as desired. That means appointing people to the board who have the requisite professional and governance skills, as well as the integrity needed to provide ethical and effective leadership,” Dr Lushaba says. “It also means giving the board the space to exercise oversight of the executive and the company as a whole, without undue interference.”

The IoDSA advises the shareholder to take advice from the board when it comes to appointing new members, and conduct the nomination process in a highly transparent manner.

At a practical level, the IoDSA recommends that boards insist on a detailed Shareholder Compact that defines the role, responsibilities and authority of both shareholder and board. It is also desirable to retain the services of an independent governance expert to provide training.

“SOE boards must accept that they have a fiduciary responsibility to the organisation, not the shareholder who appointed them. They must push back when the shareholder encroaches on their rights or prerogatives,” Dr Lushaba concludes. “The consequences of allowing purely political considerations to override everything are there for all to see. SOEs are the nation’s crown jewels. As their shareholder, Government should put in place effective mechanisms to protect the independence of our SOEs, and uphold their good governance, in order to protect them from the undue exertion of political power by the shareholder and poor leadership from the directors. If they do not, we will never be able to bring ourselves back from the brink.”

ENDS

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The tragic drowning of a Parktown Boys’ pupil on an orientation camp attracted national attention—and should prompt the governing bodies of all schools to take a long, hard look at their governance processes, says Parmi Natesan, CEO, Institute of Directors in South Africa (IoDSA).
 
“Aside from the human tragedy of this incident, it is also a major setback for the school, which has suffered acute reputational damage and the collapse of its relationship with its stakeholders, most notably parents,” she says. “The school governing body is analogous to a company’s board of directors, and they have the responsibility for ensuring everything is in place to ensure the institution’s long-term sustainability.”
 
The IoDSA has long believed that while governance in schools is critical, it is often poorly understood and thus neglected. School governing bodies need to take governance seriously in order to discharge their duties effectively, and provide the kind of leadership that will allow schools to navigate their risks, and respond appropriately when a risk does materialise.
 
Ms Natesan says that members of school governing bodies have the same responsibility that a board of directors has towards the school, taking into account the stakeholders (parents, learners, donors and the state in the case of public schools).
 
“By adopting good governance principles, school governing bodies will improve the quality of leadership, decision-making and strategic vision they can offer, to the institution’s ultimate benefit,” she argues. “A well-thought-out and properly executed governance strategy will also build the confidence of stakeholders in the institution.”
 
Another key benefit of strong governance is a better understanding of the risks that threaten the school, how to mitigate them and how to respond effectively when they materialise, adds Muhammad Seedat, Chair of the IoDSA, who has extensive experience as a member and chair of school governing bodies.
 
“The governing body bears the ultimate responsibility for ensuring that the school not only understands the risks that it faces, but also how to mitigate them. For example, has it put a risk register in place along with policies to mitigate the identified risks?” he says. “King IV recognises that risk and opportunity are often two sides of the same coin; in this case, the opportunity is to ensure that this kind of disaster does not happen.”
 
Mr Seedat further argues that school governing bodies also have to accept that risks do materialise, and that it is vital they have policies and procedures in place to ensure the school’s response is effective on all fronts. A concern in the current case is the lack of comment from the governing body.
“Crisis communication is essential in helping an organisation recover from a disaster, and the governing body must ensure a strategy is in place,” he says. “Stakeholders have a legitimate need to be kept informed, and effective communication shows that the school recognises its accountability, and willingness to take the right actions.”
 
The IoDSA’s guide, Governance in Public Schools, is available on its website to help school governors in applying King principles. Please visit https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/01E7EA8E-CA19-4F70-B99A-50A0362028FC/Governance_in_Public_Schools_-_2nd_Edition.pdf.
 
ENDS
 
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South African boards should be looking carefully at King IV’s guidance on board composition and  director independence rather than simply trying to impose a one-size-fits-all rule, says Richard Foster CD(SA), a governance advisor, professional non-executive director and Institute of Directors in Southern Africa (IoDSA) facilitator. An overemphasis on independence can actually rob boards of institutional knowledge and experience.
 
The issue of director independence recently hit business headlines with no fewer than eight members of the Comair board resigning in the past year. The departure of at least four of them has been linked to concerns about their independence expressed by Bidvest.
 
“Principle 7 of King IV was carefully constructed to indicate that optimal board composition required a balance to be struck between knowledge, skills, experience, diversity and independence.
Independence has to be seen within the context of the total composition of the board and its ability to achieve the goal of good governance,” he says. “King IV”s approach is pragmatic and outcomes-based, and does not lay down a fixed rule that no director can be considered independent after a nine-year tenure.”
 
By contrast, the governance codes in the United Kingdom and certain countries in the European Union both prohibit directors from serving longer than a nine-year term.
 
King IV specifically states that independent non-executive directors may serve for longer than nine years if a vigorous assessment is conducted annually to establish that the director “exercises objective judgement and there is no interest, position, association or relationship which, when judged from the perspective of a reasonable and informed third party, is likely to influence unduly or cause bias in decision-making” (Recommended Practice 29).
 
“The litmus test must always be the individual director’s contribution to the board, not his or her length of service,” Foster argues. “By the same token, a wholesale rotation of the board unless particular circumstances dictate , risks losing institutional memory, which in turn could compromise the board’s ability to govern effectively.”
 
Another consideration is that long-tenured directors can actually make a positive contribution to the organisation’s performance. Research shows that in the United States, where there are no explicit term limits for directors, 24% of independent directors have “continuously served in the same firm for fifteen years or more”. The research shows that firms with one such long-tenured director “exhibit superior performance, a lower risk of outside litigation, and higher disclosure and information acquisition”.[1]
 
Foster adds that there are no hard-and-fast rules. Some directors can retain their independence over many years, while others remain valuable but might need to be reclassified simply as ‘non-executive” over time.
 
Given the concern that many institutional investors feel about the independence of non-executives, Foster says that boards should take steps to evaluate the independence of long-serving directors rigorously, and to communicate both their methodology and the reasons for their conclusions.
​
“Disclosure is one of the pillars of King IV because it supports the imperative to apply the practices not for their own sake, but to achieve the outcomes outlined in its 17 Principles,’ he says. “Having a good succession plan in place is further evidence of ongoing and meaningful evaluation, as are structured opportunities for key institutional shareholders to meet with independent directors.”
 
Vikeshni Vandayar, Executive: Governance and Corporate Services at the IoDSA, says that the Institute is currently developing an online tool that organisations can use to probe the independence of their governing bodies. “Assessing independence is part of our board appraisal process, but we have realised that there is a need for standalone product to guide boards. There are many dimensions to independence, and they are affected by the legislation and governance codes that apply.”

[1] Stefano Bonini, Justine Deng, Masica Ferrari and Kose John, “On long-tenured independent directors”, SSRN Electronic Journal, January 2017, available at https://www.researchgate.net/publication/317058944_On_Long-Tenured_Independent_Directors. 
 
ENDS

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Eskom executives including Phakamani Hadebe (Group Chief Executive) at a public forum in Cape Town. 14 Januarie 2019.

​When Jabu Mabuza announced his resignation as Eskom board chair, President Ramaphosa’s spokesperson, Khusela Diko, said government would “soon announce a reconfigured Eskom board with the appropriate mix of electricity industry, engineering and corporate governance experience”.[1]

Commenting on this statement, Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA) says that this opportunity must not be wasted. “The IoDSA has repeatedly warned that government must ensure that state-owned entities have boards with the right mix of skills to fulfil their mandates,” she explains. “One of the critical factors in the performance of our SOEs is the appointment of board members who have the necessary director competencies.”

“At the same time, it’s important to ensure some continuity so that institutional memory is not lost.”

It is thus critical that the board-nominations process is sound and transparent, and that there is good succession planning.

In a recent paper on the “Challenges facing Public Sector Boards”, the IoDSA tackles this and other issues. The IoDSA argues that government should adhere to governance best practice in appointing board members even if it is not obliged to do so. Best practice as outlined in King IV is for board members to be chosen through a rigorous nominations process that takes into account the skills and competencies the board requires.

“Even if it is not compelled to follow best practice, the IoDSA is adamant that it makes good sense for government to work closely with the board and specialist professionals to ensure that the individuals appointed have the skills that the board needs. These would include people skills, governance skills and sector-specific skills,” she says. “Government should resist the temptation to select the new board members on its own—proper consultation with informed people will help ensure the right people are chosen and begin rebuilding public trust in the organisation.”

Dr Simo Lushaba is a Chartered Director and facilitator at the Institute of Directors in South Africa (IoDSA) and a co-author of the IoDSA’s paper. He says that proper due diligence of new directors is absolutely vital, and should ideally be conducted by a third party. He argues that this and other best practices are to the advantage of both the organisation, which will get the leadership it needs to prosper and government, which will benefit from the organisation being able to fulfil its mandate.

The IoDSA has been driving a successful programme to provide professional certification for directors. It is Chartered Director South Africa (CD (SA)) and Certified Director designations provide vetting that an individual has a certain level of competence in directorial skills—and that these skills will be continually refreshed. Holders of these certifications are also bound by a Code of Conduct and CPD requirements enforced by the IoDSA.

“Eskom is a lynchpin of the economy, and we will not reignite economic growth unless we can return it to health. A board that has the right mix of skills is the essential first step,” he concludes. “The same principle holds true of all our SOEs.”

[1] Qaanitah Hunter, “Eskom board chair Jabu Mabuza resigns over load-shedding”, TimesLive, 10 January 2020, available at https://www.timeslive.co.za/politics/2020-01-10-eskom-board-chair-jabu-mabuza-resigns-over-load-shedding/.

ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@thatpoint.co.za,  www.atthatpoint.co.za
For more information on the IoDSA please visit:
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Twitter:  @The_IoDSA
LinkedIn:  Institute of Directors in South Africa Company Page  English: Eskom executives including Phakamani Hadebe (Group Chief Executive) at a public forum in Cape Town.
Datum14 Januarie 2019, 11:23:21

Presenting his report on the audit outcomes for national and provincial entities for the 2018-19 financial year, the Auditor-General, Kimi Makwetu made a call for greater accountability in an effort to stem a continuing increase in the amount of irregular and fruitless and wasteful expenditure that is draining the fiscus and impeding service delivery. Dr Simo Lushaba, a Chartered Director and facilitator at the Institute of Directors in South Africa (IoDSA), agrees that this trend will only be reversed if there are genuine consequences for directors and executives when adverse audit outcomes occur.

“At most, directors or executives are redeployed into other positions across the state system, a sort of pretend termination that is actually no consequence at all,” says Dr Lushaba. “We need civil society to step up and exert pressure on government to hold boards and executive committees to account.”

The Auditor-General’s report stated that irregular expenditure that did not comply with legislation or procurement processes increased from R51 billion to R62.6 billion. Fruitless and wasteful expenditure—money that has been lost to government—also rose to R849 million, for a cumulative five-year total of R4.6 billion.

Parmi Natesan, IoDSA CEO, says that the problem is a complex one and needs a multifaceted approach. A key challenge is that many board and executive appointments are made on political grounds, and that many appointees lack the necessary skills to implement the Auditor-General’s recommendations effectively.

“This speaks to the nomination process of executives and board members, an issue that we have raised time and again,” she says. “Government, as the powerful single shareholder, really needs to take the recommendations of King IV to heart and make these appointments with the best interests of the entity in mind. In similar vein, public-sector boards must actively engage with the shareholder to ensure that individuals with the right skills are appointed.”

She points out that the IoDSA offers Certified Director and Chartered Director designations that can only be obtained if individuals meet certain requirements based on the IoDSA’s Director Competency Framework. To maintain their status, Certified and Chartered Directors have to commit to continuous professional development to keep their skillsets current, and to the IoDSA’s Code of Conduct.

“These certifications thus offer government a credible way of identifying individuals with the necessary skills, but also individuals who can be disciplined by the IoDSA should they act improperly in any way,” she says. “The buck ultimately stops with the board, so directors have a compelling duty to ensure that they collectively have the right skills on both the board, and also specifically in relation to these findings, the audit committee.

“Another big push towards accountability is the growing use of Section 162(5) of the Companies Act to take directors who do not act in the best interests of the company to court. If declared delinquent, the director would no longer be able to act in a similar position for a specified time period. The Act applies to state-owned companies, so could be used the hold their directors to account,” she ends.

ENDS

MEDIA CONTACT: Stephné du Toit, 084 587 9933, stephne@thatpoint.co.za, www.atthatpoint.co.za
 
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The ransomware attack suffered by the City of Johannesburg today sounds a clarion call for boards to revisit their technology governance strategies and take a more holistic view of technology and the risk it poses, says Parmi Natesan, CEO of the Institute of Directors in South Africa (IoDSA).

“Cyber-attacks like this one represent a huge and present risk for all organisations in both the public and private sectors—the City is effectively unable to do business until its systems are restored, and vital corporate and customer data could be lost or compromised,” she says.

According to Marlon Moodley, IT Governance facilitator for the IoDSA, because technology now provides the underlying platform for most business in both the public and private sectors, directors’ responsibility in terms of technology governance is more important than ever before. Globally, directors of both public and private entities are not taking adequate steps to acquire broader skills to understand crucial developments in the fast-moving technology space.

In particular, he strongly argues that directors must beware of taking too narrow a view. Technology pervades every facet of business, and thus its governance must take a similarly holistic view. Financial governance and risk assessment looks at the whole organisation, and the same approach should be followed when it comes to technology. For example, servers are not the only vulnerability—cybercriminals can penetrate corporate IT systems via the multitude of devices in use inside and outside the working environment, as well as through exploiting vulnerabilities in human behaviour. A compromised device is a backdoor into the corporate environment. And a compromised IT environment puts every facet of the organisation at risk.  

Data represents a key collateral risk. Hackers often post or sell corporate data on the Dark Web, so technology and data governance overlap to a great degree, he notes. South Africa, along with a growing number of countries, has tough data-privacy laws with stiff penalties.

“Because of technology’s pervasiveness, directors should make sure they acquire a broader understanding of technology and the trends driving it. But they should also be calling in experts to advise them. The key here, though, is to ensure that both they and the experts take a holistic view that encompasses the entire technology environment and its operational impact, including on sensitive data,” he says.

“Directors also need to ensure that adequate business continuity arrangements are in place. If the corporate IT systems are not usable, there should be an alternate data centre with a clean, reliable replication of the IT environment.”

Ms Natesan concludes that boards in both the public and private sectors face similar challenges relating to technology governance, and that the tendency to take too narrow a view of technology needs to be shifted.

ENDS
 
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The delinquency provisions in the Companies Act are emerging as a key remedy against misconduct by directors in both the public and private sectors.

“What we have seen recently is that these delinquency provisions are increasingly being used to hold directors to account for misconduct,” says Parmi Natesan, CEO of the Institute of Directors in South Africa. “Directors must take note of this, because the penalties are extremely severe.”

In the current battle between Peter Moyo and Old Mutual, the former has instituted action to have the entire board of the company declared delinquent. In the case of the SABC, a news report speculates that the board could be declared delinquent en bloc because they have allowed the corporation to continue trading although it is insolvent.  The Public Investment Corporation (PIC) successfully applied to have two directors it had appointed to the board of VBS Mutual Bank declared delinquent. The court agreed, and the Financial Sector Conduct Authority also disbarred Ernest Nesane, the former executive head of legal at the PIC, and Paul Magula, the former executive head of risk, from practising as investment professionals.[1]  Another instance is the action brought by the Companies and Intellectual Property Commission (CIPC) to have Phumlani Zwane, former director of nuclear services group Nectsa, declared delinquent. This successful application is the first to involve a state-owned entity, and declared Mr Zwane delinquent twice over.[2]

The Companies Act defines various instances of misconduct by a director that could render him or her liable to be declared delinquent by the court. These include consenting to serve as a director while already disqualified or under probation.  Other misconduct that would make a director vulnerable to being declared delinquent includes gross abuse of his or her position, taking personal advantage of information or opportunities that came to his or her attention by virtue of his or her position as a director; or inflicting harm on the company or one of its subsidiaries through gross negligence, wilful misconduct of breach of trust in relation to the director’s fiduciary duties. Provision is also made for barring repeat offenders from holding a directorship again.

The consequences for being declared delinquent could include immediate removal of a director, prohibition from serving as director in future, and severe reputational damage.

A wide range of individuals or juristic persons can bring legal action to declare a director delinquent. They include the company itself, its shareholders, unions, other directors or the company secretary or other prescribed officer.

“A company’s directors bear ultimate responsibility for its success, and they are under an obligation always to act in the company’s best interest. That is a very great responsibility, and comes with great opportunities to make a difference. At the same time, though, failure to discharge that responsibility also comes with heavy sanction,” Ms Natesan concludes.

[1] Warren Thompson, “PIC’s VBS directors declared delinquent”, Business Day (26 August 2019), available at https://www.businesslive.co.za/bd/national/2019-08-26-pics-vbs-directors-declared-delinquent/.
[2] Xolisa Phillip, “High court brings chartered accountant to book”, Daily Maverick (26 August 2019), available at https://www.dailymaverick.co.za/opinionista/2019-08-26-high-court-brings-chartered-accountant-to-book/.

ENDS
 
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The accidental release last week of some 240 tons of toxic effluent into the Msunduzi River in Pietermaritzburg should alert governing bodies to the importance of identifying and addressing environmental and social risk in all their activities, says Karin Ireton, Chair of the Sustainable Development Forum at the Institute of Directors in Southern Africa (IoDSA).
​
According to News24,[1] a suspected burst valve caused storage tanks at Willowton Oil Mills to collapse, and discharge their contents into the Baynespruit tributary of the Msunduzi. The Msunduzi, site of the famous Duzi canoe race, is part of the uMngeni river system. The contamination has already caused the death of thousands of fish as well as livestock, and communities downstream have been advised not to use water from the river for any purpose until it is declared safe.
 
“It is essential that companies plan for worst-case scenarios and implement controls that will prevent contamination of our water courses. Water is essential to all life, and as South Africa is an arid country we must protect it and use it wisely at all times,” says Ms Ireton. “Pollution such as has been seen in the Pietermaritzburg area is not only a breach of regulation but has a long-term and highly significant impact on aquatic life and surrounding communities. It is time for companies to integrate fully the costs of their operations on natural capital, such as water, wetlands, biodiversity as well as the social impact on the impacted communities.
 
“Sadly, this incident is not unique. Other river systems in the country are in crisis and ongoing pollution of the Hennops River, the Vaal River and several others poses major long-term risks for the citizens of this country, exacerbated by failing municipal waste-water treatment facilities and poor waste-management practices by citizens and municipalities."

Parmi Natesan, IoDSA’s CEO, says that this incident once again highlights the fact that all organisations are dependent on the broader context in which they operate.
 
The International Integrated Reporting framework lists six capitals on which businesses rely: Human, Social and Relational, Manufactured, Intellectual, Environment and Financial. The important concept that business exists within, and depends on, a supporting environment is described as the “triple context” of the economy, society and environment in the King Reports on Corporate Governance. King IV indicates that these should not be seen—and reported on—as a whole.
 
“The old view that companies use only financial capital has been superseded by the understanding that all organisations also utilise a range of common resources to deliver value for their shareholders,” Ms Natesan says. “This is why King IV requires members of the governing body to ‘take responsibility for anticipating, preventing or otherwise ameliorating the negative outcomes of the organisation’s activities and outputs on the triple context in which it operates, and the capitals that it uses and affects”.”[2]
 
Because of an organisation’s intimate interrelationship with society and the environment, King IV advocates the concept of corporate citizenship. This means that organisations have both rights and responsibilities as regards society and the natural environment on which both depend. To give effect to these rights and responsibilities, the Companies Act makes it mandatory for certain organisations to form social and ethics committees.
 
King IV further recommends that even organisations that are not obligated to form such committees should put in place a formal mechanism for overseeing and reporting on “organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships”.[3]
 
“A key insight of King IV is that risk and opportunity are two sides of the same coin. It’s thus critical that governing bodies understand how the organisation creates value, but also the potential negative impacts it might have on the various capitals on which it relies,” Ms Natesan concludes. “The governing body bears ultimate responsibility for ensuring that effective plans are in place to mitigate risk and, if it materialises, to minimise its effects. Organisations without such plans risk regulatory sanction and a potential fine, but the longer term risk of a weakened social licence to operate could be even more harmful.”

[1] Nokuthula Khanyile, “Toxic sludge chokes Duzi”, The Witness (15 August 2019), available on https://m.news24.com/SouthAfrica/News/toxic-sludge-chokes-duzi-20190814.
[2] IoDSA, Report on Corporate Governance for South Africa 2016 (King IV), Recommended Practice 1(c)(iii).
[3] King IV, Recommended Practice 68. 
 
ENDS

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