Much has changed since King IV came into effect on 1 April 2017 but, says the chair of the King Committee, Ansie Ramalho, its principles and practices are expressed at a sufficiently high level of generality to empower boards to apply them in the current circumstances.
“There have been a number of developments in the past few years that will influence how organisations are led and governed over the next decade and beyond,” says Ramalho. “We are currently reflecting on these developments and what they mean for corporate governance, and whether additional clarity or guidance might be required. At this stage, though, we believe that any update of King IV would be premature—especially given the ongoing developments relating to global reporting requirements and standards, as well as the pending Companies Act Amendment Bill.”
One of the developments currently being debated by the King Committee is recent rapid advances in artificial intelligence and technology generally, which raise significant, complex risks and ethical issues.
At a global level, regulations and standards that deal with sustainability disclosure by companies are also being introduced at an unprecedented speed. Environmental, social and governance (ESG) issues are re-emphasising the focus on the organisation’s purpose and are affecting corporate reporting and disclosure significantly.
Human capital governance has become more complex as a new generation of employees enters the corporate world with a novel set of expectations, while the way organisations are run has changed significantly as working habits change in response to the COVID-19 lockdowns.
Board composition is also a developing area, with consideration being given to greater stakeholder representation or other suitable mechanisms to enrich decision-making.
In the South African context, the Companies Act Amendment Bill looks set to introduce significant amendments to the current Act. The Bill was issued for public comment in 2021, but no final version has yet appeared. However, its proposed provisions for strengthening oversight by social and ethics committees of companies’ social and environmental performance, its introduction of accountability mechanisms for the wage gap, and shareholder voting on remuneration are all clear signals of the prevailing mood, as is the cautionary statement in the Bill’s explanatory memorandum that regulation to include employees in governance structures is to follow.
In the wake of the Zondo reports, the country’s greylisting and current geo-political concerns, South African organisations are particularly affected by governance issues relating to corruption, including money laundering, terrorism, and transparency regarding the true owners of a company.
King IV unequivocally maintains that operating context needs to be accounted for in strategy development, risk management, performance and reward systems and reporting, but the balancing act is becoming increasingly difficult, says Ramalho. Businesses are increasingly being expected not only to mitigate external risks but to contribute proactively to not only the economies in which they operate but also the health of society and the planet. The move to incorporate ESG factors into investment decisions shows that so-called “non-financial” factors ultimately have financial consequences. Investors are increasingly taking into account the context in which a company operates.
This balancing act between financial and non-financial factors is particularly difficult for South African companies. In the interests of their own survival, they are increasingly having to step into gaps created by the government’s inability to deliver key services. To attract investment, South African companies will need to demonstrate that they are able to survive in an overall environment which is fraught with threats and vulnerabilities, Ramalho believes.
“I would like to assure all our stakeholders that the King Committee is keeping abreast of the evolving corporate governance trends and has been considering their potential impact on the King IV Report. While any formal update is premature at this stage, we stand ready to offer South African organisations any further insights or guidance that may be required as these trends unfold. We also envisage that this process will include stakeholder engagement,” she says.
“The King Committee reaffirms its belief that corporate governance does not exist for its own sake, but as a way of building resilient and healthy companies that are fit for this complex operating context.”
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