 President Ramaphosa’s State of the Nation speech for 2019 highlighted the key role that small businesses play in stimulating economic activity, and their impact on broad-based empowerment. A key element to building sustainable small and medium businesses (SMEs) is to ensure their governance structures and processes grow alongside their financials, says Parmi Natesan, CEO Elect of the Institute of Directors in Southern Africa (IoDSA).
“SMEs are drivers in an economy that is both inclusive and growing, but only if they can sustain their growth and provide stable livelihoods for more and more people. We thus need to pay equal attention to the post-incubation phase,” she argues. “Flexible and effective governance structures have a key role to play in the growth of an entrepreneurial start-up into a corporation.” Recent research by the Small Business Project[1] shows that while SMEs make up 98.5 percent of the South African economy, they only provide 28 percent of jobs. One reason is that 3.3 million of the approximately 5.6 million SMEs are classified as “survivalist”. Such businesses often only employ the owner and seldom show growth. By contrast, the research shows, in OECD countries, over 95 percent of enterprises are SMEs which provide up to 70 percent of all jobs and up to 60 percent of the gross domestic product. “Good corporate governance can help an SME by making its leadership structures more effective and thus better able to support its strategic objectives,” she says. Aside from the development of a more effective leadership structure, SMEs can derive other significant benefits from good corporate governance. These include:
King IV has been intentionally structured to make these benefits more accessible to SMEs. It does so by not focusing prescriptively on what should be done or what roles or committees are called, but on what the desired outcomes are. Crucially, it introduces the key concept of proportionality, in terms of which organisations can scale the practices they adopt in accordance with their turnover and workforce size, their resources, and the extent and complexity of their activities. King IV also includes a supplement to provide SMEs with specific but flexible guidance for how to adapt the Code to their needs. King IV thus recognises that governance delivers very desirable outcomes, but that each organisation is unique and must be able to adapt its practices to achieve the principles set out in the Code. “In the spirit of Thuma Mina (Send Me), the IoDSA is soon making an e-learning module on governance for SMEs available to them free,” concludes Natesan. “By making e-learning on corporate governance available free for SMEs, the IoDSA recognises the financial pressures that they face. We hope this initiative will play a part to help this vital sector of the economy reach its potential, to everybody’s benefit.” [1] “The alarming truth about the number of small businesses in South Africa”, Business Tech (25 July 2018), available at https://businesstech.co.za/news/business/260797/the-alarming-truth-about-the-number-of-small-businesses-in-south-africa/. 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: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern Africa Company Page
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 The Institute of Directors in Southern African (IoDSA) has welcomed government’s commitment to improve governance, strengthen leadership and restore stability in strategic state-owned enterprises (SOEs).
President Cyril Ramaphosa said in his 2019 State of the Nation Address that government is taking measures where mismanagement and corruption have undermined the effectiveness of these enterprises. This included the appointment of new boards with “credible, appropriately experienced and ethical directors”. Parmi Natesan, CEO Elect of the IoDSA, says they have consistently highlighted the need for appointment of skilled individuals to boards and thorough due diligence on those appointments. “Board appointments in the public sector specifically, should be based on expertise, experience and integrity and not, by implication, on political connections.” Directors need to have the requisite knowledge, skills, experience and personal qualities, and should be appointed through a formal process. This is critical in any organisation, but particularly for SOEs because of their influence on the rest of the country and economy. Independent performance reviews Good corporate governance is paramount to the success of the SOE itself, and to protect and advance the interests of the country and its citizenry. Governance helps enhance the functioning of leadership structures of an SOE, and provides the arrangements by which the SOE should be governed so that it is able to meet its strategic objectives. Natesan says the value of regular and independent evaluations of board performances, as recommended in King IV, should not be underestimated. Some boards may choose to “self-evaluate” their performance. However, getting an experienced third-party party to facilitate the performance evaluations will ensure franker and more open feedback, she says. The IoDSA has over the years facilitated a number of independent performance evaluations on the request of public sector boards. However, more of these boards could benefit from this annual “litmus test” of their performance. The buck must stop with the board “One of the key findings in these board evaluations, that came up during interviews with the board directors, was their concern about interference from the state.” Generally, shareholders appoint the board members, and it is then the board’s responsibility to direct the company – as the board, after all, carries the potential liability. “What we have found with the public sector, is a feeling amongst some of the directors themselves, that they do not really have independent discretion on the decisions they make - they sometimes feel that they have to toe the line.” It is the board’s responsibility to act in the best interest of the organisation, and not the best interest of government or the party that appointed them. Clarity around the role of shareholders (the state) and the role of the board remains critical. If boards are to be accountable for the performance of the SOE, then they have to have the freedom to exercise their collective judgement in its best long-term interests, says Natesan. 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: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern Africa Company Page  By Parmi Natesan - IoDSA Executive: Centre for Corporate Governance
The recent news that Maria Ramos would be retiring in February after 10 years as CEO of ABSA should be a reminder to the boards that management succession planning is critical, especially when it comes to crucial positions like that of the CEO, says Parmi Natesan, who herself will soon become the new CEO of the Institute of Directors in Southern Africa (IoDSA). “The CEO is the keystone of any organisation, and so a board should always have a clear strategy for replacing him/her,” says Ms Natesan. “Ideally, the board should plan well in advance for the exit of a key role player like a CEO, and even have a suitable successor in the pipeline. If the new CEO is an external appointment, it is very possible he/she would not be immediately available, so a strong interim CEO who is fully conversant with the organisation—as seems to be the case with Absa—is probably advisable.” The IoDSA believes there are some critical issues that boards should consider when it comes to succession planning for the senior management roles they have the responsibility for filling, such as that of the CEO: Be alert for the signs that a CEO has served long enough. One of the hardest decisions for a board is when a CEO should leave, both for the good of the individual and the organisation. While there are no easy answers to this perpetual conundrum, and every individual and organisation is unique, research does suggest that around five years on average is a good rule of thumb. “Ms Ramos is at pains to stress her own conviction that CEOs should be systematically replaced to ‘allow for a regular refresh’, and that she only stayed in the post for so long because of the need for continuity and stability during a time of significant change for the organisation,” Ms Natesan notes. “In other words, a leading CEO confirms the view that, all other things being equal, even the best CEOs should not stay too long.” Give culture/ value fit due weight in the selection process. Given the impact he/she has on an organisation, appointing the CEO is one of the board’s most critical responsibilities. With stakeholder relations and reputation management being core components of a CEOs role, care should be taken not to focus exclusively on the candidate’s ability to take the organisation forward strategically and financially; there should also be a fit in terms of the already established culture and values of the organisation. “This is particularly important when one considers the importance of embedding ethics into the organisation, and the fact that an ethical, values-based culture always comes from the top,” she observes. Support the new CEO and be open to change. The board’s responsibilities do not end when the new CEO takes up his/her post. It needs to provide guidance and support to help the new CEO become effective as quickly as possible but, at the same time, the board should also be open to the inevitable changes that the new incumbent will introduce. The same goes for the rest of the executive team, who should consciously strike a balance between showing “how we do things here” and embracing the changes that the new CEO has, after all, been hired to initiate. 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: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern Africa Company Page  Recent news reports relating to the withdrawal of a non-executive director up for re-election due to his non-attendance at meetings for four years by Purple, a JSE-listed company, highlight one critical area of a director’s responsibility: the necessity to attend board meetings. Parmi Natesan, CEO Elect of the Institute of Directors in Southern Africa (IoDSA) says that King IV recommends that attendance at board meetings is an important responsibility for directors.
“King IV is clear that members of the governing body should attend meetings in order to fulfil their responsibility to discharge their duties effectively,” she says. “Non-executive directors need to prepare for, attend and participate in meetings in order to make a genuine contribution.” The need to attend meetings forms part of the recommended practices for achieving Principle 1 of King IV: The governing body should lead ethically and effectively. Attendance of directors at meetings is also thus one of the items that should be disclosed. “It is important to note that boards take decisions collectively, so the process of debate that leads up to the decision also needs to be a collective effort. It is not simply a matter of providing input in between meetings, although that’s part of it,” she says. “It is in the process of constructive challenge and debate that ideas and decisions come to light. A good board is more than the sum of its parts, and this alchemy begins with directors interacting with each other at meetings.” Attendance at meetings of the board should also be taken into account when assessing the performance of a director who is up for re-election. In light of this, nomination committees should carefully consider whether the director up for re-election has attended meetings, has been well-prepared for the meetings, was able to engage fruitfully at meetings, and has added value to the Board and the organization as a whole. Directors can only make a positive contribution at meetings if they are present, and well-prepared, she says. “Of course, in today’s digital world that attendance need not necessarily be physical — directors in other parts of the world can still be present electronically. Dialing in is always an option but, even better, video-conferencing offers an increasingly good platform for personal interaction,” she adds. “A good resolution to begin 2019 is for directors to pledge to attend board meetings and make their contribution really count.” 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: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern Africa Company Page  Winners 2018
Angela Cherrington - CEO of the IoDSA, Natasha Katuta Mwila, Prudence Zimbwa, Christine Fourie, Mikaeel de Main, Deirdre Botha, Ansie Ramalho - King IV Project Lead at the Institute of Directors in Southern Africa (IoDSA), Zukisa Xotyeni - Deputy Director: Investments at the UIF The 2018 African Governance Showcase, an annual competition for the best African corporate governance study, has been won by Mikaeel de Main for a case study entitled “Caffeine, Critics, and Crucial Decisions—A fictional account of ABSA and its shared value approach to corporate citizenship”. The competition is run by the Institute of Directors in Southern Africa (IoDSA) and the International Finance Corporation, and sponsored by the Swiss State Secretariat for Economic Affairs. Second place went to Christine Fourie, Deirdre Botha, and Teboho Maruping for the case study “Unemployment Insurance Fund (UIF): Bird flu infects UIF financials”, while third place was shared by Prudence Zimbwa for “A company board of directors: a nuisance or a necessary burden?” and Natasha Katuta Mwila for “An internal control dilemma at Sheys360 (a Zimbabwean SME)”. The first place award-winner received a cash prize of R30 000, while second and third place winners received R25 000 and R20 000 respectively. The top award winners also received free membership of the IODSA for three years and a profile in Directorship magazine. The awards were presented at a function on 21 November 2018 by Professor Mervyn King, the convenor of the King Committee. Angela Cherrington, CEO of the IoDSA, says that the competition was instituted to develop a body of good case studies that reflected the challenges and successes in corporate governance across the continent. It is open to global submissions across all areas of African corporate governance; case studies must be based on the experiences of organisations that could be expected to, or chose to, apply the principles either of the King Reports on Corporate Governance or the corporate governance codes application to the country in which the organisation operates. “Case studies demonstrate how corporate governance is used well or badly in practice,” she points out. “They offer a great way for people to understand more deeply how the principles of corporate governance should—or should not— be applied, and what the results can be. The African Governance Showcase is creating an invaluable library of African corporate governance in action; this year’s winners add to the growing body of case studies on which African organisations can learn.” 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: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern Africa Company Page  Findings from the inaugural Global Director Survey 2018 show poverty and income inequality as the top concern for directors around the world, closely followed by taxation and government spending, and the cost of healthcare. The Global Network of Director Institutes (GNDI) released the findings on 20 September 2018.
“The survey highlights that directors around the world share similar concerns and challenges as they look to the future for the organisations they govern,” said GNDI Chair Angela Cherrington, who is also CEO of the Institute of Directors in Southern Africa (IoDSA). “Within the global picture, regional findings showed poverty and inequality were most concerning for governance communities in Africa-Middle East and Asia-Pacific. Taxation was the biggest concern for directors in the Americas, while directors in Europe were most concerned about the cost of healthcare.” The Global Director Survey was conducted over six weeks from mid-May to end of June 2018 by the Institute of Directors of New Zealand on behalf of the GNDI. 2,159 directors from 17 countries participated in the survey. 53% of participants served on three to four boards, indicating solid experience and broad insights. 36% were on boards of private companies, 23% were on boards of listed companies, and 22% were directors of not-for-profit organisations. “This survey helps us to understand the big challenges, opportunities and trends emerging globally for directors working with organisations around the world. Directors have a critical role in society as agents of good governance and as decision makers driving future investment and growth.” The Global Director Survey Report 2018 provides wide-ranging insights into the topics that are top of mind for directors worldwide, including social and economic issues and risks, business confidence, governance practices, technology and data governance. Big Data top technological disruptor Big Data also ranked high on the global agenda as a potential disruptor – 63% of directors from around the world regarded Big Data as the top technological disruption to their organisations. “Although Big Data is on the governance radar, many boards are not taking advantage of it to improve effectiveness, boost performance, mitigate risks and improve data privacy,” said Cherrington. “There are immense potential benefits from data and data analytics, alongside equally significant privacy risks.” The Global Director Survey found that though 61% of directors had good or excellent understanding of their organisation’s data privacy practices, 37% felt they had limited or no understanding. 53% of directors surveyed believed their boards understood cybersecurity and cyber-risks to their organisations. “Boards have a key leadership and oversight role in data governance. For a board to ask management the right questions and hold management to account, they need to understand and address data privacy and cybersecurity issues as they arise.” Focus shift to triple bottom line Ethnical behavior, health and safety and employee engagement were of particular relevance to the directors surveyed. Environmental issues rated lower in the survey, however, Cherrington expects that over time environmental issues will be more on the board radar. “Wider environmental concerns can impact the sustainability of organisations long-term,” explains Cherrington. “The environment, climate change, carbon-related issues and resource management will become more important and part of the conversation for more countries as the Paris Accord and United Nations Sustainable Development Goals get more attention.” Directors’ business confidence generally positive The Global Director Survey 2018 also probed directors’ business confidence. The survey found 45% of directors were “mostly” or “very confident” about prospects for growth over the coming year. Another 36% were “moderately confident”. Private and listed companies were more confident than not-for-profit and government organisations. The GNDI is an international collaboration that shares expertise in directorship and corporate governance. GNDI collectively represents more than 130,000 individual directors and governance professionals. It aims to develop and promote leading practices and programmes that enhance the capability of directors to drive sustainable performance for the benefit of shareholders, the economy and society. The full 43-page Global Director Survey Report 2018 is available at bit.ly/gndidirectorsurvey ENDS MEDIA CONTACT: Juanita Vorster, +27 79 523 8374, juanita@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern Africa Company Page Meetings of the governing body provide the mechanism through which strategic decisions are taken and the organisation’s performance is monitored. It is vital that the agenda of each meeting is properly structured in order to ensure that the governing body considers the right issues and thus makes the right decisions.
“In law and in terms of governance codes like King IV, governing bodies have wide responsibilities, including ultimate responsibility for the organisation’s performance and, in the case of companies, directors are held personally liable for the decisions taken,” says Anton van Wyk, Chair of the Corporate Governance Network, a forum of the Institute of Directors in Southern Africa sponsored by PwC. “As the responsibilities of the governing body expand, it is vital that the agendas for its meeting provide the right framework to encourage the right decisions to be taken.” Clearly, the ideal agenda for any governing body would be driven by the organisation’s unique strategy and context. The Chair is responsible for compiling the agenda, in consultation with the CEO and the company secretary, and the process should be informed by the following principles:
As already noted, the actual items on the governing-body agenda would depend on the organisation’s particular circumstances and strategy. However, the following should be considered as permanent agenda items:
“Time spent on crafting an agenda that promotes the right level of conversation about the right issues is time well-spent,” concludes van Wyk. “Without it, it is likely the governing body will not exercise oversight effectively, and will fail in its duty to guide the organisation successfully into an uncertain future.” The IoDSA’s Corporate Governance Network has recently published a paper on this topic: The governing body agenda. Two other papers relate to this topic: Governing body’s role in cyber resilience and Governing bodies’ role in preserving the broad moral landscape. ENDS MEDIA CONTACT: Juanita Vorster, 079 523 8374, juanita@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern Africa Company Page  One of the most persistent challenges relating to governance is the tendency to focus on form rather than substance. In line with King IV, it’s time finally to accept that governance is not an end in itself, but a tool for delivering outcomes, says Parmi Natesan, Executive: Centre for Corporate Governance at the Institute of Directors in Southern Africa (IoDSA) and Professor Deon Rossouw, CEO of The Ethics Institute.
“Organisations only exist in order to deliver on their purpose and, similarly, governance only exists in order to help them do that,” says Professor Rossouw. “Governance got a bad name because people persist in seeing it in terms of compliance, structures and policies. Of course, these things are important only as tools to help deliver outcomes.” This focus on outcomes is very much a feature of King IV, which was designed to link governance practices with four governance outcomes, notes Ms Natesan. “The critical point is that structures need humans to give them life, to use them to deliver the desired results. Governing bodies must therefore ensure that the governance structures are indeed achieving the desired governance outcomes,” she says. King IV identified four governance outcomes: an ethical culture, good performance, effective control and legitimacy. Boards can therefore measure whether the structures they have put in place, and the way they are being used, are effective by measuring the extent to which these outcomes are being attained. Clearly, then, the personal qualities and actions of the members of the governing body are critical in ensuring that the governance objectives are achieved, that substance follows form. King IV retained the four cardinal values that should underpin good governance—responsibility, accountability, fairness and transparency (RAFT)—but added two further ones: integrity and competence. This recognises that governance structures will only be valuable if they are used by people who are prepared to put their own interests aside and act ethically in the best interests of the organisation, beyond mere legal compliance, and who have the requisite knowledge both of the organisation and the industry in which it operates. “It is important to recognise that governing-body members have to cultivate these characteristics in order to make them instinctual,” Professor Rossouw argues. “People aren’t born with integrity, competence or any of the others, they have to be nurtured.” As with any enterprise involving human behaviour, moving from form to substance is no easy task. Some guidelines for assisting are: • Select members of the governing body carefully. It all begins with selection, says Professor Rossouw, so nomination committees must actively seek people with these cardinal virtues. • Orient new members properly. Once selected, it is vital that new members of the governing body are properly educated about what their new role entails, and continually reminded that they are there primarily to serve the best interests of the organisation, not those of any particular stakeholder. • Structure meetings carefully to ensure that members have the right types of conversation, and do not confine themselves to ticking the boxes. Courage becomes important here—not just moral courage but also the courage to take the right risks. • Hold members of the governing body accountable. There are several elements to this. First, peer pressure must be harnessed to create a positive atmosphere in which members continually assess their own performance and that of their fellow members. Courage will also be at a premium here but it is equally important the board is truly diverse, says Ms Natesan. This is needed to overcome the “buddy mentality” in addition to measures like gender, race and age. At the same time, though, it must be recognised that self-appraisal is no substitute for the stakeholders assessment of the extent to which the four governance outcomes have been achieved. Ms Natesan stresses that there is not necessarily more unethical behaviour now, just that it is more visible—something she sees as positive. She argues that, going forward, how governing bodies disclose about governance and its results will become more and more important. The disclosure must convince stakeholders not just that the right governance structures are in place, but that they are delivering results, she says. Looking forward, adds Professor Rossouw, as we move away from compliance to reporting on integrated performance, the triumph of substance over form will be shown when it is clear that the organisation has not only achieved its purpose in the past, but is well-positioned to continue achieving it into the future. ENDS MEDIA CONTACT: Juanita Vorster, 079 523 8374, juanita@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern Africa Company Page  One of the hardest issues facing remuneration committees is how to structure executive remuneration packages in such a way as to promote value creation, and reward performance that advances the organisation’s business strategy. All too often, the performance measures in the executives’ incentive schemes differ from those in the strategy. As a result, we find organisations asking executives to do one thing yet paying them to do another.
Speaking at the launch of a position paper authored by the Institute of Directors in Southern Africa’s Remuneration Committee Forum on Paying for sustainable performance, its chairman, Ray Harraway introduced the problem. “Over the years, our understanding of performance has deepened and broadened—financial performance alone is no longer considered to be a complete or adequate proxy for sustainable organisational performance. The trouble is that organisations and their shareholders, especially institutional investors, find it hard to agree on what actually constitutes performance and thus what should be measured.” As a result, many remuneration committees adopt remuneration policies and metrics that conform with industry benchmarks rather than the organisation’s unique strategy and the context in which it is operating. In other words, remuneration is often tied to metrics that do not actually create value for the organisation. “This can be called the ‘strategy-remuneration’ gap,” Mr Harraway said. Principle 14 of King IV spells out what remuneration committees have to aim for: The governing body should ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term. The IoDSA paper proposes a three-step process to help remuneration committees bridge this strategy-remuneration gap: Define the value outcomes. What these are and how they are measured will differ from organisation to organisation. Remuneration committees should consider measuring not just the outcomes, but the actions taken to achieve them, notes Tim Anderson, an independent governance consultant and one of the paper’s authors. “The reason is that outcomes can be achieved by ‘good’ or ‘bad’ actions and are open to manipulation” he explains. Clearly, remuneration should be linked to the positive actions. Develop the strategy. This step confronts the question of how the organisation will achieve its defined value outcomes. The key step here is to identify the value drivers, the activities that will produce the desired value outcomes. It’s critical that each organisation positively establishes that there is a cause-effect relationship between value drivers and value outcomes. A challenge here is to take into account the fact that long-term projects initiated during an executive’s term of office may only come to fruition long after he or she has moved on. This means that executives would have to be assessed throughout his or her tenure on meeting key milestones rather than on the final result. Link to executive remuneration. The final step is to link the incentive design to the organisation’s strategy. In practice it is usually found to be the weakest of the three steps, and thus where remuneration committees need to do some deep thinking—this weakness is the origin of the strategy-remuneration gap. One key element is to ensure that the link between what is measured in determining remuneration is truly aligned with the business strategy but, counselled Mr Anderson, care must be taken not to include too many metrics. “The skill comes in identifying the metrics that have the most impact on the organisation’s results—too many metrics and you risk confusing the executive and diluting the effectiveness of the remuneration design for creating value,” he said. According to Chad Schaefer, People Advisory Services Africa Leader at EY (the sponsor of the forum), “Getting pay for performance right is hard, but it is the main task facing remuneration committees at the moment, especially given the high profile of executive remuneration. If you can credibly link the salaries and incentives you pay to performance and value creation, you can defend your remuneration policy successfully.” ENDS MEDIA CONTACT: Juanita Vorster, 079 523 8374, juanita@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern Africa Company Page  The first reports and disclosures in line with King IV principles are beginning to appear. King IV is effective in respect of financial years starting on or after 1 April 2017. It would appear that certain organisations still require a deeper understanding of the implications of King IV’s “apply and explain” approach, says Richard Foster, a governance advisor, professional non-executive director and Institute of Directors in Southern Africa (IoDSA) facilitator.
“King III’s ‘apply or explain’ regime had the unintended consequence of allowing organisations to adopt something of a tick-box approach to reporting and compliance. The new approach signals a decisive departure from that way of doing things because it requires organisations to explain how they have applied the 17 principles of King IV,” he says. “The idea is to give stakeholders a real idea of what the organisation is doing to embody the code and the quality of its governance—and how it is using the code to achieve all of this.” The key here is the requirement to explain. Explanation means that stakeholders can easily ascertain whether the organisation is making satisfactory progress towards good governance. It also, to quote Professor Mervyn King, the convenor of the King Committee in his foreword to King IV, “encourage[s] organisations to see corporate governance not as an act of mindless compliance, but something that will yield results only if it is approached mindfully, with due consideration of the organisation’s circumstances.”Foster suggests the approach should be welcomed because it provides a great deal of flexibility in line with the principle of proportionality. Organisations are now free to adapt how they give effect to the Principles of King IV in line with aspects such as their risk profiles, level of complexity, resources, impact on the triple context and other specific circumstances—provided they explain clearly what their thinking was. “Disclosure under King IV directs us away from a quantitative approach to compliance (‘We have implemented the following recommended practices’ or ‘We have implemented all recommended practices except’) to a qualitative one (‘In order to give effect to this Principle of good governance, we have taken the following actions’),” he explains. “The Principles are generic and can be applied to any organisation, what’s unique is how each organisation crafts that application to achieve the goals or outcomes corporate governance: ethical culture, effective control, good performance and legitimacy.” The challenge that organisations now face is that they have to engage deeply with the spirit of corporate governance, rather than its letter. That engagement, and the actions that flow from it, need to be informed by an ethical framework. In practical terms, governance reporting in terms of King IV cannot be done satisfactorily in tabular form. Rather, a narrative approach, guided by materiality, should be used to explain how the organisation understands the Principle in its specific context and what it seeks to achieve; and then what practices were implemented in order to achieve the necessary application of that Principle. King IV allows organisations to deliver their governance reports in various ways as best suits their circumstances: either as a standalone report, or as part of the integrated report or some other report as they consider appropriate for their stakeholders. According to Parmi Natesan, Executive: Centre for Corporate Governance, the IoDSA has recently published its own governance report which can be used as an example of the envisaged approach. A significant amount of time and thinking went into how we wanted to tell our governance story, to enable our stakeholders to make an informed assessment of the quality of the IoDSA’s governance. “Reporting under King IV is all about understanding corporate governance and then explaining how you have implemented it; it’s not about keeping a register of which rules you have followed,” Foster concludes. “It’s highly flexible but it does require organisations truly to engage with what they are doing to improve governance, and what they hope to achieve.” ENDS MEDIA CONTACT: Juanita Vorster, 079 523 8374, juanita@thatpoint.co.za, www.atthatpoint.co.za For more information on the IoDSA please visit: Website: www.iodsa.co.za Twitter: @The_IoDSA LinkedIn: Institute of Directors in Southern Africa Company Page |
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