The King III codes of good corporate governance has been prepared because of the new Companies Act.
With King III, the King codes of corporate governance now apply to all entities including private companies and will be applied on a “comply or explain” basis (I.e.: alternatives to the recommendations are allowed as long as they can be justified)
King III includes recommendations for how directors should execute their responsibilities in terms of the duty of care, skill and diligence as well as their fiduciary duty. It assumes the governance is stronger in the presence of “institutional investors” who have a vested interest in the market working. The philosophy of the report revolves around leadership, sustainability and corporate citizenship. It includes emerging governance trends such as alternate dispute resolution, risk based internal audit and board performance.
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The following are some of the principles that are recommended for the board responsibilities:
Provide effective leadership based on an ethical foundation
Ensure that that the company is and is seen to be a responsible corporate citizen
Ensure that the company’s ethics are managed effectively
Act as a focal point for and custodian of corporate governance
Appreciate that strategy, risk, performance and sustainability are inseparable
Ensure that the company has an effective and independent audit committee
Responsible for the governance of risk
Responsible for the information technology and information security governance
Ensure that the company complies with the applicable laws and considers adherence to non-binding rules, codes and standards
Ensure that there is an effective risk-based internal audit
Appreciate that stakeholder perceptions affect the company’s reputation
Ensure the integrity of the company’s integrated report
Report on the effectiveness of the company’s system of internal controls
Act in the best interests of the company
Consider business rescue proceedings or other turnaround mechanisms when in financial distress
Elect a chairman who is an independent non-exec director. The CEO should not also fulfil the role of the chairman
Appoint the CEO and establish a framework of delegation of authority
The board should comprise a balance of power with a majority of non-executive directors. The majority of non-executive directors should be independent
Directors should be appointed through a formal process
The induction and ongoing training and development of directors should be conducted through formal processes
The board should be assisted by a competent suitably qualified and experienced company secretary
The evaluation of the board, its committees and the individual directors should be performed every year
The board should delegate certain functions to well-structured committees but without abdicating its own responsibilities
A governance framework should be agreed between the group and its subsidiary boards
Companies should remunerate directors and executives fairly and responsibly
Companies should disclose the remuneration of each individual director and certain senior executives
Shareholders should approve the company’s remuneration policy
These principles are supported by a set of recommended practices and practice notes that should be followed.
King III goes on to provide more detailed principles and recommended practices for these aspects:
