Corporate governance is an evolving discipline, evident in the shifting paradigms in the codes that guide corporate governance. The King Commission has long been at the forefront of this change, and the King IV report, due to be released in November 2016, is no different.
The King IV Report is a distillation of its predecessor, the King III Report. The 75 principles have been reduced to 16 consolidated principles in King IV, each linked to a distinct outcome that highlights the benefit to the organisation of achieving that principle.
Cecilia Jofre, Chief Sales Officer at IsoMetrix, explains: “The King Codes and Reports are – collectively – a veritable national treasure. King is one of the leading codes of corporate governance in the world and one of the most mature. It has played a pivotal role in shaping our corporate governance landscape through unparalleled foresight and thought leadership.”
King IV views governance as holistic and integrated, and provides a framework for all types of organisations, referring to governing bodies rather than boards, and organisations rather than companies, to express this universal applicability.
King IV has a clear focus on transparency and targeted disclosures and:
- is a voluntary code of principles and good practice, that has become mandatory for a number of entities through legislation reform and regulatory measures
- follows a practical, principle-based approach to good corporate governance
- has an outcome- vs rule-based approach to governance
- contributes to the performance and sustainability of the governing body
- is a succinct distillation of King III.
There is also a clear distinction between principles and practice, where practices are the actions needed for good governance. Principles are linked to outcomes so that the benefit of achieving them is clear. King IV strikes a balance between performance and conformance.
Business benefits of good governance
The governing body of an organisation is held accountable by active stakeholders. Good business starts with a leadership body that is conscious of, and accountable for, its actions. “The idea of sitting on a board is to contribute to effective and ethical leadership, with intellectual honesty in the broadest possible sense. That includes considering the interests of investors and legitimate expectations of stakeholders,” she notes.
Ethical leadership depends on proactive, practical measures to achieve transparency. “For organisations, especially large organisations, to stay ahead of the game,” says Cecilia, “processes around governance matters need to be automated to achieve efficiencies. You have to be proactive about your business. Good business principles are nothing without practical measures of implementation.”
Monitoring and reporting then become not merely an annual occurrence but an action ingrained into the culture of the organisation, creating a culture of dynamic adaptation. “It has been long accepted that we need a culture of continuous improvement in all dimensions of the organisation, not just in monetary effectiveness,” says Cecilia.
At the heart of the revisions for King IV is ethical leadership. Ethical choices are not always obvious, says Cecilia. “We all know the cut and dried ethical responses. But sometimes, there are ethical conundrums and challenges, and it is how we apply ourselves and deal with these that is important.”
“Profitability and prudent use of resources mean that a business is able to take its products or services to market and this, in turn, generates employment, creating value that extends into other value chains,” she says. Profit is vital to an organisation’s sustainability, but not at the expense of people and the planet.
Being ethical is about being fair, being transparent and disclosing the necessary information voluntarily. “It is not just about having a whistle-blower policy or a code of ethics,” says Cecilia, “An organisation needs to cultivate a culture that goes beyond mere compliance and embraces integrated thinking.” Being ethical is about making sure that while the enterprise is effective, it is creating value. “This is a very important concept within King IV. Value creation means that the entire sphere in which the company operates has its interests taken care of.”
Good ethics leads to good business. This is because ethical conduct lays the foundation for efficient and effective corporate governance which results in better performance, better value creation and better legitimacy and trust from all active stakeholders.