Corporate governance practices in different countries are influenced and determined by an uneven mix of law, regulation, culture and custom. The following overview highlights a number of areas where these influences manifest themselves most strongly. Each section below highlights the features and practices that make corporate governance in South Africa different from that of other countries. This Centre will provide governance information and best practice related Board practices, requirements for audit committees, the role of investors in corporate governance, sustainability issues and much else besides.
Application of King III
In contrast to King I and II Codes, King III applies to all entities regardless of the manner and form of incorporation or establishment and whether in the public, private or non-profit sectors. The principles have been drafted so that every entity can apply them and, in doing so, achieve good governance.
Each principal is of equal importance and together forms a holistic approach to governance. Consequently, ‘substantial’ application of the Code does not achieve compliance.
The Code applies to all entities incorporated in and resident in South Africa. Foreign subsidiaries of local companies should apply the code to the extent prescribed by the holding company and subject to entity-specific foreign legislation.
The Practice Notes to King III, issued by the Institute of Directors SA (IoD) provide the necessary guidance to all entities on implementing the Code.
The King Report on Governance for South Africa 2009 (King III) was issued in September 2009. King III became operative on 1 July 2010, and became effective from 1 March 2011.
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Certain aspects of the governance are legislated in the Companies Act, Johannesburg Stock Exchange (JSE) listing requirements, the PFMA etc. Countries like the United States of America (USA) have chosen to codify a significant proportion of their governance in an act of Congress known as the Sarbanes-Oxley Act (SOX), this statutory regime is known as the ’comply or else’ regime. However, the 56 countries in the Commonwealth, including South Africa and the 27 states in the EU including the United Kingdom (UK), have opted for a voluntary basis of compliance, in addition to certain issues that are legislated.
South Africa had adopted a "comply or explain" corporate governance regime. However with the release of King III, the Committee decided to change this to a “apply or explain” basis, as the King III Committee believed that this language more appropriately conveys the intent of the King Code.
It is the legal duty of directors to act in the best interests of the company. However, the board in their collective decision making could conclude that to follow a specific recommendation, would not, in particular circumstances, be in the best interests of the company. The board could decide to apply the recommendation differently, or apply another principle that would achieve the same objective of the overarching principles of fairness, accountability, responsibility and transparency. Explaining how the principles and recommendations were applied, or if not applied, the reasons, results in compliance. In reality the ultimate compliance officer is not the company’s compliance officer or a bureaucrat ensuring compliance with statutory provisions, but the stakeholders.
Boards and Directors
The Board is seen as the focal point for and custodian of corporate governance in the organisation. The Board is responsible to ensure that integrity permeates all aspects of the company and its operations and that the Company's vision, mission and objectives are ethically sound. Ethics (or integrity) is the foundation of, and the reason for, corporate governance.
King III requires a balance of power on the Board, with a majority of non-executive directors, the majority of whom should be independent. The Chairman should be an independent non-executive director, and the CEO should not also fulfill the role of chairman of the Board.