King's Counsel

Understanding and unlocking the benefits of sound corporate governance
A code of principles can only ever be as good as one’s ability to put it into practice. Browse the chapter overviews below and learn how we can support you in implementing and applying recommendations of the King Report on Governance 2009 Learn more...

Ethical leadership and corporate citizenship

Each version of the King Report has placed increasing importance on the interrelationship between ethics and corporate governance. In King III, an ethics subcommittee was constituted to advise on responsible leadership and good practice in the ethical governance and management of business.

Question:
Corporate citizenship, sustainability and stakeholder inclusivity requires judgement, balance and compromise. Does the board have the right composition, skills and reliable data to make these types of judgement calls?
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Boards and directors

King III asserts that the board is responsible both for ensuring the continued success of the company and being the custodian of corporate governance within the organisation. These roles are viewed as being inseparable and place new emphasis on the competence and technical acumen of directors.


Question:
Does the board have the right people in place to lead and manage all aspects of the business?

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Audit committees

The Report recommends that all companies establish an audit committee and that it be a central element in the risk management process. The committee should oversee integrated reporting and report to shareholders as well as taking on other duties defined in the new Companies Act.


Question:
Does the audit committee have the appropriate blend of skills to discharge its responsibilities, specifically the skills required to oversee integrated reporting?

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The governance of risk

Effective risk management is fundamental to the survival and success of any entity. King III places responsibility for the governance of risk on the board, which should also determine the levels of risk tolerance and oversee the design, implementation and monitoring of a risk management plan.


Question:
Do you understand how risk appetite and tolerance are applied in your organisation?

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The governance of information technology

Information technology (IT) pervades all spheres of business and is both a risk and an opportunity. The governance of IT should be the responsibility of the board and be aligned to the organisation’s performance and sustainability objectives as well as being an integral part of the company’s risk management strategy.


Question:
Does your company have an IT governance framework in place that defines and supports decision models, governance structures, accountability and governance processes?

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Compliance with laws, rules, codes and standards

Sound corporate governance is the demonstration of ethical values and standards. It is the board’s responsibility to ensure compliance with all applicable laws and review adherence to other rules, codes and standards. Compliance risk should be part of the company’s risk management process.


Question:
What are the statutory and regulatory obligations with which your organisation needs to comply?

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Internal audit

Companies should have an effective risk based internal audit function that is independent and objective. Internal audit should assist the company’s risk management processes and provide a written assessment of both the effectiveness of the company’s system of internal control and risk management.


Question:
Is internal audit aligned to strategy and does its plan focus on areas that are most likely to impact stakeholder value?

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Governing stakeholder relationships

Corporate reputation is becoming increasingly important to the economic value of every company. Reputation is directly linked to stakeholders’ perceptions about a company and its ability to meet their legitimate interests and expectations. While acting in the best interests of the company, the board should effectively engage with stakeholders.


Question:
Do you have a stakeholder strategy and policies in place? If so, are they adequate or do they need revamping? If not, do you have the knowledge to draft documents that will deliver value?

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Key issue - Integrated reporting and disclosure

An essential principle of King III is the view that governance, strategy and sustainability are inseparable. The Code recommends that economic, social and environmental issues be incorporated into a company’s strategy, management, reporting and assurance activities throughout the year.


Question:
Does your company have a sustainability strategy and policy and is sustainability considered part of ongoing business activities?

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Key issue - Business rescue

The new Companies Act introduces business rescue legislation that takes into account the high cost to the economy of businesses that fail. King III urges directors to be aware of business rescue provisions and for the board to consider business rescue proceedings as soon as a company is financially distressed.


Question:
Are there signs of a future need for business rescue and can you act sooner to avert this or seek assistance to turn the company around?

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Key issue - Alternative dispute resolution

Alternative dispute resolution (ADR) has become an emerging feature of good governance around the world in recent years. Directors have a responsibility to preserve business relationships and ADR offers an effective and efficient methodology to resolve disagreements.


Question:
Is your organisation involved in significant disputes and have you considered appropriate ADR processes?

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Key issue - Internal financial controls

King III places new responsibilities on the audit committee and internal audit function in assessing the adequacy of a company’s internal financial controls. Aligning with global best practices will require the implementation of a number of new measures.


Question:
Is there a control framework governing financial reporting within your company?

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Key issue - Solvency and liquidity tests

Good governance cannot exist separately from the law and King III highlights provisions of the new Companies Act, which introduce new duties for directors and require that solvency and liquidity tests be applied in certain circumstances.


Question:
Is your company involved in a transaction that requires a formal liquidity and solvency test?

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Key issue - Remuneration of directors and senior executives

King III builds on the foundations of King II regarding the governance of executive remuneration and provides companies in South Africa with a clear framework in which to work in order to comply with the best practice standards of transparency, fairness and responsibility.


Question:
Does your remuneration policy comply with the principles of King III and reflect current international best practice?

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