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This guide embodies our thought leadership on key elements of the KingIII Report at the time of publication. We envisage it to be revised and updated as our thinking, knowledge and capabilities around corporate governance continue to advance.
The release of King III report on 1 September 2009 represents a significant milestone in the evolution of corporate governance in South Africa and brings with it significant opportunities for organisations that embrace its principles. At PwC, we believe that free enterprise prospers in an environment of good and balanced corporate governance. While we understand that achieving good governance is a complex task, we believe that sound governance practices offer numerous practical benefits and that organisations should integrate such practices into their operational processes.
King III became necessary because of the anticipated new Companies Act and changing trends in international governance. As with King I and King II, the King Committee endeavoured to be at the forefront of governance internationally and this has again been achieved by focusing on the importance of reporting annually on how a company has both positively and negatively affected the economic life of the community in which it operated during the year under review. In addition, emphasis has been placed on the requirement to report on how the company intends to enhance those positive aspects and eradicate or ameliorate any possible negative impacts on the economic life of the community in which it will operate in the year ahead.
In addressing the link between governance principles and law, the introduction to the Report observes:
"The ultimate compliance officer is the company's stakeholders who will let the board know by their continued support of the company if they accept the departure from a recommended practice and the reasons furnished for doing so."
It can be convincingly argued that self-regulation, in which an organisation voluntarily monitors its own adherence to legal and ethical standards, is far preferable to having an outside agency such as government monitor and enforce those standards. This approach allows organisations to maintain control over the standards to which they are held by successfully self-policing themselves. Apart from the bureaucratic burden that would be imposed by external enforcement, the cost of setting up such a mechanism is also avoided.
King III has broadened the scope of corporate governance in South Africa with its core philosophy revolving around leadership, sustainability and corporate citizenship.
These key principles are given prominence:
King III has opted for an 'apply or explain' governance framework. Where the board believes it to be in the best interests of the company, it can adopt a practice different from that recommended in King III, but must explain it. Explaining the different practice adopted and an acceptable reason for it, results in consistency with King III principles.
The framework recommended by King III is principles-based and there is no 'one size fits all' solution. Entities are encouraged to tailor the principles of the Code as appropriate to the size, nature and complexity of their organisation. This is good news for companies in South Africa as it avoids some of the pitfalls seen in the United States where a 'one size fits all' approach was initially adopted.
In contrast to King I and King II, King III applies to all entities regardless of the manner and form of incorporation or establishment. Principles are drafted on the basis that, if they are adhered to, any entity would have practiced good governance.
It is recommended that all entities disclose which principles and/or practices they have decided not to apply or explain. This level of disclosure will allow stakeholders to comment on and challenge the board to improve the level of governance within an organisation.
Some of the requirements introduced by King III include:
Our involvement in the King Committee
Suresh Kana, PwC's Chief Executive Officer, and Anton van Wyk, our Global Internal Audit Leader, served as members of the King Committee and also chaired the Accounting and Auditing and Internal Audit subcommittees respectively. As a result of our involvement, PricewaterhouseCoopers has deep insight into the recommendations of the King Committee and is well placed to offer practical guidance and encourage debate around implementation to enable the real benefits of good governance to be realised.