What does King III say about boards and directors?
King III Chapter 2′s title is Board’s and directors and consists of 27 Principles.
The bulk of the principles refer to responsibilities further described in other chapters – let’s focus on those specifically described here.
Corporate Governance
King III again emphasizes that corporate governance is the responsibility of the board.
It is interesting to see the way in which we have experienced the board play out this responsibility. In cases of listed companies it is fairly straight forward as corporate governance and the implementation of King III becomes a compliance issue. In other companies behaviour has not been so obvious.
You know board members – how have they responded?
Do you agree with their response?
Have you seen a clear acknowledgment of this responsibility and a definite call to action?
For group companies, of course, the main board and subsidiary boards should act together as a cohesive whole. As such, where possible, governance structures should be re-used (being driven by the holding company) and where listing or special regulatory requirements are required, these should be suitably respected.
Remuneration
This is where “the rubber hits the road”, doesn’t it?
Experience of company failures have repeatedly shown that it is not what I say that counts, but what I do - Remuneration drives behaviour.
This behaviour, in turn, gives us The Tone from the Top.
This is absolutely aknowledged in Chapter 2 – the last 3 principles are dedicated to remuneration.
As ethical leaders, you know it – remuneration should be fair, equitable and responsible, and disclosed for all to see.
Good governance requires that the company articulate how the remuneration is derived in a policy statement. King III goes further to say that this statement must be approved by the people with the financial vested interest, the shareholders.
Business Rescue
King III refers to the Company’s Act, 2008 when considering Principle 15:
The board should consider business rescue proceedings or other turnaround mechanisms as soon as the company is financially distressed as defined in the Act
Details dictate the the company’s solvency and liquidity should be monitored regularly and that if it comes to the call, a suitable person (practitioner) is advisable.
Strategy
It is often frustrating for new directors and committee members to have to work at the level which these positions require. Directors are limited to directing the company strategy which will in turn direct the company’s operations
- and direct the strategy, directors must!
King III emphasizes this in the second principle, boards should be informing and directing the company’s strategy – more than this, the board must “appreciate that strategy, risk, performance and sustainability are inseparable”
- and direct these in a systemic manner to achieve the desired outcome.
Stakeholders must be considered, known and potential risks and the natural and societal environment in conjunction with the financial returns.
Board Administration
The remainder of Chapter 2 gets into the “nitty-gritty” of the administration of the board and the board operations.
Director education, the position of the Company Secretary, the use of committees and various other important administrative details are emphasised to ensure the smooth, optimal and ethical operating of boards. It is these principles and recommendations which could be “fit for purpose” tailored to the company’s size and operation.
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NOTE: The comments in this page are to be read within the context of the candor legal notices which can be found at this web site. The Institute of Directors in Southern Africa’s ownership of the copyright in the publications “King Report on Governance for South Africa 2009” and “King Code of Governance for South Africa 2009” is hereby acknowledged.
