South Africa: The South African King IV Report On Corporate Governance: Themes And Variations

On 1 November 2016, the South African King IV Report on Corporate Governance ("King IV") was published by the Institute of Directors in Southern Africa. Professor Mervyn King emphasises that "the overarching objective of King IV is to make corporate governance more accessible and relevant to a wider range of organisations, and to be the catalyst for a shift from a compliance-based mindset to one that sees corporate governance as a lever for value creation". This article highlights a few significant themes, variations and developments adopted by King IV, specifically inclusivity, outcomes-based focus (apply and explain), integrated thinking and transparency/increased disclosure.

The structure of King IV reflects a rejection of the checkbox or "compliance-based" mindset referred to by Professor King in that it contains 17 aspirational principles that support four fundamental governance outcomes: an ethical culture, good performance, effective control and legitimacy. The principles are achieved by mindful consideration and application of practices that are recommended in respect of each principle. The principles are fundamental to corporate governance and may be applied universally across different types of organisations, whereas the selection and application of recommended practices will depend on the nature and size of the organisation: outcomes are fundamental, principles are assumed, and recommended practices are considered and then might be adopted. This approach allows for inclusivity and flexibility – the intention is that King IV may be used by various types of organisations (hence the references to "the organisation" as opposed to "the company", and "the governing body" as opposed to "the board"), and an organisation is free to tailor its corporate governance policy to meet the needs and demands specific to it.


One of King IV's objectives is to broaden its acceptance by making it accessible and fit for implementation across a variety of sectors and organisational types. King IV contains sector supplements in respect of municipalities, non-profit organisations, retirement funds, small and medium enterprises and state-owned organisations, which provide direction and guidance on how to apply the principles and recommended practices in these sectors and organisational types.

As is the case in King III, King IV adopts a stakeholder-inclusive approach, meaning that the governing body should take into consideration the "legitimate and reasonable needs, interests and expectations of all material stakeholders in the execution of its duties in the best interests of the organisation over time". Stakeholders include shareholders, employees, consumers, the community and the environment. Under this approach, the interests of shareholders and funders, and the interests of other sources of value creation (including social and relationship capital), should be given equal status and should be balanced over time, responding to current circumstances, but always in the best interests of the company in the longer term.

Apply or explain or apply and explain?

King IV follows an "apply and explain" approach, as opposed to an "apply or explain" approach, in relation to compliance. An organisation is required to explain (in the form of a narrative account) which recommended practices have been implemented and how these achieve or give effect to a principle, to reveal how judgement was exercised when considering the recommended practices. The organisation is not required to conduct a quantitative assessment of, and then disclose, whether or not each principle has been implemented.

The "apply and explain" approach in King IV assists and encourages organisations to view corporate governance not as an act of mindless compliance, but something that will yield results only if it is approached mindfully, with due consideration to the organisation's circumstances.

Integrated thinking

King IV has further developed the principles of integrated thinking and integrated reporting seen in King III. Through integrated thinking, an organisation should "take into account the connectivity and interdependence between a range of factors that affect an organisation's ability to create value over time". One of King IV's objectives is to reinforce corporate governance as a holistic and interrelated set of arrangements to be understood and implemented in an integrated way. Integrated thinking underpins:

  • the stakeholder inclusive approach, in that the interests of shareholders and stakeholders are interdependent;
  • recognition that the organisation and society are interdependent, in that the organisation is a provider/developer of wealth, goods, services, employment and intellectual capital and society provides an operating environment, consumer base and skills;
  • recognition that the organisation is a corporate citizen, having responsibilities to its own workplace, the economy, society and the environment; and
  • sustainable development, in that the organisation operates in the context of the economy, society and the natural environment and present needs should not compromise the needs of future generations.

Integrated reporting is an outcome of integrated thinking.

Transparency and increased disclosure

One of King IV's objectives is to encourage transparent and meaningful reporting to shareholders. An example of this is the increased disclosure recommendations in relation to remuneration.

The recommended practices under principle 14 of King IV include:

  • a requirement that the governing body of an organisation approve a remuneration policy that articulates and gives effect to its direction on fair, responsible and transparent remuneration; and
  • a requirement that the remuneration policy:
    • address organisation-wide remuneration;
    • set out all elements of remuneration that are offered in the organisation and the mix of these, including base salary (including financial and non-financial benefits); variable remuneration, including short- and long-term incentives and deferrals; payments on termination of employment or office; sign-on, retention and restraint payments; the provisions, if any, for pre-vesting forfeiture and post-vesting forfeiture of remuneration; any commission and allowances; and the fees of non-executive members of the governing body; and
    • include, in the case of a company, provision for voting by shareholders on the remuneration policy and implementation report and the measures that the board commits to take in the event that the remuneration policy or the implementation report, or both, have been voted against by 25% or more of the voting rights exercised, including an engagement process to determine the reasons for the dissenting votes and appropriately addressing objections and concerns raised, which may include an amendment of the remuneration policy; and
  • a requirement that the governing body should ensure that remuneration is disclosed by means of a remuneration report in the following three parts:
  1. a background statement;
  2. an overview of the main provisions of the remuneration policy, which should include a reference to an electronic link to the full remuneration policy (which sets out organisation-wide remuneration and all elements of remuneration that are offered in the organisation); and
  3. an implementation report containing details of all remuneration awarded to individual members of the governing body and executive management during the reporting period.

Shivani Naidoo is a candidate attorney in ENSafrica's corporate commercial department.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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