By Shantel Dartnall,Head of Governance Services at Statucor, Ronelle Kleyn and Yolandi van Zweel, Governance consultants at Statucor
With the publication of the King IV™ report, the focus now shifts to implementation. How do you put the recommendations of the report into effect in your organisation?
King IV™ is a little more forceful on delegation to committees. Principle 8 of King IV™ clarifies the objectives for these delegation arrangements, which are to promote independent judgement, assist with the balance of power, and to help the governing body to discharge its duties effectively.
The report contains recommendations on the duties and scope of committees and it remains the responsibility of the governing body to align its corporate governance with the Companies Act, associated rules and regulations of the respective industry segment it operates within and King IV™. The goal is effective collaboration among committees with minimal overlap of duties and a balanced distribution of power.
That said, there is certain to be a fair amount of overlap of duties — say between the remuneration and the social and ethics committees. The best way for the governing body to manage overlap of duties may be to restructure committees and lines of reporting. The different committees will have to cooperate more and organisations must ensure there’s a process to cater for managing scope overlap.
The report also makes recommendations around which directors should serve on which committees. For instance, it recommends the social and ethics committee should include executive and non-executive members, with most members being non-executive members of the Governing Body. It also recommends that the governing body should comprise of mostly non-executive members, and that most of them should be independent.
Social and ethics committees enjoy quite some prominence in King IV™, with the enhanced focus on ethical governance. The Companies Act obliges certain companies to set up a social and ethics committee, but King goes further and says the social and ethics committee should be responsible for oversight and reporting on organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships. The idea is to grow these committees from mere compliance structures to actually creating value for the organisation.
Setting up such a committee, or giving it greater power in your organisation might require quite some restructuring — both in the way an organisation works and the way they report.
A good starting point is for each committee to understand their mandate. Committees need to transition from a tickbox approach to governance to a more holistic focus where the focus is shifted to explaining how principles have been applied. Governance compliance has to become a general corporate culture and should not only be regarded as the responsibility of a designated compliance functions such as the Company Secretary. Integrated reporting must be based on an integrated culture of sustainable operations.
At Statucor, we advise that each committee transition into the “journey-of-governance” approach versus the tickbox approach. This actually gives organisations a lot of freedom, but with freedom comes uncertainty, because you are charting your own destiny.
Another culture shift organisations need to make is to wean themselves off the precedent approach, the idea of checking what someone else is doing and copying that. Organisations need to chart their own course, map it and understand where the company is going, because each company can have its own style and approach.
As we said earlier, committees need to be constituted correctly. The King report makes recommendations, and many of these are incorporated in the JSE listing requirements and listed entities should embark on the compliance journey sooner rather than later
Committee roles and mandates also need to be clear. This may mean redrafting the respective charters of existing committees. A remuneration committee, for instance, needs to clarify what their course of action will be if more than 25% of shareholders vote against a proposed remuneration policy.
The ultimate responsibility and accountability for governance remain with the governing body.
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