The King Code IV

Study the King Code alongside with the legislation that we have covered so far
 The King Code IV: Corporate Governance

The King Code IV will be covered in 2 sections:

Section 1: Introduction where we will cover the following

To understand the objectives of the code; we will look at the:

1. Understanding the APPLY and EXPLAIN RIGIME
2. Discussing the objectives of the King IV
3. Understanding the six capitals (see more later)

Section 2: Applying the King Code principles (the 17 principles)

I will do slides and post them on Blackboard because we will not be able to cover all in the two lectures left.

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 What is corporate governance?

That is, it refers to the way in which a company acts (all companies)

Þ company’s management acts and the way in which the company interacts with its environment.
Þ It is the leadership of the governing body towards the achievement of specific goals.

In order to have good corporate governance, a strong board of directors (governing body) is needed:
With clear and ethical leadership,

Setting specific goals and leading by example can assist the governing body to create an atmosphere of
ethics leading to good corporate governance in the firm.

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 Why is the King Code referred to as a “Code”?

Þ Code can have both rules and principles for application

Þ Rules indicate the possibility of punishment if a set rule is violated however principle is put in place to encourage practice
Þ Understanding the structure of a code will help understand how a code is different from laws
Þ The King Code is not law therefore is not binding to anyone firm therefore the code is VOLUNTARY. It does not prescribe
methods that need to be applied in order to achieve corporate governance.
Þ Instead, it gives recommended practices or simply suggestions and allow firms to make their own decision about
corporate governance to gain insight into what they actually believe is important

Þ Principles can therefore be used in different situations that is why all companies are encourage to apply the code.

NB All listed JSE companies are by rule of the JSE follow the King Code to maintain their ethical responsibilities

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 The King IV Code (‘Code’)

• The King IV Code (‘Code’) is an important South African corporate governance code which
adopts an inclusive approach and was first introduced in 1994 by the King Committee,
chaired by Mervyn King. The Code has been revised multiple times to maintain national and
international standards.

What is it?
The aim of the Code is to provide a practical, principle-based approach to good corporate
governance, which also incorporates both global public sentiment and international regulatory
change.

The King Code or to give it its correct name; The King Report on Corporate Governance, is a
set of principles and recommended practices for South African based organisations.

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 The King IV Code (‘Code’)

The Code is voluntary (unless prescribed by law or stock exchange listing requirements) and one of the
objectives of the Code was for it to be applicable across several different types of corporations.

The Code has a number of aims all of which are crucial to building and retaining value and creating a better society:

 create an ethical culture in organisations;

 improve the organisation’s performance and increase the value they create;
 ensure there are adequate and effective controls in place;
 build trust between all stakeholders;
 ensure the organisation has a good reputation; and
 ensure legitimacy.

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 The King IV Code (‘Code’)

Why implement the Code?

A well governed organisation inspires the confidence of its stakeholders and can lower the
cost of its capital. It also supports the sustainability of the organisation and ensures that it is
fit for the future. The King Code also understands that corporate governance is a leadership
issue. Ethical leadership is exemplified by integrity, competence, responsibility, accountability,
fairness, and transparency.
The King Code defines corporate governance as “the exercise of ethical and effective
leadership by the governing body”. Therefore, the King Code could be deemed vital for
organisational success especially given the three elements that it covers:
• Leadership;
• Sustainability; and
• Good corporate citizenship.

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 The King IV Code (‘Code’)

Why implement the Code?

By adopting the King Code organisations prioritise good governance, which is essentially for
effective, ethical leadership. Mervyn King believes that leaders should direct the company to
achieve sustainable economic, social, and environmental performance. He views
sustainability as the primary moral and economic imperative of this century.

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 The King IV Code (‘Code’)

• The “Apply and Explain” Regime of the King Code IV

This is different from the “apply or explain” in the King Code III (Why?)

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 The King IV Code (‘Code’)

• Reasons for the King IV

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The King IV Code (‘Code’)

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The King IV Code (‘Code’)

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The King IV Code (‘Code’)

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The King IV Code (‘Code’)

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The King IV Code (‘Code’)

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The King IV Code (‘Code’)

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The King IV
Code (‘Code’)

•Characteristics of
Good Governance

•1. Ethical Leadership

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The King IV
Code (‘Code’)

•Characteristics of
Good Governance

•2. Corporate Citizen

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The King IV Code (‘Code’)

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The King IV Code (‘Code’)

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The King IV Code (‘Code’)

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 The King IV Code (‘Code’)

NEXT SECTION: The King IV CODE PRINCIPLES

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