The King IV Corporate Governance Code may apply to you
The King reports over the last two decades have become locally and globally synonymous with good governance. To date the King Codes have had limited impact on Small and Medium Enterprises (SMEs).
It is important to note that the King Codes are voluntary.
In terms of the latest King IV Report (it has been released for comment and will only be final once all comments have been considered), supplements have been released for various types of organisations to report on corporate governance. One of these supplements applies to SMEs.
How does King IV define an SME?
A company with at least 350 points in terms of the Companies Act’s Public Interest Score calculation is considered an SME.
The points are a combination of turnover (1 point per R1 million), employees (1 point per employee), third party liabilities (1 point per R1 million) and shareholders (1 point for each shareholder) as for the determination of whether an entity is required to have its Annual Financial Statements audited or not.
Why adopt these codes if they are voluntary?
Over the long term there is a strong link between sustainability and good governance. For example, good governance can assist with obtaining access to finance and a well governed organisation will outperform the market in the long term.
What do the codes require?
The starting point is good ethical leadership, it will practice good governance and the board of directors will lead in a responsible, transparent and fair manner.
The board of directors should ensure that it has the skills and independence to effectively manage, control and report on its performance and to ensure adequate control, the codes envisage that the board will govern:
- Risk and opportunity,
- Technology and information,
- Compliance with all laws,
- Fair remuneration policies,
- Good stakeholder relationships and
- Assurance that adequate control and reporting integrity are in place.
The size of the organisation will dictate the resources to allocate to the codes, when implementing practices to comply with the King IV Report. A large company will have an audit and risk committee for example, but a medium sized company may allocate say 25% of a director’s time to meeting the requirements set out in the Report. Each organisation must use its best judgement.
There should be a section in the company’s annual report on how it is implementing the Report. There are some templates contained in the King IV Report but these are not prescriptive.