Distinguish between legislation, regulation and Corporate

Governance Codes

Legislation
•It is a directive placed by a government or governing body on either an industry, a section of
community or placed on people of a country, which must be complied with in order to remain within
the legal boundaries of that particular country, community or industry
•Legislation is passed as laws by a parliament of a country or some other legislative arm of a
government.
•After legislation is passed, there will be regulators, usually government bodies, who will examine
the laws passed and work out the details that need to be enforced so that they are followed,
EXAMPLE
•A parliament may pass a legislation that enforces a uniform interconnection fee for
telecommunication service providers in a country and then a government department (regulator) of
communications will detail the nitty-gritty of the legislation and enforce it.
Regulation

• A regulation – Is a rule based on and meant to carryout a specific piece of legislation.

• Specific requirements within legislation
• Approved based on an act that has been passed by parliament.
• Makes the act more easier to follow and adhere to. For this reason, one act can have numerous
regulations.
• Enforced by regulatory agency formed or mandated to carryout purpose or provisions of a legislation.
• In industry, they specify the particular formal (legal) requirements to be followed so as to create a
level playing field.
• Address product safety, consumer protection and other factors in public interest.
• Internally or externally developed through technical specifications or though standards in the private
sector.
Corporate governance codes

• Is a guide to a number of key components of effective board practices based on the underlying
principles of all good governance.
• To improve the general quality of corporate governance practices and specific steps that
organizations can take to improve corporate governance.
• Code thereby, begins to raise the quality level of corporate governance expected from
organizations, in some areas the code stringent practices, but it should be emphasized that these
additional requirements are keeping with international best practices.
Cont…

• Conclusion results: Therefore when legislature passes a law that requires government hospitals to
do away with down payment upon patient admission, it is the responsibility of the regulatory
body, in this case the department of health to enforce such law through its own regulation on its
constituents.
• Legislation is aimed at coming up with a resolution in order to protect, to prohibit, to grant or to
sanction its subject and have it enforced and regulation is aimed at making things done.
Cont...

• Legislation and regulations set minimum legal standards which constitute the foundation upon
which corporate governance codes are built. Corporate codes raise the bar on corporate
governance principles above the prescriptions of the law.
Make a comparative analysis of corporate regulation in the UK,
USA, South Africa, and Zimbabwe.

 Corporate regulation code

• UK – Financial reporting council
Cadbury Report
• USA- Sarbanes Oxley Act
• South Africa- King 3 report
• Zimbabwe – NCFCG- SAZ ,IoDZ ,
ZIMLF
United Kingdom (UK)

Financial reporting council - Cadbury Report


Leadership – every company should be headed by an effective board collectively responsible for the long term success of the company

It looks at clear division of responsibilities at the head of the company btwn the running of the board and the executive responsibility for running of the company business

The roles of chairman and chief executive should not be exercised by the same individual. The division of responsibilities between the chairman and chief executive should be clearly established, set out in writing and agreed by the board

Unitary board

NED should constructively challenge and help develop proposals on strategy

•The Board of Directors-The board should meet regularly, retain full and effective control of the company and monitor the executive management
•The board includes non-executive directors of sufficient calibre
•The board should have formal schedule of matters specifically reserved to it for decision to ensure that direction and control of the company is firmly in its hands.
Cntd…

The chairman is responsible for leadership of the board and ensuring

its effectiveness on all aspects of its role
The board and its committees should have the appropriate balance of
skills, experience, independence and knowledge of the company to
enable them to discharge their respective duties and responsibilities
effectively
There should be a formal, rigorous and transparent procedure for the
appointment of new directors to the board.
All directors should be able to allocate sufficient time to the company
to discharge their responsibilities effectively.
Cntd…

 All directors should receive induction on joining the board and should regularly update and refresh
their skills and knowledge
 The board should be supplied in a timely manner with information in a form and of a quality
appropriate to enable it to discharge its duties
 The board should undertake a formal and rigorous annual evaluation of its own performance and
that of its committees and individual directors
 The board should present a fair, balanced and understandable assessment of the company’s
position and prospects.
Cntd…

 The board is responsible for determining the nature and extent of the principal risks it is willing to
take in achieving its strategic objectives. The board should maintain sound risk management and
internal control systems
 The board should establish formal and transparent arrangements for considering how they should
apply the corporate reporting and risk management and internal control principles and for
maintaining an appropriate relationship with the company’s auditors
 Executive directors’ remuneration should be designed to promote the long-term success of the
company. Performance-related elements should be transparent, stretching and rigorously applied.
Cntd…

 There should be a dialogue with shareholders based on the mutual understanding of objectives.
The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders
takes place.
 The board should use general meetings to communicate with investors and to encourage their
participation.
United States of America

USA- Sarbanes Oxley Act

 Criminal penalties for altering documents
• US Justice system entrenchment
• Correctness of financial reports Sec 302 of the Act
• Checks & balances
South Africa

Uses the King III report

Talks of boards and directors
The board should act as the focal point for corporate governance
Companies should be headed by a board that should direct, govern and be in the effective control
of the company.
The board should comprise executive and non executive directors, with a majority of non
executive directors
The board should ensure that the company acts as and is seen to be a responsible corporate citizen
Cntd…

 The board should cultivate and promote an ethical corporate culture

 The board should appreciate that strategy, risk, performance and sustainability are inseparable
 The board should appoint the CEO and establish a framework for the delegation of authority
 The board should be responsible for the process of risk management
 The board and its directors should act in the best interest of the company
 Should be led by a NEC who should not be the CEO of the company
Cntd…

 Board committees
 Remuneration committees companies should disclose the remuneration of each individual director
 Audit committees – independent non-executive director
 The board should actively manage the company’s ethics performance
 Risk management
 Integrated sustainability reporting and disclosure
 Compliance with laws, regulations, rules and standards
 Managing stakeholder relationships
 Fundamental and affected transactions
National Code on Corporate Governance Zimbabwe

The National Code on Corporate Governance of Zimbabwe (2014)

With the launch of the National Code on Corporate Governance of Zimbabwe (NCCG) in April,
2015, boards of directors and directors of companies, public entities and non-governmental bodies
now have firm corporate governance guidelines for directing their entities.
It is a voluntary code whose enforcement is on an ‘apply or explain’ basis. The code provides
universal principles of good corporate governance and recommendations to be followed by boards of
directors and directors of companies in pursuit of effective and sustainable corporate governance.
 Zimbabwe

• The Code applies to all business entities regardless of the manner and form of their incorporation
or establishment and whether the business entity is in the public or private sector or it is non-profit
making.
• Every director has time for, and commitment to, the company by attending a minimum of seventy-
five percent of Board committee meetings, all annual general meetings and all stakeholders
meetings, and assisting the chairperson in answering questions raised at such meetings.
• Corporate power should not be concentrated in one person or in a small group of persons as this
will impact negatively on focused, effective and ethical corporate leadership and may result in
corporate failure.
• The ultimate authority of any company is its annual general meeting or extraordinary general
meeting or shareholders where they exercise their rights in terms of the statutes of the company
and the law
• A company is a legal fiction but the law permits it to do things which natural persons can do.It acts
through natural persons, mainly the Board of Directors which is the governing and controlling
body of the company.
Cont..

• The Board of Directors should provide effective corporate and entreprenueurial leadership.
• Its leadership must be based on :
• ethics, professionalism and good morality
• notion that strategy, risk, performance and sustainability are inseperatable.
• Complete compliance with, and respect for, applicable laws, especially the Bill of Rights as set out
in the Constitution and adherence to non-binding rules, codes and best practice standards;
• The recognition that the best interest of the company and its shareholders must always be
promoted.
Contd…

Directors have legal duties of good faith, loyalty, care, skill and diligence in the discharge of their
functions.
•In the discharge of its role and functions every Board must conduct itself with honesty and integrity
and above all, it must always act in the best interest of the company.
•Directors should consider the interests of all shareholders and other stakeholders.
•The Board should be composed of persons with good leadership qualities and core competencies
required by the company, such as accounting or financial expertise, legal skills, business and
managerial experience, industry knowledge and strategic planning experience.
Contd…

• All directors should be appointed through a formal, robust and transparent process that reflects
broadly the diversity of the shareholders.
 u.k u.s.a s.a zimbabwe
Control rights Management and Management and Management and Management and
control of control of control of control of
operations operations of operations operations
delegated to coperations delegated to delegated to
proffessional delegated to proffessional proffessional
managers under proffessional managers under managers under
governance and manageres governance and governance and
supervision of the supervision of the supervision of the
board board board

Governance rules • Single tier • Single tier • Single tier • single tier
• Use of comply • Use comply or • Comply or • Apply or
or explain else expain explain
Summary of the main issues discussed in the OECD and IFC

OECD- Organisational for Economic Co- operation and Development- is a unique forum
where the governments of 34 democracies with market economies work with each other, as well as
with more than 70 non-member economies to promote economic growth, prosperity, and
sustainable development
• The organisation provides a setting where governments can compare policy experiences, seek
answers to common problems, identify good practice and coordinate domestic and international
policies
Cont…

The Organisation for Economic Co-operation and Development (OECD) promotes policies
designed:
to achieve the highest sustainable economic growth and employment and a rising standard of
living in member countries, while maintaining financial stability, and thus to contribute to the
development of the world economy;
to contribute to sound economic expansion in member as well as non-member countries in the
process of economic development; and
to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in
accordance with international obligations.
Cont…

Ensuring the basis for an effective corporate governance framework

• The corporate governance framework should promote transparent and efficient markets, be
consistent with the rule of law and clearly articulate the division of responsibilities among
different supervisory, regulatory and enforcement authorities
• The corporate governance framework should be developed with a view to its impact on overall
economic performance, market integrity and the incentives it creates for market participants and
the promotion of transparent and efficient markets
Cont…

• The division of responsibilities among different authorities in a jurisdiction should be clearly

articulated and ensure that the public interest is served.
Cont…

The rights of shareholders and key ownership functions

• The corporate governance framework should protect and facilitate the exercise of shareholders’
rights.
 secure methods of ownership registration
 convey or transfer shares
 obtain relevant and material information on the corporation on a timely and regular basis
 participate and vote in general shareholder meetings, elect and remove members of the board
 share in the profits of the corporation
Cont…

• Shareholders should have the right to participate in, and to be sufficiently informed on, decisions
concerning fundamental corporate changes such as:
 amendments to the statutes, or articles of incorporation or similar governing documents of the
company
 the authorisation of additional shares
 extraordinary transactions, including the transfer of all or substantially all assets, that in effect
result in the sale of the company
Cont…

• Shareholders should have the opportunity to participate effectively and vote in general shareholder
meetings and should be informed of the rules, including voting procedures, that govern general
shareholder meetings
 Participate in key corporate governance decisions eg nomianation and election of BMs
 Question the board even on questions relating to annual external audit
 Vote in person or in absentia
Cont…

 The Equitable Treatment of Shareholders

• The CG framework should ensure the equitable treatment of all shareholders, including minority
and foreign shareholders.
• Should have effective redress in case of violation of rights
• All shareholders of the same series of a class should be treated equally
• Insider trading and abusive self-dealing should be prohibited
• Members of the board and key executives should disclose to the board whether they, directly,
indirectly or on behalf of third parties, have a material interest in any transaction or matter directly
affecting the corporation
Cont…

The Role of Stakeholders in Corporate Governance

• The CG framework should recognise the rights of stakeholders established by law or through
mutual agreements and encourage active co-operation between corporations and stakeholders in
creating wealth, jobs, and the sustainability of financially sound enterprises.
• The rights of stakeholders that are established by law or through mutual agreements are to be
respected.
• Redress of stakeholders
• Where stakeholders participate in the CG process, they should have access to relevant, sufficient
and reliable information on a timely and regular basis.
Cont…

Disclosure and transparency

• The CG framework should ensure that timely and accurate disclosure is made on all material
matters regarding the corporation, including the financial situation, performance, ownership, and
governance of the company
• Disclosure should include, but not be limited to, material information on:
 The financial and operating results of the company.
 Company objectives.
 Major share ownership and voting rights.
Cont…

 Remuneration policy for members of the board and key executives, and information about board
members, including their qualifications, the selection process, other company directorships and
whether they are regarded as independent by the board.
 Related party transactions.
 Foreseeable risk factors.
 Issues regarding employees and other stakeholders.
 Governance structures and policies, in particular, the content of any corporate governance code or
policy and the process by which it is implemented
Cont...

The responsibilities of the board

• The corporate governance framework should ensure the strategic guidance of the company, the
effective monitoring of management by the board, and the board’s accountability to the company
and the shareholders.
• Board members should act on a fully informed basis, in good faith, with due diligence and care,
and in the best interest of the company and the shareholders
Cont…

• Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and
business plans; setting performance objectives; monitoring implementation and corporate
performance; and overseeing major capital expenditures, acquisitions and divestitures.
• Monitoring the effectiveness of the company’s governance practices and making changes as
needed.
• Selecting, compensating, monitoring and, when necessary, replacing key executives and
overseeing succession planning
• Overseeing the process of disclosure and communications
IFC

• IFC- International Finance Corporation- is an organisation dedicated to help private sector

within developing countries.
• It provides investment and asset management service to encourage the development of private
enterprise in nations that might be lacking the necessary infrastructure or liquidity for businesses
to secure financing.
Cntd…

• Commitment to CG-ensuring the adoption of good corporate governance practices and

standards(enhancing the enabling environment)
• Boards of directors (checks and balances)
• Control environment (accounting, controls,
Cont…..

• Internal and external audit

• Transparency and disclosure
• Financial stakeholders (shareholders)
National Code on Corporate Governance Zimbabwe

The National Code on Corporate Governance of Zimbabwe (2014)

With the launch of the National Code on Corporate Governance of Zimbabwe (NCCG) in April,
2015, boards of directors and directors of companies, public entities and non-governmental bodies
now have firm corporate governance guidelines for directing their entities.
•The code applies to all types of business entities. It is a voluntary code whose enforcement is on an
‘apply or explain’ basis. The code provides universal principles of good corporate governance and
recommendations to be followed by boards of directors and directors of companies in pursuit of
effective and sustainable corporate governance. It has nine carefully chosen chapters covering such
important corporate governance aspects as application of the code and derivative codes, ownership
and control, boards of directors and directors, governance of risk, information management and
disclosures, corporate conflict prevention and resolution, compliance and enforcement, governance
of stakeholder relations and role of government in corporate governance.
Application of the code and derivative codes

• The Code applies to all business entities regardless of the manner and form of their incorporation
or establishment and whether the business entity is in the public or private sector or it is non-profit
making.
• Special sectors, such as banking and financial services sector, partnerships, trusts and small to
medium enterprises, should have specific codes of their own which take a sector approach to
corporate governance.
• If a provision of a sector-based code is inconsistent with any principle of this Code then the
principle of this Code prevails to the extent of that inconsistency.
• It is recommended that most of the provisions of this framework should be enacted into law so as
to ensure its enforcement.
• In regard to this sector the enactment into law of the framework will shift from the “comply or
explain” basis of corporate governance to the “comply or else” strategy.
Ownership and control

• Ownership
• Corporate power should not be concentrated in one person or in a small group of persons as this
will impact negatively on focused, effective and ethical corporate leadership and may result in
corporate failure.
• Corporate power, represented by the right vote on a one share one vote basis, must always be
aligned with economic rights.
• Any misalignment must be justified and be approved by the shareholders.
Control

• The ultimate authority of any company is its annual general meeting or extraordinary general
meeting or shareholders where they exercise their rights in terms of the statutes of the company
and the law.
• Documents such as company’s strategic plan, reports on the company’s performance indicators
and growth prospects, management practices and policies pursued by the Board, reports should be
made available to all shareholders in good time for preparation of shareholders meeting
Board of Directors and Directors

• A company is a legal fiction but the law permits it to do things which natural persons can do.
• It acts through natural persons, mainly the Board of Directors which is the governing and
controlling body of the company.
• To achieve a company’s goals and objectives the directors must possess certain qualities, play
certain roles and perform functions and duties
Role and Function of the Board

• The Board of Directors should provide effective corporate and entreprenueurial leadership.
• Its leadership must be based on the following;
• Ethics, professionalism and good morality
• The notion that strategy, risk, performance and sustainability are inseperatable.
• Complete compliance with, and respect for, applicable laws, especially the Bill of Rights as set out
in the Constitution and adherence to non-binding rules, codes and best practice standards;
• The recognition that the best interest of the company and its shareholders must always be
promoted.
Conduct and Responsibilities of the Board and Directors

• In the discharge of its role and functions every Board must conduct itself with honesty and
integrity and above all, it must always act in the best interest of the company.
• Directors should consider the interests of all shareholders and other stakeholders.
• The Board must correct corporate misdemenours as and when they are detected in order to ensure
that the corporate goals are achieved and the integrity and reputation of the company, the
shareholders and other stakeholders are protected.
Responsibilities set out in the Charter

• Every director has time for, and commitment to, the company by attending a minimum of seventy-
five percent of Board committee meetings, all annual general meetings and all stakeholders
meetings, and assisting the chairperson in answering questions raised at such meetings.
• Is knowledgable about the financial, social and political environment in which the company
operates;
• Is in a position to make informed decisions
• acts independently and his or her independence is constantly judged, assessed and monitored in
accordance with the code.
Duties of Directors

• Directors have legal duties of good faith, loyalty, care, skill and diligence in the discharge of their
functions.
• They also have moral duties of character, hard work, patriotism, inclusivity, common sense,
speaking the truth, courage, conviction and creative charisma amongst other duties.
• The moral duties enumerated above find expressionin the concept of Umuntu (Hunhu) which is
expressed as Umuntu, Ngumuntu, Ngabantu meaning “l am because you are, and you are because
we are”
Qualities, Membership Criteria and Qualifications of Board
members

• The Board should be composed of persons with good leadership qualities and core competencies
required by the company, such as accounting or financial expertise, legal skills, business and
managerial experience, industry knowledge and strategic planning experience.
• The Charter set out core qualities, membership criteria and qualifications of Board members
including the need for the appointment of Board members who;
• Have integrity, good character, high credibility, probity, knowledge, the skill and experience
required to bring independent judgement to bear on issues of strategy, performance, resource
mobilisation and utilisation, key appointments and standards of conduct
Director Selection and Appointment

• All directors should be appointed through a formal, robust and transparent process that reflects
broadly the diversity of the shareholders.
• Where appropriate a nomination committee should be established with clear terms of reference of
how to invite and recommend the nomination of new directors by the Board and their election or
re-election by shareholders
• When a nomination committee is established it should be chaired by an independent non-executive
director, be wholly composed of independent non-executive directors.
Governance of risk

• Business leaders should understand risk and how it can be measured, eliminated or mitigated.
• Risk management systems should be independantly assured for effectiveness in goal delivery.
• The Board should ensure that principal risks are timely identified or detected and managed to
mitigate or reduce damage and losses of the company.
• Risk assessment are performed on a continuous basis
• A framework or methodology is established to increase the likelihood of anticipating
unpredictable risks
• Risk monitoring
What should be covered in a company’s risk management policy
and plan

• Identification and evaluation including methods and procedures on how to solve them
• Details of range and type of risk control measures which may be put in place to prevent or mitigate
the identified risks
 Internal Audit Function, Methodology and Mandate

The Board through the audit committee should be assisted by a competent internal audit unit to provide the
following:
•Assurance on internal controls
•Risk management
•Governance processes in accordance with the standards of the Professional Practice of Internal Audit
•The audit committee should oversee the internal audit function, evaluate its performance and ensure that the
internal audit function is subjected to an independent quality assurance review
Audit Committee
• The Board should establish an audit committee which will depend on the nature and size of the
company, complexity and diversity of its operations
• The audit committee approves the risk based internal audit plan,
• The actual expenditures and capital budget of the auditing department and evaluates the
performance of the internal audit function annually.

Combined Assurance
• The Audit committee should ensure that a combined assurance model is applied to provide a
coordinated approach to all assurance activities and that the assurance covers all the significant
functions within the organisation.
Whistle Blower Policy

• A whistle blowing system that is independent, trusted and anonymous is key to the effective
implementation of an ethical corporate culture and fraud risk management strategy.
• A whistle blower provides evidence of a waste of funds or mismanagement.
• Whislte-blowing helpsto uncover significant risks and, for this reason, procedures should be put in
place to encourage honest whistle-blowing whilst at the same time discouraging malicious and
unjustifiable accusations and allegations from employees against their bosses.
• The person designated to receive, investigate and act upon complaints reported should either be an
internal auditor or a company secretary or a professional body such as a firm of accountants.
Information Management and Disclosure

•Disclosure relating to the company and its business in all its varied forms, content, and pitch,
explicitness of language, relevance, impact, and accessibility to all stakeholders is pivotal to the
culture of building confidence, accountability and trust within the organisation
•Systems should be established for;
•Managing the company’s information assets and the perfomance of its data fuctions;
•Timeious availability of information through effective information systems;
•Implementing a suitable information security management program;
•Managing risks associated with information and information systems
Contd…

• establishing processes to ensure continuous monitoring of all aspects of information and

maintaining and monitoring of data quality.
• The Board must ensure that an information security management system (ISMS) is developed,
implemented and recorded in an appropriate and applicable information security framework.
• The Board should supervise the information security strategy and delegate and empower
management to implement it.
• The company should have a written policy on disclosure
Integrated and Sustainability Reporting

• This incorporates a company’s strategy, governance, financial performance and future outlook in
one report.
• The report should also contain environmental, social and governance issues which impact on the
company’s operations;
• It should be guided by requirements of the Global Reporting Initiative’s Integrated Reporting
Council (IIRC) as published from time to time.
Corporate Conflict Prevention and Resolution

• Prevention and resolution of corporate conflicts makes it possible to safeguard the rights of
shareholders and protect the property and business reputation of the company
• It must be based on the provisions of the law and best practice codes
• The Board is responsible for corporate conflict prevention, resolution, review and may establish a
corporate conflict resolution (CCR) committee to assist in this regard
• Successful resolution of corporate conflicts entails selecting a dispute resolution method that best
serves the interest of the company, preserves business relationships and is cost effective and
efficient.
• Insider trading and abusive self-dealing is prohibited.
Corporate Conflict Prevention

Conflict must be identified at an early stage and should be resolved effectively, expeditiously and
efficiently.
Controlling shareholders should comply with applicable laws and regulations in exercising their
rights as investors and should be prevented from damaging the rights and interests of the company
and other shareholders by means such as asset restructuring or by taking advantage of their
priviledged position to gain additional benefits.
Supervising oneself is a typical conflict of interest situation and must be avoided hence the need to
keep the positions of chairperson of the Board and chief executive officer separate.
The scope of authority of an agent, regarding the prevention, resolution and review of corporate
conflicts must be clearly defined.
Contd

• Loan agreements between a company and its executive directors or persons of equivalent level and
officers are discouraged except where they are part of a compensation scheme for company
executives or employees but only to the extend sanctioned by their contracts of employment or by
the Board
Compliance and Enforcement
• The nature and extent of compliance or enforcement of corporate governance principles depend on
whether they are required by law or by best practice.
• If it is law then compliance with corporate governance principles is mandatory.
• Companies must comply or else face legal consequences.
• If it is best practice, compliance and enforcement issues are determined by the principles of
subsidiary and soft regulation.
• The subsidiary principle shies away from the regulation prescribed by law as a source of corporate
governance
Stakeholder Relationships

• A company is a multi-interest enterprise

• It binds itself to contracts and can be held legally responsible for its actions.
• Its operations have consequences beyond itself as they always affect, in one way or another, the
community which it carries on business, the national economy and society in general.
• In the governance of a company therefore, a balance has to be maintained between the
maximisation of shareholder value and interests and the protection and promotion of the
interests of other stakeholders.
• A stakeholder can affect or can be affected by a company’s operations.
• “Stakeholder” includes shareholders, institutional investors, creditors, lenders, suppliers,
customers, regulators, employees, trade unions, the media, analyst, consumers, society in
general, communities, auditors and potential investors
Stakeholders are the raison d’etre for corporate governance and the prime constituency of the
company.
The relationship between a company and its stakeholders is regulated by law and by best practice
codes.

•
The role of government in corporate governance

• Government plays both an administrative role and a coordinating role through its agencies at every
level.
• It is responsible for the maintenance of security, law and order and the protection of property of all
members of society.
The facilitative and Participatory Role of Governments

• The role of government is to provide an enabling environment within which the private and public
sector can thrive.
• Plays a participatory role in economic development through Parastatals and State-controlled
companies.
• It is a fundamental role of government as the biggest employer in the economy to observe
corporate governance principles in government Ministries, Parastatals and State controlled
companies.
• Government should provide relevant infrastructure and basic service enablers such as electricity,
water, communication facilities, among others, and permit private actors to do the same.
• This enables companies, individuals and government itself to function efficiently in the economic
development of the country
• It must ensure there is fair play at every level through its agencies.
Contd…

• Government has a major role to play in combating corruption

• There must be will power to combat corruption on the part of the top leadership of the country
which should cascade down to the ordinary man and woman.
• Government itself should respect all laws and regulations so as to set a good example.
• Government should consider and adopt the most effective legislative measures to enforce good
corporate governance.
• Enforcement can be statutory based (i.e. legislated) or based on a code of corporate governance
(i.e. voluntary enforcement or self- regulation) or a combination of both.
• Govenement should uphold and play a meaningful role in instilling good values and ethics.
 King III Summary

The third Report on Governance in South Africa (King

III) became necessary because of the
anticipated new Companies Act and changes in
international governance trends. This report was compiled
by the King committee with the assistance of the King
subcommittees. On the advice of Sir Adrian Cadbury, the
King Committee has been retained even though only three
members of the committee formed in 1992 remain on the
present King Committee. There are nine subcommittees
for King III
• Six researchers worked on King III, together with the subcommittees of 79
people. The King III code, as with King I and II, is also based on the ‘explain’
principle. In the Netherlands, directors are required to ‘apply’ their code or
‘explain’ the reasons for not doing so. We concluded that this language more
appropriately conveys the intent of the King code from inception.

• King III, therefore, is on an ‘apply or explain’ basis. One of the legal duties
of a board of directors is to act in good faith. This connotes several
requirements, including the duty to act honestly and in the best interests of the
company, to not appropriate the company’s opportunities or receive secret
profits, and to endeavor to fulfill the purpose for which the company was
established.

• The credit crunch is increasingly presented as a crisis in Corporate

Governance. The King III Report points out that the Sarbanes-Oxley Act, with
all its inflexibility, has not prevented the collapse of many of the leading
companies in the US banking and finance sector.
Key Principles of King III

•The philosophy of the Report revolves around leadership, sustainability and

corporate citizenship. To facilitate an understanding of the thought process,
debate and changes in the Report, the following key principles should be
highlighted

•Good governance is essentially about effective leadership. Leaders need to rise

to these challenges if there is to be any chance of effective responses. Leaders
need to define strategy, provide direction and establish the ethics and values that
will influence and guide practices and behavior with regard to sustainability
performance.
• Sustainability is the primary moral and economic imperative for the 21st
Century, and it is one of the most important sources of both opportunities and
risks for businesses. Nature, society, and business are interconnected in
complex ways that need to be understood by decision makers. Most
importantly, current, incremental changes towards sustainability are not
sufficient – we need a fundamental shift in the way companies and directors
act and organize themselves.

• Innovation, fairness, and collaboration are key aspects of any transition to

sustainability – innovation provides new ways of doing things, including
profitable responses to sustainability; fairness is vital because social injustice
is unsustainable; and collaboration is often a prerequisite for large scale
change.
• The legacy of apartheid is fundamentally unsustainable – social
transformation and redress is therefore an important aspect and needs to be
integrated within the broader transition to sustainability.
• Integrating sustainability and social transformation in a strategic and
coherent manner will give rise to greater opportunities, efficiencies, and
benefits, for both the company and society, than the fragmented and at times
contradictory approach currently adopted by many companies.

• King II explicitly required companies to implement the practice of

sustainability reporting as a core aspect of corporate governance. Since 2002,
sustainability reporting has become a widely accepted practice and South
Africa is an emerging market leader in the field (partially due to King II).
However, sustainability reporting is in need of renewal in order to respond
to a) the lingering distrust among civil society of the intentions and practices
of big business and b) concerns among business decision makers that
sustainability reporting is not fulfilling their expectations in a cost effective
manner.
NEW ISSUES IN THE REPORT

• Business rescue
• Fundamental and affected transactions

• In contrast to the King I and II codes, King III applies to all entities regardless of the
manner and
• form of incorporation or establishment. We have drafted the principles on the basis
that, if they
• are adhered to, any entity would have practised good governance. For that reason, we
have not
• focused on or discussed the implementation of the code and each entity should
consider the
• approach that best suits its size and complexity.
• It is recommended that all entities disclose which principles and/or practices they
have decided
• not to apply and explain why. This level of disclosure will allow stakeholders to
comment on and
• challenge the board to improve the level of governance.
Conclusively, King III reports looks into the following major
areas:

ETHICS & CORPORATE CITIZENSHIP

BOARD AND DIRECTORS
AUDIT COMMITTEES
RISK GOVERNANCE
IT GOVERNANCE
COMPLIANCE
INTERNAL AUDIT
STAKEHOLDER RELATIONSHIPS
INTERGRATED REPORTING AND DISCLOSURE