The Launch of King III
“King III is a significant advance in corporate governance,” says Sir Adrian Cadbury
The third King Code of Governance Principles was launched with much fanfare in Johannesburg on Tuesday, September 1 2009.
The document was finalised after 666 pages of public comment were received in response to the draft version issued in February this year. King III comes into effect on March 1 2010. Unlike its predecessors, King III applies to all entities regardless of incorporation and sector - public, private or non-profit. The Code is not available free of charge: it can be viewed on www.iodsa.co.za but printed copies must be purchased (online orders can be made on the site).
The philosophy of King III revolves around leadership, sustainability and corporate citizenship. Speaking at the launch, Sir Adrian Cadbury (the ‘father’ of corporate governance) said: “Yesterday we focused on raising standards. Today it’s the role of business in society. Tomorrow will be set by King III.” The timeliness of King III, he said, was both internal due to the changes in the Companies Act in South Africa and external as it reflects international corporate governance trends.
“King III places business in the context of society and the community it serves.” A strong focus of King III is the impact of the company on society; or the “interdependence” as Cadbury calls it. “The company is integral to society in the creation of wealth and employment. The nature of the company’s reporting should be integrated to cover economic, social and environmental performance as well as looking ahead at prospects.” The question to ask, is this: ”Is the report intelligible and relevant to those outside of the company to assess the economic value?” King III will no doubt encourage the wider use of sustainability reporting.
King III’s focus on sustainability is “highly timeable”, says Cadbury. “Boards should no longer make decisions on the needs of the present without considering the future.” The reality of potential impact of climate change on business is underlined by the EU’s 20/20/20 commitment – to cut carbon emissions by 20%, improve energy efficiency by 20%, and for 20% of energy to come from renewables by the year 2020. “This will result in a significant change in the business environment in the not too distant future,” he said. Sustainability has to be a factor in all business decisions - sustainability is about business survival and its ability to grow.
To put the report in context, said Professor Mervyn King at the launch, one needs to go back to the 18th and 19th centuries and consider the role and growth of corporations. Today, 51 of the top 100 multinational companies earn more revenue than many of the world’s governments. The impact of these companies is “awesome”. And directors have an “awesome” responsibility. “Companies are integral to our society. They have become this entity of human and monetary capital. Companies are greater agents for change than governments,” said King. The cornerstone of King III, he said, is that governance strategy and sustainability have become inseparable.
On reporting, King said there should be integrated reporting in the context of three elements: economic, social and environmental. The report should be in an understandable language and tell how the company has impacted positively and negatively on the community.
King let slip that they are currently looking at a new investor code. Meetings are being held with the major financial institutions in South Africa in drawing up an investor code of guidelines. Aimed at pension fund managers and asset managers the new code will guide on what to look for when making an informed assessment of the economic value of a company.