King II Report on Governance in South Africa

Published in 2002 and prepared by a committee chaired by Professor Mervyn King, this report is the second, revised edition of a report that was published for the first time in 1994. Selected parts of the King II Report have been adopted by the JSE as a listing requirement. The Report is widely accepted as best practice in corporate governance, even internationally.

Over and above sections on board composition, risk management, auditing and compliance, it includes a far-reaching section on integrated sustainability reporting. It notes: “Every company should report at least annually on the nature and extent of its social, transformation, ethical, safety, health, and environmental management policies and practices”.

In general, the King II Report takes an approach known as “comply or explain” which means that companies should assess the guidelines and apply them in a manner that is appropriate; if they choose not to comply they should publicly explain why not.

King III Report:

Launched in September 2009, the King III report applies to all entities, regardless of the manner and form of incorporation and establishment. As in the previous reports, there is a strong focus on sustainability. The report calls for an integrated report that puts an organisation’s financial results in perspective by also reporting on how the organization has impacted on the life of the community in which it operates, and how the organization intends to enhance those positive impacts and .ameliorate or eradicate the negative impacts in the year ahead.  (For more, see the page on Integrated Reporting).
A big difference between King II and King III is that the latter adopts the “apply or explain” approach. The Committee felt that this approach shows an appreciation for the fact that it is often not a case of whether to comply or not, but rather to consider how the principles and recommendations can be applied. See www.iodsa.co.za

• be focused on substance over form and should transparently disclose information that is material, relevant, accessible, understandable and comparable with past performance of the company.
• be formalised as part of the company’s reporting processes.
• have independent assurance.

The Launch of King III

King III practice note - The IoD Southern Africa, has issued a practice note entitled “Implementation guidance on environmental sustainability practices and performance” relating to the King III Code requirements. The practice note states that it is a company’s board of directors that is responsible for ensuring the company has an environmental policy and strategy. It states that environmental risks cannot be considered in isolation, but should be integrated with financial and social risks.
>>Click here to download the note