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Corporate Governance

King III

Corporate governance and corporate reporting is no longer what it used to be.

The King III Report and Code were released by the Institute of Directors in Southern Africa (IOD) on 1 September 2009. These documents are available on the Institute's website (www.iodsa.co.za).

King III, as the third report on corporate governance in South Africa became necessary because of the new Companies Act, no. 71 of 2008 and certain changes in international governance trends.

King III addresses the following issues:

Chapter 1 Ethical leadership and corporate citizenship

Chapter 2 Boards and directors

Chapter 3 Audit committees

Chapter 4 The governance of risk

Chapter 5 The governance of information technology

Chapter 6 Compliance with laws, codes, rules and standards

Chapter 7 Internal audit

Chapter 8 Governing stakeholder relationships

Chapter 9 Integrated reporting and disclosure

King III entails significant implications for companies and boards of directors, with regard to, for example, directors' duties; integrated sustainability reporting; shareholder remuneration policy; risk-centric internal audit; the role and function of sub-committees; the role of the lead independent director; IT governance and security; alternative dispute solution; internal training; assessment of internal controls; the duty to act as a responsible corporate citizen; risk management; share options and stakeholder relationships.

The Companies Act, no. 71 of 2008

The new Companies Act also provides for enhanced accountability and transparency. It deals specifically with the position of directors, so-called prescribed officers, the company secretary, auditors and audit committees.

The new Act codifies, in section 75 and 76 of the Act, some of the most important duties of directors. This includes the fiduciary duties, the duty to act with reasonable care, skills and diligence and the duty to disclose personal financial interests in matters to be considered by the board. The new Act, as opposed the previous Companies Act, is largely decriminalised and uses personal liability of directors as a deterrent. It is not only directors of companies that will be subject to these duties and personal liability: the new Act has introduced the concept of "prescribed officer", who is basically a senior manager or senior executive of a company, irrespective of whether or not he or she is a director. Prescribed offers, as well as members of committees of the board of directors, will be treated in much the same way as directors under the new Act, even though they might not be directors in law.

Coupled with this is an interesting new provision in the new Act which now allows companies to indemnify their directors and prescribed officers, or to take out and pay for insurance protecting directors and prescribed officers, for breach of duty or negligence (except certain serious of wilful dereliction of duty).

The new Act also makes it mandatory to appointment certain committees, ie an Audit Committee and a Social & Ethics Committee.

Together, the new Companies Act and King III are set to promote more stringent standards of corporate governance and greater director accountability.

Cliffe Dekker Hofmeyr's Corporate Governance Compliance and Risk Services

The Corporate Governance compliance and risk team at Cliffe Dekker Hofmeyr can assist companies and board members in ensuring compliance with the legislation and that proper structures and processes are established with appropriate checks and balances.

Our team of specialists has vast experience in this field and has been assisting various clients with, for example:

  • Specialist advice and opinions in relation to corporate governance and directors' duties in terms of King III and the new Companies Act
  • Advice with regard to risk assessment and implementing risk-mitigating measures, in regard to:
    • Directors' duties
    • Prescribed officers' duties
    • Governance of tax affairs
    • Duties relating to environmental issues
    • Information technology governance
    • Anti-corruption requirements and
    • Media and telecommunication compliance
  • Reviewing internal documents, systems and processes to ensure compliance
  • Tailor-made presentations, training sessions and compliance familiarisation seminars for board members and prescribed officers

Partner with the experts

For more information with regard to our services in relation to corporate governance and or our training initiatives and client seminars, please contact:

Monique du Preez,
Director: Knowledge Management

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