King V, like its predecessors, is as an outcomes-based collection of voluntary guidelines which sets out the recommended philosophy, principles and practices intended as the benchmark for corporate governance in South Africa. Specifically, King V endeavours to provide a robust framework for ethical and effective leadership, aimed at enabling organisations to achieve certain governance outcomes within their own economic, social and environmental context, namely: ethical culture, performance and value creation, conformance and prudent control, as well as legitimacy.

Key features of King V

Following a period of review and public comment, King V introduces several key features, some of which are outlined below.  

Deconstructed format

Aimed at improving accessibility, usability and visual clarity, King V is presented in a deconstructed format comprising four standalone documents: King V Foundational Concepts, King V Code, King V Glossary and King V Disclosure Framework, each document (forming part of King V) being readily accessible via a central dedicated King V webpage (accessible here). Whereas King IV opted for a single document structure, the King V format eliminates the need to trawl through a consolidated document.

Plain language and drafting simplification

King V makes use of plain and simple language that is clearer, streamlined and easier to understand, when compared to the language used in the King IV report. To this end, and without detracting from the substance of its content, the use of overtly technical material and jargon has been minimised. Furthermore, King V makes use of limited graphics to improve accessibility for visually-impaired persons, as well as compatibility with screen-readers.

Consolidation of core principles

Several principles from King IV have been consolidated in King V, with the number of core principles being reduced from 17 to 13. Notably:

• in an effort to curb redundancy, King V principle 1 (dealing with leadership and specifically the focal role of the governing body in an organisation) consolidates King IV principles 6 and 9;
• similarly, King V principle 2 (dealing with ethics and responsible corporate citizenship) consolidates King IV principle 3; and
• King IV principle 17, which was aimed at institutional investors (such as pension funds, life insurers and asset managers) has been excluded from King V. The justification for this removal is that its inclusion created confusion regarding its applicability to organisations that are not institutional investors. Instead, the King Committee has endorsed the application of both King V and the Code for Responsible Investing in South Africa (CRISA) by institutional investors.

Recommended practices

To further streamline King V and improve the use and accessibility thereof, all practices that are not deemed mandatory for the application of a King V principle have been removed and all practices related to disclosure have now been included in the "King V Disclosure Framework" – a new addition to the King Code regime aimed at inter alia facilitating greater accountability and enhanced transparency. Companies will now be obliged to make specific disclosures in respect of each recommended practice, and will no longer be able to get away with tendering vague and generic disclosures (which practice has become somewhat commonplace) in the market against each general principle.

Independence criteria

King V refines the criteria for assessing the independence of a member of a governing body by:

• Providing an additional "cooling-off period" for former executive managers of at least three years, during which period such former executive managers must not have had any "significant involvement" in any capacity within the organisation to be considered an independent member – this represents a slight deviation from the King V Draft (discussed in a previous publication, accessible here) which had anticipated a shorter two-year cooling-off period.
• Elevating the "nine-year" recommendation to an independence criterion: under King IV, the requirement was simply that an especially rigorous review of a director's independence be undertaken if they had served for nine years or more. Now, when assessing the independence of a governing body member, their term of service is referred to. Specifically, should a member's term exceed nine years this could indicate the non-independence of such member, subject to the governing body's view otherwise.
• Applying the independence criteria to both members of a governing body and any of their related parties (as defined in the Companies Act 71 of 2008 (Companies Act)), the latter being an additional scrutiny that was not previously applied under the King IV regime. Having been a feature in the Companies Act in the context of the independence of audit committee members (section 94), King V is now aligned with that position. By extension, this would mean that the cooling-off period and nine-year recommendation mentioned above would apply, inter alia, to a prospective independent member and their related persons.

Interestingly, participation in a share-based scheme, or being a professional adviser to the company, have been dropped as specifically listed factors indicating non-independence. It is not clear how much to read into this, and no doubt these will remain factors to be taken into account to some extent in practice, as the list in King V is, after all, non-exhaustive.

Remuneration governance

 To avoid redundancy in the light of recent (but pending) amendments to the Companies Act, King V contains streamlined provisions relating to remuneration governance. When those amendments come into force, public companies will be obliged to submit their remuneration policies and implementation reports for a binding vote of the shareholders (an ordinary resolution vote). Nevertheless, King V recommends that all companies that are required to appoint a social and ethics committee under the Companies Act and its regulations (i.e. this includes companies with a public interest score greater than 500 in any two of the previous five financial years of the company) submit their remuneration policies and reports for a non-binding advisory vote by shareholders. This is opposed to the slightly broader scope contemplated in the King V Draft, which included all companies that must have their financial statements audited in terms of the Companies Act. In terms of King V, the executive remuneration policy should be submitted to the shareholders for voting every three years or whenever there are “substantial” changes to the remuneration policy, and the statutory remuneration report should be submitted for voting annually.

King V also requires that certain elements be fleshed out in more detail in the remuneration policy and report such as:

• whether executives are required to have a minimum shareholding in the company (and targets in this regard, if any);
• whether the exercise of malus, forfeiture and clawback provisions are substantively and procedurally fair;
• in the case of formula-based remuneration, whether the board can (and did) exercise an overarching fairness discretion in the case of anomalous results; and
• change of control provisions.

Data, technology and AI risk

Of note, is that among other information and technology-related risks, King V specifically addresses the increased use of artificial intelligence (AI) systems, requiring organisations to apply key values of ethics, human centricity, accountability, transparency (including openness regarding data sources), explainability (clear and understandable reasons for specific decisions made through the use of AI), security, privacy, fairness and trustworthiness to implement appropriate controls in relation to the organisation's use of AI.

Conclusion

Probably the biggest fear that proponents of corporate citizenship and governance have is that codes such as King V are reduced to a checklist and tick-box exercise. In enabling the flexible tailoring of governance practices to a myriad of organisational contexts, however, King V empowers organisations to create sustainable value over time, enhance stakeholder confidence and contribute positively to the broader economy, society and the environment. With the application of King V on the horizon, the future of corporate governance in South Africa looks bright.