A shift of focus: King IVTM challenges organisations to deliver on governance outcomes

Lance Tomlinson, Africa Assurance Leader at EY.

The King IVTM Report on Corporate Governance ushers in a new era of corporate governance, but implementing it will prove challenging for most organisations, says EY.

“King IV is moving organisations decisively away from simple compliance to achieving certain outcomes, a development which we welcome. It does, however, put the spotlight on implementation strategies,” says Lance Tomlinson, Africa Assurance Leader at EY. “Even mature adopters of King IIITM will need to think hard about how they will adapt their current corporate governance regimes in the light of King IV. A sound methodology will be essential.”

Launched by Institute of Directors in Southern Africa on 1 November 2016, King IVTM builds on the foundations of King IIITM as far as content goes, but introduces extensive innovations in the area of implementation. Tomlison says King IV is structured with a view to moving organisations from simply complying with a set of recommended practices to focusing on how they will deliver the desired governance outcomes through adopting good governance practices (the recommended practices in King IV) associated with meeting the King IV governance principles.

“In a nutshell, with the advent of King IV companies, and all entities that embrace the benefits of corporate governance, need to consider what they intend to achieve by adopting corporate governance. This will include the context of the applicable corporate governance framework that exists in legislation and regulation for certain entities/sectors, and then develop and apply their corporate governance practices in a manner that will deliver the expected governance outcomes,” says Tomlinson.

“Apply and explain” also means that the organisation’s governing body must demonstrate how it has applied consideration to achieving those outcomes rather than simply implementing practices without that purpose in mind. All of this is good, but at a practical level it poses challenges. Organisations will need to find ways of adapting or further developing their current practices to deliver the outcomes envisaged by King IV, which we believe could become something of a minefield if there isn’t a plan in place.”

A related issue is the question of educating governing bodies about these challenges and how to address them. Executive committees or company secretaries are likely to initiate the process of implementing King IV, and they need to design an effective programme for updating their governing bodies on the implications of King IV most especially about their fundamental role as the custodians and drivers of corporate governance, says Tomlinson.

“King IV comes into effect for organisations whose financial years start on or after 1 April 2017, which means those with a year-end of 31 March 2018 will be the first to report under the new Code,” Tomlinson concludes. “With around 15 months to go, the clock is ticking, and the time to start planning and communicating is now.”