Most corporates already apply King III principles and soon King IV will replace King III in its entirety. One of the main changes from III to IV is the ‘apply and explain regime’. One of the key objectives of this revised manner of reporting is for stakeholders to be able to tell from reading the integrated report, whether the organisation is indeed achieving a good governance outcome. Knowing how to put your integrated report together in accordance with King IV comes down to knowing your numbers.
It’s no joke: King IV comes into effect on 1 April this year and if your organisation already incorporates the four governance outcomes (ethical culture, good performance, effective control and legitimacy) into its practices, you’ll be in good shape when it comes to drafting your integrated report. Five sector supplements are available to provide extra guidance on drafting a report to municipalities, non-profit organisations, retirement funds, small and medium enterprises and state-owned enterprises.
The six capitals, covering financial, manufactured, human, intellectual, social and relationship, and natural, are emphasised in King IV to remind you of all the forms of capital you may use or affect. With seven guiding principles provided, you’ll be absolutely clear on what content you need to consider and how to present that content. Then, the eight content elements direct you on precisely what needs to be addressed.
Finally, 17 principles (see below) guide organisations on what they should be achieving in the journey towards good governance. From an integrated report point of view, read the content you have put together for the report and then go through each of the 17 principles asking yourself if each one has been demonstrated by your overall content. If you are able to tick off each one, you have your proof points and your job is done.
The 17 principles: tick the boxes
The governing body should:
1 Set the tone and lead ethically and effectively
2 Ensure that the organisation’s ethics are managed effectively
3 Ensure that the organisation is a responsible corporate citizen
4 Lead the value creation process by appreciating that strategy, risk and opportunity, performance and sustainable development are inseparable elements
5 Ensure that reports and other disclosures enable stakeholders to make an informed assessment of the performance of the organisation and its ability to create value in a sustainable manner
6 Serve as the focal point and custodian of corporate governance in the organisation
7 Ensure that in its composition it comprises a balance of the skills, experience, diversity, independence and knowledge needed to discharge its role and responsibilities
8 Consider creating additional governing structures to assist with the balancing of power and the effective discharge of responsibilities, but without abdicating accountability
9 Ensure that the appointment of, and delegation to, competent executive management contributes to an effective arrangement by which authority and responsibilities are exercised
10 Ensure that the performance evaluations of the governing body, its structures, its chair and members, the CEO and the company secretary or corporate governance professional result in continued improved performance and effectiveness
11 Govern risk and opportunity in a way that supports the organisation in defining core purpose and to set and achieve strategic objectives
12 Govern technology and information in a way that supports the organisation in defining core purpose and to set and achieve strategic objectives
13 Govern compliance with laws and ensure consideration of adherence to non-binding rules, codes and standards
14 Ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the creation of value in a sustainable manner
15 Ensure that assurance results in an adequate and effective control environment and integrity of reports for better decision-making
16 Ensure that, as part of its decision-making in the best interests of the organisation, a stakeholder-inclusive approach is adopted, which takes into account and balances their legitimate and reasonable needs, interests and expectations
17 Of an institutional investor, ensure that the organisation responsibly exercises its rights, obligations, legitimate and reasonable needs, interests and expectations, as holder of beneficial interest in the securities of a company