The document discusses effective governance leadership as envisaged in King IV, the South African code for corporate governance. It analyzes the governance outcomes in King IV - ethical culture, performance and value creation, adequate and effective control, and trust/reputation. For each outcome, it examines the related principles and how they envision effective leadership, such as through establishing an ethical culture and values, setting strategic direction, ensuring board oversight, and engaging stakeholders. The conclusion is that King IV presents governance and leadership as co-dependent, and that effective governance cannot be achieved without proper leadership or vice versa.
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CONTENT PAGE
ITEM NO
Introduction 3
Effective governance Leadership envisaged in
King IV
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Conclusion 9
Bibliography 10
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Introduction
According to Mervyn King, the chairman of the King committee, “it was necessary to
update the code since there has been some immense developments in corporate
governance at an international and local. Therefore King IV has been built on the fortes
of King III and offers heightened guidance on developing topics such as integrated
thinking, levels of assurance and IT governance”. What about effective governance
leadership? How does the King IV Report envisages effective leadership?
With all the crises in corporate governance leadership as emanating from the many
scandals that many of the renowned companies such as KPMG SA, Steinhoff
International, McKinsey, Naspers and, the SA Banks that were involved in the currency
rigging scandals, just to name a few of the recent ones, all these companies were
regrettably involved in respective varying scandals that which bothers and invokes not
only recommended practises of corporate governance, yet on ethical and effective
leadership by management.
Moreover, Today’s leaders have a responsibility of delivering seamless strategy and
operational excellence. That is a leadership role which includes: provision of direction
to organisations through strategy; developing applicable policies that gives effect to
that strategy; provision of oversight over management’s implementation of the
strategy; and a demonstration of accountability and transparency through disclosure.
Therefore, this clearly emphasises the importance of having effective governance
leadership practices incorporated in the King Report, especially for the use of those
companies that are listed on the Johannesburg Stock Exchange(JSE), such as the
above mentioned companies who have been alleged in respective scandals which are
not resonating well with principles and practices of King III.
Henceforth, the following section will investigate further by reviewing sections of the
King IV Report, that how does the Report’s principles and governance outcomes
envisages “effective governance leadership”.
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Effective governance Leadership envisaged in King IV
Governance outcomes:
In its definition of corporate governance, the King IV Report identifies this as an
application of ethical and effective leadership by a governing body (previously referred
as Board of Directors – King III) and covers three fundamentals: practices, principles
and governance outcomes.
Chart: 1
These are respectively interrelated and thereby making it difficult to exist in the
absence of the other. However ultimate observation is that the Practices combined
with the principles yields to the governance outcomes, as seen on the chart herein.
Practices are recommended for implementation by organisations as measures and,
such implementation achieves the principle. Thus principles aids as guidelines to
direct such organisations on what they ought to do in order to achieve a practice.
Therefore implementation of the principles yields the benefits (Governance Outcomes)
to organisations. In order words, these are organisation reaps by implementation of
the principles.
The governance outcomes in question are the following:
1. Ethical Culture
2. Performance and value creation
3. Adequate and effective control
4. Trust, good reputation and legitimacy
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Henceforth as mentioned earlier, governance outcomes will be evaluated for the
purpose of establishing how these is envisaging effective leadership in organisations.
1. Ethical culture
Ethical leadership:
Through this principle the outcome envisages effective leadership in the form of a
model of integrity, competency, responsibility and accountability amongst members
of the governing body. That is, that members should at all times act in the best interest
of the organisation and that in situation of conflict of interest, that they be able to
disclose such without having to be exposed by organisational systems and processes.
Such quality amongst members of the governing body automatically inculcated further
down to the entire organisation without much waste of resource other that of the
conduct of the members.
Organization values, ethics and culture
This outcomes further envisages effective leadership through establishing of
structures that recognises and embraces cultures of its employees and that of the
members of the governing body by means of policies, code of ethics, which is integral
to the values of the organisation that everyone without biasness to any particular
culture but that of the organisation. And that therefore echoes a healthy working
environment for everyone.
Responsible corporate citizenship
Ethical culture is further ensured by means of respect for the rule of law. Adherence
to organisational policies, code of conduct, the country’s Constitution and the By-laws
in which the organisation might be operating from. Such conduct is referred as
corporate citizenship by this principle. This also includes the organisational values and
operational objectives.
Under this principle, the ethical culture is goes to an extent of devising strategies that
contributes positively to the country’s Gross Domestic Product (GDP) and, Monetary
and Fiscal Policies, such as focus on Economy, Society and Environment.
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This is ultimately made obligatory by the requirement for reporting
achievements/developments in the organisation’s annual/performance
reports
2. Performance and value creation
Strategy, Implementation, performance
Through this outcome, effective leadership is also realised by the responsibility that
the governing body assumes for the development of strategies, annual plans. It should
do so by setting direction and guidelines that will realise the organisation’s primary
business objectives and according to its core values.
It further does so, by delegating management on implementation of such, including
that of performance management of the organisation against set targets for personnel.
Reports and disclosure
The governing body, in an effort of this outcome through this principles, envisages
effective governance and leadership by, by setting a course for the management to
produce reports through the organisation’s various mechanism and mediums, that is
that is of fair representation of the company’s state of affairs, especially so that such
information does enables investors and other stakeholders to make informed
decisions about the performances of the organisation.
Management is also further directed on the responsibly of publicising corporate
governance information at the organisation’s website and other external reports. As
this further ensures commitment to transparency by the governing body and the
organisation at large.
3. Sufficient and effective control
Governing body’s role
This principle purely emphasises the importance of that the governing body should
exercise adequate oversight over the organisation’ performance by holding
management to account, informed by the policies and strategic documents in place.
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The governing should further ensure that its roles and responsibilities are documented,
agreed and signed by all members of the body. This does not excludes the body’
charter which should be reviewed on predetermined basis.
The body should also set protocols for various engagements by its members, which
should be documented at all times and those minutes be stored accordingly.
Composition of the governing body
This principle is one of very much key inputs into exercising effective leadership, as its
practise directly informs the calibre of leadership that will be at the helm of the
organisation.
Governing bodies are herein advised to ensure not just diversity in the composition of
its non-executives/members, yet it further recommends that experience, technical skill
be balanced in the body. This will enable the body to effect its responsibilities on well
informed basis.
This therefore distinctly envisages effective governance and leadership.
Committees of the governing body
King IV outcome in this principle is clear, which is that of ensuring effective control and
sufficient oversight in the performance of the organisation. The body therefore has to
Establish governing structures which will be delegated by the governing body on
implementation of some strategic objective, as well as that oversight roles. The roles
and composition for such structures should documented in a charter and that be a
blueprint for the discharge of its responsibilities.
Members of these structures should therefore be appointed as per the areas of their
respective skills and experience, so as the structure can effectively function with
envisaged vision and missions of its charter.
Evaluation and Delegation of management
The governing body, for effective oversight over management, it should start by
appointing competent management, so as to be able to also entrust it with the
responsibility of administrating the organisation with optimal care and sense of
fiduciary for the organisation. It does so by appointing a suitable Chief Executive
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Officer, whom could in turn be delegated to appoint their subordinate management.
And to also be accountable to the governing body
The body should according to this principle set a direction for the succession planning
of the executive management. Yet to also set measurable indicators for evaluating the
CEO and the executive management.
This principle in itself is a good effective governance control input.
4. Good reputation and legitimacy
Stakeholders inclusivity
Apart from ensuring that minority shareholders/institutional investors are equitably
treated by the governing and subsequently by the company, the governing body
should at all times engage its stakeholders on regular basis, be it on annual general
meeting, periodical reports, or by publishing regularly relevant and material
information and organisation performance at the company’s websites and other
mediums etc.
In so doing the organisation, should have been given direction and guide by the
governing body. Establishing of policies that deals specifically with management of
stakeholders is paramount in order to employ adequate processes and systems for
this regard.
The governing body is further in this regard required to ensure that on annual reports
it reports specific information about the engagement of stakeholders.
This therefore is amongst its effective governance and leadership at the helm of the
organisation.
Shareholders/institutional investors’ responsibility
The governing body herein has the responsibility of ensuring policies are in place with
sets the tone and direction for investing practices and procedures. This should in turn
be communicated to investors, so as to enable them to engage with the governing
body on areas of differences.
The body can also do so by appointing a consultant with expertise in this regard, who
will assist in development of such policies and frameworks.
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Henceforth the body should delegate the responsibility of implementation of such to
executive management.
Conclusion
From this holistic evaluation of the King IV Report, it is evident that all the outcomes
have been prepared with an obligation or inclination towards effective governance and
leadership. Especially as each and every principle is reflective of effective oversight
controls instituted to the organisation.
What is also evident is the fact that King IV presents the Report in a manner that does
not separates good corporate governance and leadership, thereby rendering them
co-depended. That meaning, that good governance cannot be implemented effectively
without proper leadership, nor can leadership be effective without good governance in
practise.
Prominent features are also, that at all time, for effective governance, the governing
body should be able to communicate decisions accordingly to executive management,
and also do so by being exemplary in in their conduct. That is a great sign of
leadership, as they would be practising of what they preach to executive management.
In closing remarks, effective governance and leadership is envisaged from the first
outcome and principle, to right through the last principle.
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Bibliography
Yukl, G., (2013) Leadership in Organisations. Ninth Edition Pearson Education:
Prentice.
Tom Wiese, 2014, Corporate Governance in South Africa, with international
comparisons, JUTA, South Africa
John W., Hendricks and & Leigh Hefer-hendrickse (2014), Corporate Governance
Handbook, 2nd Edition, South Africa.
"King IV, Report on Corporate Governance for South Africa on 2016". Institute of
Directors in Southern Africa. South Africa