BarnOwl Info Sharing session for the Public Sector: 25 May 2017

The journey from King I to King IV: Why King IV is not another layer of regulation but creates add-on value. (King IV is copyrighted to The Institute of Directors Southern Africa).

Presented by Michael Judin, partner in the Johannesburg based law firm, JUDIN COMBRINCK INC

By popular demand initiated by interested parties from the public sector, we asked Michael Judin to re-run his presentation on King IV with a focus on the public sector. The event was extremely well attended with over 40 people attending. Michael was as always enthralling. Thank you Michael.

Michael ran through the history of King I, II, III and now IV. Michael explained the difference between common law (judgement of the supreme and high court) and statute law (acts of parliament, municipal legislation, proclamations etc.). Both the common law and the statute law are of equal standing and neither must conflict with the constitution.  The constitution reigns supreme. The King code is a voluntary common law code, is a JSE listing requirement, has become common place in contract law and has to date  been used in 14 high court cases.

In 1992 / 1993, Nelson Mandela tasked Mervyn King to come up with a corporate governance code for our new nation and constitution. Since then, the King code has evolved from King II (‘Comply or Else’) to King III (‘Apply or Explain’) and now King IV (‘Apply and Explain’).   The definition of corporate governance for the purposes of King IV, is defined as the exercise of ethical and effective leadership by the governing body towards the achievement of the following governance outcomes: Ethical culture, Good performance, Effective control and Legitimacy.

King III came into being to assist directors down a journey of good governance when the new company’s act came out in 2008. King IV has progressed into an outcomes based code as opposed to check-box based and has been simplified compressing the 75 principles of King III into 16 principles (plus one for financial services) with recommendations on how to apply the principles to achieve the outcomes. King IV now includes sector supplements including those for municipalities and state owned entities.

A major shift in King IV is its appeal to millennials who are far more conscious about ‘People, Planet and Profit’.  Today’s executives and boards are generally from the baby boomer generation and see governance as a ‘tick box regulation thing’ and just something they have to do.  Michael spoke about our misconception that the power is in the board room. The power really lies with the new millennials and the power of social media and the smart phone. Millennials don’t believe a thing you say.  You have to demonstrate the outcomes. Nestle found this out the hard way with their destruction of palm trees in Malaysia which happened to be the chimpanzee’s natural habitat. A few youngsters took to social media showing blood dripping out of a KitKat. Do not buy KitKat. Days later Malaysia’s palm trees were being restored for the chimpanzees. Social media operates in nano seconds. Look at the power of #tag ‘Fees must fall’.  Look at the power of social media which Malaysian airlines experienced when they bullied a passenger http://fortune.com/2017/04/11/united-airlines-stock-drop/. Millennials are unforgiving and unaccepting!

Michael mentioned that in 1980 South African Eskom was ranked as one of the top energy companies in the world, we were ranked 2nd in the world for nuclear energy and South African Airways was ranked as the 3^rd best airline in the world as well as South Africa being the preferred destination for the servicing of Boeings from across the world. In the early 2000’s South Africa ranked in the top 6 or 7 of country ratings and we are now lucky if we crack the mid-30s. The point that Michael was making is that our new millennials will not accept this. They are tired of political talk with no action. They demand outcomes. They are tired of corruption, poor service delivery and financial mismanagement. They will take to social media, class actions and lay criminal charges against public servants who are delinquent in their duties. Michael reiterated the governance outcomes of ethical culture, good performance, effective control and legitimacy and inspired confidence that we would again get our beautiful country back!

In summary a few points worth noting about the King code:

• It’s not just another layer of regulation but rather an outcomes based code here to help us and add real value.
• The King code appeals to a way of life rather than just a way of doing business; Governance supported by King IV is an aspirational code
• People who understand King embrace it
• Don’t ignore the millennials; understand the value of the 3 Ps (People, Planet and Profit)
• Corruption is at a tipping point
• Appreciate the value of information and technology; business disrupters; artificial intelligence, millennial thinking.

Mervyn King, his committee and the Institute of Directors Southern African needs to be applauded for putting South African firmly on the map as a leader in corporate governance which can only be a positive thing for all of us living in South Africa.

For more information on the salient points of King IV you can see: https://barnowl.co.za/insights/king-iv-report-risk-compliance-and-assurance/

Written by: Jonathan Crisp

Director – BarnOwl GRC and Audit software

About Michael Judin:

Michael Judin obtained his law degree at the University of the Witwatersrand and commenced practice in Johannesburg at the end of 1969. He is currently a partner in the Johannesburg based law firm, JUDIN COMBRINCK INC.

Michael is a member of the King Committee and was also the convener of the Sub-Committee which wrote the Chapter dealing with negotiation, mediation and arbitration as contained in King III, South Africa’s Corporate Governance Report and Code; and

He is also a member of the King Committee Task Team established for the review and rewrite of the King III Corporate Governance Report and Code known as King IV.

About BarnOwl: