5
Insights for
boards
King IVTM update
Leadership, Ethics and
Corporate Citizenship
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The draft King IVTM (King IV) was released on 15 March 2016. (available at https://c.ymcdn.com/sites/iodsa.site)ym.com/resource/
resmgr/King_IV/King_IV_Report_draft.pdf)
Various local and international developments in corporate governance, including in relation to integrated thinking and integrated
reporting, remuneration, development of board roles and responsibilities and related board structures, and stakeholder engagement
practices have prompted the need to update King III.
King IVTM is open for comment until 15 May 2016. Any individual or organisation can submit comments using the electronic portal on
the Institute of Directors in Southern Africa’s website (http://www.iodsa.co.za/page/KingIVcommentary).
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What is King IVTM proposing regarding leadership,
ethics and corporate citizenship?
King IVTM reinforces King III’s1 emphasis on ethical leadership as the foundation of good corporate governance,
and the ethical attributes of responsibility, accountability, fairness and transparency. It also clarifies that
ethical leadership in governance is exercised alongside the established legal duties of members of the governing
body.
To ensure clarity and common understanding of the terms used, King IVTM includes explanations of the attributes
of ethical leadership (as does King III), and introduces revised definitions of the terms “responsibility” and
“accountability”.
An important new focus in King IVTM is adoption of an outcomes-based approach to the organisation’s
achievement of the governance principles. This is done with a view to making the principles more practical and
achievable, and also more focused on achieving identified outcomes, and the desired impact.
Illustrating this approach in relation to the governing body’s responsibility for ethical and effective leadership,
King IVTM guides deployment of a governing body’s responsibilities towards achieving the outcome of maintaining
an ethical culture.
In King IVTM the following principles (carried over intact from King III) are of key importance:
Ethical Leadership
Principle 1.1 The governing body should set the tone and lead ethically and effectively
Organisation Values, Ethics and Culture
Principle 1.2 The governing body should ensure that the organisation’s ethics is managed effectively
Responsible Corporate Citizenship
Principle 1.3 The governing body should ensure that the organisation is a responsible corporate citizen.
As custodian of corporate governance in the organisation, the governing body is expected to play a key role in the
governance of ethics, i.e. ensuring the management of ethics in the organisation results in an ethical culture.
King IVTM re-emphasizes that good ethics is the foundation of good business, and that the cost of failure to
manage ethics is high, including through consequential impairment of reputation and intellectual capital.
King Report on Governance for South Africa 2009
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King IVTM also devotes significant space to explaining its underpinning philosophies – these are not a significant
departure from those contained in King III, but rather a further refining of the key philosophies that underpin
King IVTM. These include:
• The organisation as an integral part of society.
• Corporate citizenship – the status of the organisation in society.
• The governance response to sustainable development.
• Stakeholder inclusivity and responsiveness.
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What are the key areas of difference from King III?
Recommended Practices on Ethical Leadership
King IVTM sets out six ethical attributes that guide ethical leadership (Principle 1.1), both for the governing
body as a collective and for its members as individuals. In addition, it explains how they ought to be realised in
context of managing the behaviours and actions of the board and its members.
• Independence
• Inclusivity
• Competence
• Diligence
• Being sufficiently informed to be able to discharge governance responsibilities and duties
• Courage
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Recommended Practices on Governance of Ethics
While King IVTM largely echoes King III on the governance of ethics, King IVTM drives the application of the
outcomes-based approach to ensure the organisation’s ethics will be managed effectively (Principle 1.2). This
offers the prospect that the organisation will achieve the intended outcome – i.e. an ethical culture.
Further, the governing body’s ethical leadership of the organisation is expected to have a pervasive effect by
being evidenced in the organisation’s strategy, policy and processes, oversight and disclosure responsibilities.
Recommended Practices on Responsible Corporate Citizenship
An organisation’s commitment to corporate responsibility and its contributions as a corporate citizen in broader
society, are manifested through the organisation’s decisions, actions, and impacts on its stakeholders and on
the natural environment.
Various standards and frameworks are available to guide organisations in their commitment to being
responsible corporate citizens. Examples are: the UN Global Compact , the OECD Guidelines for Multinational
Enterprises and the GRI G4 Sustainability Reporting Guidelines .
Recommended practices in King IVTM include a set of corporate citizenship considerations that all organisations
may adopt in striving to ensure that the organisation is a responsible corporate citizen (Principle 1.3). This is
helpful guidance for smaller entities and unincorporated entities applying King IVTM.
The Glossary of Terms includes definitions of the terms “culture”, “ethics” and “values”.
Recommended Practices on the Social and Ethics Committee
King IVTM addresses the more recent development of social and ethics committees for companies, mandated for
certain types of companies by the Companies Act, 2008. It recommends that all organisations should consider
establishing such a committee as a matter of good practice (or a mechanism that would achieve the aims of
such a committee).
King IVTM explains that it draws on recent experience of the legal requirement for use of social and ethics
committees, to consider how these committees might be integrated with broader governance structures.
By illustration, King IVTM views the social and ethics committee as the appropriate vehicle for upholding,
monitoring and reporting on organisational ethics, responsible corporate citizenship, sustainable development
and stakeholder inclusivity.
King IVTM underlines the wider responsibility of organisations and their governing bodies to ensure that the
intended outcomes and impact are achieved by the organisation, and that implementation of the code is not
merely a compliance box-ticking exercise.
Available at: https://www.unglobalcompact.org/what-is-gc/mission/principles
Available at: http://www.oecd.org/corporate/mne/
Available at: https://www.globalreporting.org/standards/g4/Pages/default.aspx
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How will these King IVTM proposals affect your
organisation and its governing body?
King IVTM further clarifies the ethics of governance and the governance of ethics and emphasizes that the
governing body needs to ensure that both are in place within the organisation, and are part of its governance.
Further, as the concept of corporate citizenship grows in importance, King IVTM clearly signals its importance for
all organisations, not only corporate entities.
What are the main benefits of these proposals?
A key benefit of the restructured code is its accessibility and wider applicability to a variety of organisations.
The focus is placed on achieving the KING IVTM principles in order to realise specific targeted outcomes, with the
desired overall impact being improved corporate responsibility.
Importantly however, the governing body has flexibility in selecting the practices that it believes will result in
achievement of the Principles addressing leadership, ethics and corporate citizenship.
This is an important clarification for organisations that have not hitherto applied the King Report and the King
Code.
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What questions should the governing body be
asking/considering in relation to King IVTM?
• H
➢ ow does the governing body as a whole, and also the individual members, encourage and support ethical
leadership practices, including independence, inclusivity, competence, diligence, being informed and having
courage?
• D
➢ oes the governing body undertake periodic culture assessments as a means of promoting coherence, trust
and common values between its members, and healthy governance body decision-making and performance?
• H
➢ ow does the governing body hold itself to account for ethical governance?
• H
➢ ow well does the governing body give attention to setting “the tone at the top” to ensure an ethical culture
throughout the organisation?
• I➢ s the organisation’s ethics managed effectively? Are there structures in place to give effect to the
organisation’s ethics, values and norms, including safe reporting/whistleblowing mechanisms as well as
appropriate oversight and resources for ethics management?
• H
➢ ow effectively does the organisation promote adherence to its ethical values and norms throughout its
supply chain? Are processes in place to monitor and assess that the entities/individuals in the organisation’s
supply chain operate ethically and responsibly, including imposition of remedial actions and/or sanctions
when any breaches or non-compliance occur(s)?
EY governance specialists are able to assist you in responding to the IODSA and the King Committee on
the King IVTM. We can assist your organisation with its assessment of board culture, leadership, ethics and
corporate citizenship systems and processes, as well as its disclosure and reporting practices.
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Governance
• Designing board structures
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requirements/best practices in the
sector context
Governance of Remuneration
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the remuneration philosophy and
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• Review of remuneration disclosure in the
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Integrated Reporting
Sustainability
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Awards
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