Why KING IV matters

 

King-inside

One of the hallmarks of our relatively young democracy has been its contribution to the discourse on corporate governance now enshrined in what is commonly referred to as the King Report.

In July 1993, the Institute of Directors in South Africa asked retired judge Mervin King to chair a committee on corporate governance whose report (King I) led to the first corporate governance code for South Africa.  Since then three more reports have been issued, King II (2002), King III (2009) and King IV (2016).

While the first three reports generally applied to listed companies, King IV succeeds in extending the reach of good practices and principles that are used to benchmark corporate South Africa into the public sector.

Indeed, one of the key strengths of King IV – compared to its earlier editions – is the inclusion of sector supplements that provide much clearer guidelines to public sector entities on how to apply good governance guidelines to their particular circumstances.

The objectives of state-owned entities obviously differ markedly from private sector companies. There generally is no profit motive and in many of our business activities we have to abide by the developmental mandate given to us by our shareholder (Minister) who represents the South African government.

This is reflected in our emphasis on the empowerment of small- and medium-sized enterprises and our commitment to allocate a growing share of work packages in the road construction and maintenance sectors to black-owned and women-owned companies.

The successes we have achieved in community development, in skills transfers, in bursaries and internships, in research into road safety and transport engineering are well-documented. SANRAL is proud of the contribution it has made to economic transformation and empowerment – without neglecting its primary mandate to manage the national road infrastructure.

As a public sector company, our activities are defined by the SANRAL Act and the Public Finance Management Act. Within this framework SANRAL has, however, in the past observed most of the principles of governance contained in the King Codes and will, most definitely, continue to do so once King IV becomes effective in April.

The value of King IV lies in the manner in which it has distilled the previous 75 principles for good corporate governance into 17 – each linked to very distinct outcomes. The sector supplements make the report more accessible than the 2009 version and will enable entities such as SANRAL to better measure our performance against broader standards.

King IV recognises the need for state-owned entities to address the serious challenges facing South Africa in respect of service delivery and the provision of strategic national infrastructure. But it also emphasises the importance of such entities to be viable, efficient and competitive to ensure the country’s citizens receive value for their tax money.

Within SANRAL we are conscious of the fact that the state company operates within the public contracting arena where transparency and accountability are of the utmost importance.

We took clear note of the public concerns that have been expressed about historical collusion in the construction and engineering sectors and are adapting our own processes and procedures in line with the recommendations of the Competitions Commission.

We also recognise the fact that SANRAL raises significant amounts of its capital from the bond and capital markets and that the choices we make on governance and ethical business conduct have discernible impacts on the decisions taken by the investment communities.

King IV emphasises the role of the board in risk and opportunity oversight and it is important to note that SANRAL is already one step ahead of the recommendation to combine the functions of audit and risk management in a single board committee comprised of non-executive members.

Moreover, we welcome the emphasis King IV places on the management and protection of technology and information and the need for companies to develop a ‘cyber-security’ plan. Recent events in the global environment have proven that cyber-hacking is a growing threat and that companies can forfeit their long-standing reputations in a day if they are not adequately protected against malware and industrial espionage.

Thus, the SANRAL board and management have decided to elevate the importance of cyber-security and to ensure our own information technology systems are constantly evolving to keep pace with ever-evolving threats.

In the final analysis, King IV is a welcome step forward to guide the activities of both private sector companies and state-owned entities such as SANRAL. The latter are increasingly operating in a global environment and it is imperative that we bring their governance in line with global best practices.

The SANRAL board is committed to the principles and spirit of King IV in as much as they apply to state-owned entities. It will become an invaluable tool for the agency to review our own governance principles and measure ourselves against the high standards set out in the Report.

This article is written by: Roshan Morar, the Chair of SANRAL’s Board of Directors.

 

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SANRAL