JSE and IoDSA Collaborate on corporate Governance
February 05, 2013
Johannesburg, 5 February 2013 – As stakeholder interest in
the corporate governance of listed companies continues to grow, companies
grappling with how to be more transparent about these practices have received
guidance from two practice notes issued by the King Committee on Corporate
Governance. The drafting of the practice notes has been spearheaded by the
Institute of Directors in Southern Africa (IoDSA) in collaboration with the
Johannesburg Stock Exchange (JSE).
reporting under the spotlight
King III proposes that companies
should report on their application of its corporate governance principles to
give stakeholders a more comprehensive picture. This disclosure allows
stakeholders to understand and challenge boards on the quality of their
governance. ”The aspirational nature of King III should drive continuous
improvement of governance practices among JSE-listed companies,” says JSE
Director of Issuer Regulation John Burke.
IoDSA Chief Executive, Ansie
Ramalho says the practice note on disclosure on the application of King III was
issued by the King Committee because the JSE and IoDSA have received several
requests about how companies should approach this. Says Ramalho: “King III is
adopted by companies on an “apply or explain” basis to allow for flexibility of
application depending on the size, nature and complexity of the organisation.”
What complicates matters for listed companies is that the listings requirements
stipulate that there are certain governance requirements that are mandatory,
where issuers do not have the option of explaining any non-compliance. These
include the need for a company to have separate CEO and Chairman, the
composition of the Audit Committee and having a policy detailing the procedures
for appointment to the Board,” says Ramalho.
However to implement King
III, listed companies need continually to consider the judicious application of
each of those non-mandatory principles. The proposal in the practice note is
that each company provide a register of application on its website, referenced
in the annual integrated report. "The philosophy of integrated reporting is that
material information should be provided that presents a holistic picture of how
the company is creating value now and will continue into the future," says Prof
Mervyn King, the chairman of the King Committee.
directors retiring by rotation
The second practice note addresses
the corporate governance requirement for directors to retire by rotation.
The JSE Listings Requirements provide that all directors’ appointments
(both executive and non-executive) are subject to shareholders’ approval.
However like King III, the Requirements state only non-executive directors need
rotate. Despite this many investors insist upon executive directors being
included in the rotation and the practice note sets out the potential problems
associated with this.
While there is in law no distinction between
executive and non-executive directors, there are differences in their functions
from a governance perspective. The executive director is an employee and office
bearer of the company. The role of non-executive directors is to balance the
power of the executive and to serve as a counterfoil to management serving
Some of the principles that director rotation seeks to
address (including bringing in fresh perspectives, ensuring a smooth transition,
retaining knowledge) could also be applicable to executive directors. However,
the succession of executive directors should be dealt with by the board through
“While South Africa is a leader in terms of good
corporate governance, there are always aspects that are open to interpretation.
We released these guidelines in response to requests from listed companies to
clarify the JSE’s interpretation of the King Code’s rules regarding corporate
governance,” says Mervyn King, Chairman of the King Committee.
the practice notes visit http://www.jse.co.za/How-To-List/Listing-requirements.aspx
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is a non-profit organisation that is unique in that it represents directors,
professionals, business leaders and those charged with governance duties in
their individual capacities in southern Africa.
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the development of those charged with governance duties, directors, board
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For further information, please visit www.iodsa.co.za