It’s been little over a year since the mandatory effective date of the IoDSA’s (Institute of Directors in Southern Africa) latest report – the King IV Report on Corporate Governance ™ – for all JSE listed companies.
Yet multiple smaller businesses and non-profits voluntarily implement the report into their company policy.
Why? Implementing the King Report is a pretty good way to ensure your company policy is up to standard in terms of your governing procedures.
If you’re not familiar with the King Reports: it’s a series of reports (each new report replacing the former) that translate international standards and big-time happenings on corporate governance into set of actionable principles relevant to South African companies.
I’ll be running you through the latest reports, the King IV™; how it will help you ensure the long-term sustainability of your business; and what voluntary implementation would mean for you.
What is exactly is the King IV™ Report and why should you care?
King IV™ is the fourth update of the IoDSA’s King Report on Corporate Governance and, unlike the former versions; it’s explicitly inclusive to smaller companies.
To help smaller businesses implement the report, King IV™ boiled King III™’s 75 vague ethical principles down to 17 simplified principles – each supplemented with recommended practices.
The aim of the report is to tackle modern-day governance issues, that might harm your company in the long run if left unnoticed, and limit them using company policy, management organisation and recommended practices.
Take Principle 14 for example on the Remuneration Governance. The King’s code advises that if only 25% of the company’s shareholders have an issue with the remuneration policy, they be given the right to pass non-binding advisory votes on the matter.
If Company A, implements the recommended practice, they ensure their remuneration is fair beyond reasonable doubt, their act as pro-active gatekeepers to creating just policies.
If Company B, does not implement the recommended practice, unfair remuneration might only come to light years later blowing it into a public indirection that threatens the credibility of your business.
In 2018, saying you didn’t know, isn’t a valid excuse anymore. You need to set systems in place that ensure the governing body keeps tabs on everything.
Most notably, King IV™ allows you to assign accountability and pinpoint mistakes or misconduct ASAP by requiring regular disclosures linked to each of the principles.
The 17 principles cover almost every modern-day governance subject – from fair and unbiased governance composition to the governance of technology and digital information. These disclosures make it increasingly difficult for involved parties to hide transgressions that can damage the company in the long run.
How to make King IV disclosures
Your governing body gets to choose where these King-related disclosures are made. You can do them in print or online; in your integrated report, in a sustainability report, an ethics committee report or split them among more than one – just avoid pure duplication.
The disclosures simply need to be formally approved, publically available and updated at least every year. The mantra of the report, and its recommended practices and disclosures, is “apply the principles and explain the practices”. There’s no need to methodically state whether the principles are being adhered to. It’s your job to explain what’s being done.
What King IV™ does quite differently from King III, is recommending the application of its principles within set timelines, reports and committees within it’s recommended practices.
How to get started on practical implementation of the King IV
It’s impossible to reduce the full King report down to a few steps in one-go.
To give you a feel for what implementation would mean for your business’s day-to-day running, I’ll run you a principle specifically related to your organisational structure and the required disclosures.
You can get the full King IV Report™ with all 17 principles, its recommended practices and its recommended disclosure on the IoDSA’s website.
Although the report is extensive, it’s an easy-read and clearly references applied recommended practices and disclosures for each of the 17 principles.
How to implement Principle 8: Committees of the Governing Body
In this principle, King IV™ advises that the governing body arrange delegation to ensure “independent judgement, assist with the balance of power, and to help the governing body to discharge its duties effectively”.
An example would be to set up a committee, consisting of lower management levels, with clearly identifiable responsibilities and then to measure their progress via reports.
One of the recommended practices include creation an Audit committee (which is statutory for some charger companies) both the head and all the members of that committee be “independent, non-executive members of the governing body”.
It’s recommended that the committee meet with both the internal and the external auditor once a year, in the absence of any members of the governing body.
If you implement the King IV™ recommendations you’ll have an upright and an independent committee that evaluates your company’s financial integrity and ensures no discrepancies go unnoticed by offering that’ll threaten the credibility of your company in the long run.
The recommended disclosure is a statement as to:
- The integrity of your financial statements;
- The quality of your internal audit;
- The effectiveness of your CFO and financial controls;
- The effectiveness of your company’s assurance;
- And whether the external auditor is believed to be independent and whether the audit is of high quality
If don’t follow the recommendations and you don’t appoint a Audit committee or create one using biased members, discrepancies might stay concealed and cause long-term damage that will eventually surface.
The report suggests other committees like a Nominations; Risk Governance; and Social and Ethics Committee.
King IV™ strongly propagates transparency, the delegation of responsibility and the implementation of accountability by putting pen to paper in term of officiated aims, bodies responsible for those aims and the provisions of consistent reports.
That way your governing body has a clear way to identify any issues – as it’s impossible to keep tabs on every area of your business yourself.
Essentially the King IV™ helps you create a measurable outline in your company policy that’ll ensure good corporate citizenship in present-day society and management that actions align with your company’s best interest and long-term sustainability.
In essence the King IV Report™ gives you a voluntary code of internationally and nationally relevant principles and practices.
How Schindlers Attorneys Became Involved In The Landmark Cannabis Case
Everything you accomplish accumulates and eventually comes back to assist you further along in your career. This is how a final year LLB assignment became the basis for a Constitutional Court case.
Schindlers Attorneys are the law firm that were involved in the landmark Constitutional Court judgement on cannabis use within a private space. Paul-Michael Keichel, Partner at Schindlers Attorneys shares how they came to be the foremost legal experts on cannabis and how they became involved in the Constitutional Court case:
How the journey began
“In 2005, my first year at Rhodes University, whilst studying for Intro to Law, it occurred to me that there were strong constitutional points that could be raised to objectively justify the decriminalisation of cannabis in South Africa,” explains Paul-Michael Keichel.
“In my final year LLB, 2009, I took Constitutional Litigation as an elective (largely motivated by the creation of a timetable clash, which meant that I’d not have to sit another semester of lectures for a module that I had failed the previous year). This provided me with the opportunity to write an assignment titled “A Critical Analysis of Prince and an Objective Justification for the Decriminalisation of Marijuana in South Africa”, in which I composed my argument (based on the right to equality in our Constitution).”
The start of the partnership
“Fast forward to 2013 and the Dagga Couple find themselves at Schindlers (where I am a first-year associate) to register their NPC, “Fields of Green for All”. The attorney handling the registration (who I’d also bored with my argument) suggests to the Dagga Couple that they speak to me. It turns out that they already knew of me, because my assignment had (unbeknownst to me) done the rounds on the underground cannabis networks. We get chatting and I rope-in my brother, Maurice Crespi, the managing partner of Schindlers,” explains Keichel.
“We are the only firm out of many approached by the Couple who are willing to take on their trial action against 7 state departments and Doctors for Life to push for a declaration of constitutional invalidity of the laws prohibiting cannabis use/possession/dealing in South Africa. We decide to run the challenge for them pro bono.”
The Cape ruling that started it all
“Prince and Acton et al have their matter heard in the Cape, which resulted in the 2017 Judgment. We run a portion of our trial (including expert evidence from international scientists and doctors – the best in field), but it is rendered part-heard. We then heard that Prince and Acton et al’s matter will be heard by the Constitutional Court in November 2017 and we decide, with the Dagga Couple, to intervene in that matter, upon which it is confirmed that my 2009 assignment forms the on-record basis of a major chunk of Prince and Acton et al’s arguments in support of legalisation.”
“Our involvement in the Constitutional Court was such that we provided clear legal argument and authority to support and expand upon what Prince and Acton et al were trying to say to the Court. Ultimately, much of what we submitted has found its way into the judgment of the Constitutional Court.”
How a final assignment became the foundation for a Constitutional Court case
“So, an idea (bolstered by wanting to create a timetable clash) resulted in an assignment, which provided certain credibility and impetus to cannabis activists. Two of these activists ended up being our clients, which, despite being handled pro bono, has brought Schindlers immeasurable positive publicity, and which, ultimately, contributed to the decriminalisation (and potential future legalisation and commercialisation) of cannabis in our country.”
“Schindlers now has a dedicated “Medicinal and Recreational Cannabis Law” department, through which we will continue to make submissions to parliament, apply for licenses on behalf of our clients, support those who have been arrested and charged.”
6 Ways To Win A Better Deal
Be proactive not reactive by working through these six critical elements of your strategy.
By far, the majority of our clients start the journey of selling their business by working on a very reactive basis. Most business owners going to market say they just want to ‘see what happens’. But this means you are starting the process on the back foot.
This approach automatically takes the control of the business sale out of your hands and puts it into the hands of the market. Keeping control is a critical element in selling your business for maximum value.
Letting the market tell you what they think about your business and what they want from you means that straight away the acquirers set the hoops that you need to jump through.
They tell you what they want. Any engagement is on their terms.
You have not defined terms or standards to use as a yardstick for what the market is saying. So you are much more likely to find yourself boxed into a corner, forced into the role of price taker rather than price maker.
Taking the time to define your ‘go to market’ strategy is a critical factor in achieving success for yourself, what you want for your business and how the market aligns to this.
Be proactive not reactive by working through these six critical elements of your strategy:
1. Define your non-negotiables
We all have certain non-negotiables in our lives and you must think through those that you want to apply to the sale of your business.
Spend quality time working out what your personal and business non-negotiables are. Then make sure that they feature prominently in your deal strategy. Examples could be:
- I am prepared to stay on for only 18 months after the sale conclusion.
- My staff need to be looked after as they have been with me for 20 years and are like family.
- I want to sell 100% of my shareholding on Day 1.
- I am not prepared to warrant future profits.
When you start out on the selling journey, this list will probably be a lot longer. Usually, it will reduce as you travel further and further down this road but you may even add new non-negotiables once you climb into the trenches and take control of the process.
Don’t be shy about presenting your list of non-negotiables to prospective buyers. They will certainly be putting forward their own list as well.
Related: Savvy Business Sale Spells New Life
2. How ready and committed are you to sell your business?
Selling your business is one of the biggest decisions that you will take in your life. It is an emotional rollercoaster. You will face more questions than answers as you progress down this road. Nobody can ever be 100% ready but you can help yourself prepare as much as possible by asking yourself the following questions:
- Do I know what my business is worth?
- Is my business ready for acquirers to see?
- Am I ready to let go of my business?
- Can my business run without me?
- What makes my business attractive and enticing to an acquirer?
- Do I have the time and skills to embark on selling my business myself?
As you work through these questions, a whole host of other questions will probably occur to you. Be decisive, objective and critical in asking and answering all these questions.
3. Put a plan together
Like any other business or strategy implementation, selling your business is a project. All projects need a plan of the objectives, timing, resources and risks required to succeed.
Selling your business is by far one of the most important projects that you will ever drive and also one with the least room for error. Your planning cannot control the biggest variable of all – how the market will react to your business. But being as well prepared as possible will help you cope with this.
4. The market wants a serious seller
The way that your business and personal brands show up in the exit process is critical. Buying or selling a business is a very time-consuming process, with both seller and acquirer committing quantities of effort, energy and resources.
The market therefore wants to deal with a committed and serious seller. Any business owner just dipping his/her toe into the water to see what happens will frustrate them and potentially damage future transactions if that toe is removed from that water.
5. Be ready for the experts
You are brilliant at running your own business, which is why you are considering selling it for maximum value. The acquirers on the other side of the table are, of course, also experts at what they do and how they do it.
Expect them to speak a different corporate language, exude negotiation and transaction skills and have mastered the ability to control the transaction. If you do not have a strategy or blueprint to default to when the heat gets too high, you will lose your way and could be blindsided into the wrong transaction.
6. Bring it all together
Work through the various steps identified above and craft your deal strategy. Let this framework be your compass during the transaction.
Always lean on it when there are too many variables being thrown at you. Having your strategy is the first step. Sticking to it will be your biggest test when the pressure is on.
Hooked On Ethics
The business that puts ethics at the forefront of its culture is the one that will shine in a landscape littered with dishonest behaviour.
There is significant research into how the work environment influences ethical behaviour. Study after study has shown how the ethical values upheld by management filter down to all employees, affecting behaviour and business practice. The biggest influence on a person’s ethics is their environment. In South Africa, the after effects of the recent political regime continue to shake both country and citizen. Corruption has seeped into almost every part of the government and in some of the country’s most prominent private organisations.
The old saying that the ‘fish rots from the head’ has never been truer, nor more obvious.
The ethical dilemma
The reality is that the government’s flagrant disregard for ethics saw corruption become a part of everyday life. This makes almost everyone ask themselves questions like – why should I pay X utility bill? Why should I pay my TV license? The money is being clearly used fraudulently. Sure, it is the law, but leadership has proven that ethical behaviour isn’t rewarded or recognised.
But it is. The value of building an ethical business and upholding a culture that promotes honesty and integrity cannot be understated.
Here are five reasons why…
- Those who skirt the edges of ethics almost always get caught. There has been a steady shift in the country’s moral compass as leadership has taken a far stronger stance on rooting out corruption and already some of the country’s biggest names have been found guilty. KPMG, McKinsey, Bell Pottinger and SAP have all had their names tarnished by the scandals that have rocked the country.
- Employees are more engaged and better behaved. A weak ethical culture filters down from the top, influencing behaviour and attitudes. If employees feel that they can get away with bad behaviour that benefits them, or if they feel that their environment encourages this, then they will.
- A strong ethical influence will dictate how employees treat customers and one another. If your company enforces and rewards honesty and integrity, then these will be the qualities that clients will perceive. Their lack may also see you lose market share and your reputation.
- Like attracts like. If you create a culture that rewards employees that work all hours, deliver the goods and commit themselves then you will attract more people with these qualities. The same applies in reverse – reward bad behaviour and the results will rapidly speak for themselves.
- Your business reputation. Trust can’t be bought. It is hard won and easily lost. If you lose your reputation then it is very unlikely you will win it back and it will follow you for the rest of your life. The same applies to your staff. If their behaviour is questionable it could damage your company. Make sure you set the rules of what is or is not tolerated by your company culture and consider investing into ethics courses that allow your teams to stay ahead of the curve.
Lessons Learnt5 days ago
What Comfort Zones? Get Comfortable With Being Uncomfortable Says Co-Founder Of Curlec: Zac Liew
Company Posts2 days ago
Two 20 Year Olds Reshape Entrepreneur Landscape With New Social Investment Platform
Business Landscape1 week ago
How Schindlers Attorneys Became Involved In The Landmark Cannabis Case
Get Organised1 week ago
How To Multitask Like Tim Ferriss, Randi Zuckerberg And Other Very Busy People
Branding2 weeks ago
Why You Should Prioritise Brand Image
Increasing Productivity2 weeks ago
Take Responsibility For Your Company’s Culture To Boost Productivity
Entrepreneur Today4 days ago
AlphaCode Awards R16 Million To Fintech Start-ups In One Of SA’s Richest Start-up Initiatives
Entrepreneur Today1 week ago
Sandoz Healthcare Access Challenge (HACk) Returns, Seeking Digital Solutions To Local Healthcare Access Challenges