What Is the King IV Report? A Guide to Corporate Governance in South Africa

The King IV Report on Corporate Governance (King IV) is the definitive code and standard for corporate governance in South Africa. Published by the Institute of Directors in South Africa (IoDSA) and effective from 1 April 2017, King IV is far more than a rigid set of rules or a compliance checklist. It is a philosophy and a framework designed to help organisations of all sizes and types achieve the governance outcomes of an ethical culture, good performance, effective control, and legitimacy.

It represents the latest evolution in a series of reports that have positioned South Africa as a global leader in corporate governance. Moving beyond a "tick-box" mentality, King IV champions a principles-based and outcomes-oriented approach. It is built on the understanding that good governance is not an end in itself, but a fundamental driver of value creation, sustainability, and good corporate citizenship.

This guide will provide a comprehensive overview of the King IV philosophy, its innovative governance model, its core principles, and its practical implications for every Board of Directors in South Africa.

The Philosophy and Evolution of the King Reports

To understand King IV, it's essential to appreciate its evolution from its predecessors. King I (1994), King II (2002), and King III (2009) progressively developed South Africa's governance framework. However, King IV marked the most significant philosophical shift.

The Core Philosophy of King IV

King IV is underpinned by several profound concepts that redefine how organisations should view their role in the economy and society:

• Integrated Thinking: King IV encourages organisations to move away from siloed thinking. It advocates for an integrated approach, where the board considers the connectivity and interdependencies between a range of factors that affect the organisation's ability to create value over time. This includes its financial, manufactured, intellectual, human, social, and natural capitals.

• The Organisation as a Good Corporate Citizen: The report firmly embeds the idea that an organisation is an integral part of society and has a responsibility to act as a good corporate citizen. Its success is inextricably linked to the well-being of the economy, society, and the environment in which it operates.

• Stakeholder Inclusivity: This is a cornerstone of King IV. It moves decisively away from a purely shareholder-centric model. The report asserts that the board must govern in a way that considers and responds to the legitimate and reasonable needs, interests, and expectations of all material stakeholders (employees, customers, suppliers, communities, etc.) in the best long-term interests of the company.

• Ethical and Effective Leadership: This is the overarching theme. King IV defines leadership not just by performance, but by its ethical foundation. Effective leadership is about achieving strategic objectives and doing so in a way that is ethical, responsible, and sustainable.

The King IV Governance Model: "Apply and Explain"

The most significant structural innovation in King IV is its "apply and explain" disclosure regime, which replaced the "apply or explain" approach of King III. This change is fundamental.

From "Apply or Explain" to "Apply and Explain"

• King III's "Apply or Explain": This allowed companies to choose not to apply a principle if they could provide a valid explanation for their non-application.

• King IV's "Apply and Explain": This regime is a significant step up. The application of the 17 core principles is considered mandatory for good governance. The "explain" part of the regime requires an organisation to provide a narrative account of the practices it has implemented and the steps it has taken to achieve the ideal state described in each principle.

This approach gives boards the flexibility to choose practices that are appropriate for their specific size, industry, and context, while still holding them accountable for achieving the core principles of good governance.

The Structure: Principles, Practices, and Governance Outcomes

The King IV model is elegantly structured to link leadership actions to results:

1. Governance Outcomes (The Goal): King IV begins with the end in mind. The ultimate objective of good corporate governance is to achieve four key outcomes:

   • Ethical Culture: Fostering a culture of integrity, ethical behaviour, and responsibility.

   • Good Performance: Achieving strategic objectives and creating value in a sustainable manner.

   • Effective Control: Having systems and processes in place to manage risk and ensure compliance.

   • Legitimacy: Enjoying the trust and confidence of stakeholders as a responsible corporate citizen.

2. Principles (The Foundation): The report contains 17 basic principles. These are the fundamental tenets of good governance that are not negotiable. They are framed as high-level aspirations that every organisation should strive to achieve.

3. Practices (The "How-To"): For each principle, the report recommends a number of specific practices. These are not a rigid checklist. They are recommended applications to guide the board. The board should assess these practices and implement them as is, or adapt them, to achieve the principle. The board's Meeting Minutes and governance reports must then explain the practices implemented and how they support the achievement of the principle.

A Closer Look at the 17 Principles of King IV

The 17 principles of King IV provide a comprehensive roadmap for the board's work.

Leadership, Ethics & Corporate Citizenship

• Principle 1: The governing body should lead ethically and effectively.

• Principle 2: The governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture.

• Principle 3: The governing body should ensure that the organisation is and is seen to be a responsible corporate citizen.

Strategy, Performance & Reporting

• Principle 4: The governing body should appreciate that the organisation’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process.

• Principle 5: The governing body should ensure that reports issued by the organisation enable stakeholders to make informed assessments of the organisation’s performance and its short, medium and long-term prospects.

Governing Structures & Delegation

• Principle 6: The governing body should serve as the focal point and custodian of corporate governance in the organisation.

• Principle 7: The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively.

• Principle 8: The governing body should ensure that its arrangements for delegation within its own structures promote independent judgement, and assist with the balance of power and the effective discharge of its duties. This refers to the establishment of effective Board Committees.

• Principle 9: The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members, support continued improvement in its performance and effectiveness.

• Principle 10: The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and the effective exercise of authority and responsibility.

Governance Functional Areas

• Principle 11: The governing body should govern risk in a way that supports the organisation in setting and achieving its strategic objectives.

• Principle 12: The governing body should govern technology and information in a way that supports the organisation setting and achieving its strategic objectives.

• Principle 13: The governing body should govern compliance with applicable laws and adopted, non-binding rules, codes and standards in a way that supports the organisation being ethical and a good corporate citizen.

• Principle 14: The governing body should ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term.

• Principle 15: The governing body should ensure that assurance services and functions enable an effective control environment, and that these support the integrity of information for internal decision-making and of the organisation’s external reports.

Stakeholder Relationships

• Principle 16: In the execution of its governance role and responsibilities, the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time.

• Principle 17: The governing body of an institutional investor organisation should ensure that responsible investment is practised by the organisation to promote good governance and the creation of value by the companies in which it invests.

How BoardCloud Empowers King IV Application

A modern board portal like BoardCloud is not merely an administrative tool; it is a powerful enabler of good governance and directly supports the application of King IV principles.

• Enabling Effective Oversight (Principles 4, 5, 11-15): BoardCloud provides a secure, single source of truth for all governance information. It ensures that the Board of Directors] has timely access to the high-quality, integrated information needed to oversee strategy, performance, risk, and compliance.

• Supporting Board Effectiveness (Principles 7, 8, 9): Features like skills matrices help the nominations committee track board composition against diversity and skill targets. The platform provides a secure environment for conducting board evaluations and for Board Committees to manage their work and records.

• Facilitating the "Explain" Narrative: The secure and organised archive of Meeting Minutes, reports, and resolutions provides the Company Secretary with a clear, auditable trail of the board's deliberations and decisions. This is the raw material needed to craft the narrative explaining how the principles have been applied.

Frequently Asked Questions (FAQ)

Is King IV mandatory in South Africa?

King IV is a non-statutory code, meaning it is not legislation. However, for companies listed on the Johannesburg Stock Exchange (JSE), compliance with King IV is a mandatory listing requirement. For all other organisations, it is universally regarded as the standard for good governance. A court of law may consider King IV's principles when evaluating whether a director has met their Fiduciary Duties under the Companies Act.

Does King IV apply to my small business or NPO?

Yes. A key innovation of King IV is its scalability. It applies to all organisations, regardless of their form or size. To facilitate this, the report includes sector-specific supplements that provide guidance on how the principles can be adapted and applied in Small and Medium Enterprises (SMEs), Non-Profit Organisations (NPOs), State-Owned Entities, municipalities, and retirement funds.

What is the main difference between King III and King IV?

The most significant differences are the shift from the "apply or explain" regime to the "apply and explain" regime, a greater emphasis on governance outcomes rather than just processes, a smaller number of more targeted principles (17 instead of 75), and the elevation of stakeholder inclusivity and technology and information governance as central pillars of corporate governance.

Conclusion: A Framework for Sustainable Value

The King IV Report is a testament to South Africa's position at the forefront of corporate governance thinking. It provides a holistic, principles-based framework that challenges boards to look beyond compliance and to embrace their role as ethical and effective leaders. By focusing on integrated thinking, stakeholder inclusivity, and the ultimate outcomes of governance, King IV provides a roadmap for building resilient, reputable, and sustainable organisations that create value for themselves and the society in which they operate. For any South African board, embracing the spirit and letter of King IV is essential for achieving governance excellence.