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King code expands empire

20 March 2016 - 02:00 By ANN CROTTY

The King committee on corporate governance has decided to extend its authority to cover all organisations in South Africa. This means the King4 code initiated and implemented by the Institute of Directors in Southern Africa and due to be released in November will apply to companies, retirement funds, state-owned entities, municipalities and "all other juristic persons regardless of their manner of incorporation".Ansie Ramalho, the primary author of the latest code (the draft was released for comment last week), defends the committee's empire building. She acknowledges it is a voluntary body but says it gets its authority from its level of acceptance. "It is an internationally recognised code and is generally revered." It helps that the JSE made the adoption of King3 part of its listings requirements.Ramalho believes that although the codes are voluntary, they work because they have credibility. "Because it's credible and its recommended practices become the norm, there is a social and market sanction for not following the code."And while they are not enforced by legislation, the King codes are acquiring legal authority as courts are tending to use them as a measure to apply the "reasonable man test".In the Stilfontein gold mine case, the court referred to King2 in support of its ruling that mining companies had to share the cost of pumping acidic water out of a region affected by their activity.This "leaking into the law" is precisely what worries some non-corporate entities, which believe the King codes are too influenced by the needs of companies, particularly listed companies, to be appropriate for other organisations.Shelagh Gastrow of GastrowBloch Philanthropies, which assists people in their philanthropic objectives, says no one could quibble with holding people to account and she welcomed the King4 committee's greater effort to engage with non-profit organisations.But Gastrow wonders if a code that leans so heavily towards the corporate world is suitable for such broad application. And while she welcomes the much more accessible format of the new code (the previous 75 principles are now grouped around just 16 core principles) she is troubled by the assumption non-profit organisations need to be brought under the wing of the King code and are not concerned by governance and accountability issues.The Independent Code of Governance for Non-Profit Organisations - an initiative of a coalition of concerned NPOs - was launched in 2012 after two years of extensive engagement with members of the large and diverse non-profit sector. The NPO code is aspirational and supportive rather than prescriptive.Jon Duncan, head of sustainability research and engagement at Old Mutual, defends the committee's ambitious remit and describes its wide breadth of engagement including extensive workshops."In terms of process, they tried to make it as broad as possible ... no process is perfect." Duncan asks what would happen to governance if the Institute of Directors did nothing.David Couldridge, environmental, social and governance analyst at Investec Asset Management, says governance means different things to different people. "The framework of the latest code will help to get governance conversations onto the same page and [make people] realise it's about sustainable value."The new code's "apply and explain" approach may help to counter criticism that the earlier codes allowed companies to claim adherence by just ticking boxes.A report released last year by the Centre for Environmental Rights, titled Full Disclosure, highlighted how some of the largest listed companies - Anglo American, Sappi and Sasol - do not report significant breaches of environmental laws in their reports to shareholders. But they do tick most of the governance boxes.In similar vein, a damning analysis of Lonmin's social investment by the non-profit organisation Benchmarks Foundation a few years ago revealed the considerable disparity between what Lonmin reports to its shareholders and what is happening where it operates.Benchmarks executive director John Capel says the danger of the code is that it allows companies to mislead their shareholders and provide comfort where it is not warranted.Capel says given the source of the code (a body that promotes the interests of corporate directors), its attempts at empire building are a concern.The public is invited to comment on the code up to May 15. The final code is expected to be released on November 1...

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