GRADE 12 LESSON
WEEK 13 - Lesson 5 of 8 47
CORPORATE GOVERNANCE
Corporate governance refers to how a company is managed. It often happens that you find
unethical behaviour, misappropriation of funds and employee misconduct. The directors have
the responsibility to ensure good corporate governance.
THE KING CODE ON CORPORATE GOVERNANCE
THE KING CODE
The King Commission led by judge Mervyn King, investigated poor corporate practice (fraud
and poor management of companies). He issued three reports.
King 1 Report was released in 1994.
King 11 Report was the second report and covered a Code of Corporate Practices and
Conduct and was released in 2002.
King 111 Report was released in 2009.
The Code covers all aspects of good governance including accountability, transparency and
responsible management. Although the King Code focuses on companies, it is common
sense that these principles should also apply to all types of businesses.
Any business which does not have a harmonious relationship with the outside world is likely
to find that it will not be able to sustain itself into the future.
SEVEN CHARACTERISTICS OF GOOD GOVERNANCE
Discipline Directors must make a commitment to running the company properly
with the correct procedures.
Transparency Information should not be hidden from shareholders and others
(SARS, Registrar) – they have legal rights to information.
Independence Directors must make ethical decisions in the interest of the company
and not be improperly influenced by others with hidden agendas.
Accountability If errors are made, the person responsible must correct the matters.
Responsible Good business principles must be used in managing the company –
management proper planning, budgeting, internal control.
Fairness The management must not favour any one stakeholder over another
– employees versus shareholders.
Social issues Outside world, environment, wider community.
They should not abuse resources (water, electricity, environment).
47 Accounting Grade 12 - CAPS
, KING 111 REPORT
We will look at a few key principles of King 111 relating
to good corporate governance and ethical behaviour.
1 Ethical leadership
King 11 states:
The Board should provide effective leadership based on an ethical foundation.
2 Risk governance
King 111 suggests that the board should:
Have a team of employees to identify risk, report to the board and seek ways to
minimise the risk.
Encourage employees to report fraud (whistle-blowing)
3 Directors’ performance
King 11 suggests that:
The majority of directors should be independent of the company and not full time
employees
The board should adopt a corporate code of conduct
The board should publish a transparent salary policy regarding directors’ earnings
There should be evaluation of performance of individual directors
4 Independent auditing
KING 111 stresses the importance of independent auditing by auditors with the highest level
of professional ethics.
5 Integrated sustainability reporting - “Triple bottom line”
The King Code introduces the concept of “triple bottom line’.
The guidelines are voluntary and focus on the concepts of "triple bottom line" reporting
encompassing economic, social and environmental issues.
The King Code report recommends that directors should report on social, transformational,
ethical, safety, health and environmental procedures, including HIV/AIDS.
“TRIPLE BOTTOM LINE” comprises of economic, environmental and social aspects of a
company’s activities. Economic
Environmental
Social
47 Accounting Grade 12 - CAPS
WEEK 13 - Lesson 5 of 8 47
CORPORATE GOVERNANCE
Corporate governance refers to how a company is managed. It often happens that you find
unethical behaviour, misappropriation of funds and employee misconduct. The directors have
the responsibility to ensure good corporate governance.
THE KING CODE ON CORPORATE GOVERNANCE
THE KING CODE
The King Commission led by judge Mervyn King, investigated poor corporate practice (fraud
and poor management of companies). He issued three reports.
King 1 Report was released in 1994.
King 11 Report was the second report and covered a Code of Corporate Practices and
Conduct and was released in 2002.
King 111 Report was released in 2009.
The Code covers all aspects of good governance including accountability, transparency and
responsible management. Although the King Code focuses on companies, it is common
sense that these principles should also apply to all types of businesses.
Any business which does not have a harmonious relationship with the outside world is likely
to find that it will not be able to sustain itself into the future.
SEVEN CHARACTERISTICS OF GOOD GOVERNANCE
Discipline Directors must make a commitment to running the company properly
with the correct procedures.
Transparency Information should not be hidden from shareholders and others
(SARS, Registrar) – they have legal rights to information.
Independence Directors must make ethical decisions in the interest of the company
and not be improperly influenced by others with hidden agendas.
Accountability If errors are made, the person responsible must correct the matters.
Responsible Good business principles must be used in managing the company –
management proper planning, budgeting, internal control.
Fairness The management must not favour any one stakeholder over another
– employees versus shareholders.
Social issues Outside world, environment, wider community.
They should not abuse resources (water, electricity, environment).
47 Accounting Grade 12 - CAPS
, KING 111 REPORT
We will look at a few key principles of King 111 relating
to good corporate governance and ethical behaviour.
1 Ethical leadership
King 11 states:
The Board should provide effective leadership based on an ethical foundation.
2 Risk governance
King 111 suggests that the board should:
Have a team of employees to identify risk, report to the board and seek ways to
minimise the risk.
Encourage employees to report fraud (whistle-blowing)
3 Directors’ performance
King 11 suggests that:
The majority of directors should be independent of the company and not full time
employees
The board should adopt a corporate code of conduct
The board should publish a transparent salary policy regarding directors’ earnings
There should be evaluation of performance of individual directors
4 Independent auditing
KING 111 stresses the importance of independent auditing by auditors with the highest level
of professional ethics.
5 Integrated sustainability reporting - “Triple bottom line”
The King Code introduces the concept of “triple bottom line’.
The guidelines are voluntary and focus on the concepts of "triple bottom line" reporting
encompassing economic, social and environmental issues.
The King Code report recommends that directors should report on social, transformational,
ethical, safety, health and environmental procedures, including HIV/AIDS.
“TRIPLE BOTTOM LINE” comprises of economic, environmental and social aspects of a
company’s activities. Economic
Environmental
Social
47 Accounting Grade 12 - CAPS
