The key differences between King III and King IV

11th January 2017

The key differences between King III and King IV

On 1 November 2016, the King Committee published the King IV Report on Corporate Governance for South Africa, 2016 (King IV).   King IV introduces various amendments and enhancements to its predecessor, the King III Report on Governance for South Africa, 2009 (King III). Some of the most notable changes are set out below.

King IV constitutes a positive step in South African corporate governance which aims to embrace a more practical approach in the governance of “organisations” which King IV defines as “a company, retirement fund, non-profit organisation, state-owned entity, municipality, municipal entity, trust, voluntary association and any other juristic person regardless of its manner of incorporation”. 

Key differences between King III and King IV

Fewer principles

The 75 principles contained in King III have been reduced to 17 principles under King IV.  This reduction in principles has been achieved by the restructuring of the report; however, most of the substantive principles of King III have been retained, in some form, in King IV.  The purpose of the reduction in principles, one assumes, is to facilitate an easier interpretation and application of King IV.

“Apply and explain”

King IV introduces a shift from the “apply or explain” approach contained in King III to the “apply and explain” approach contained in King IV.

Practically, this means that organisations will be required to implement the principles, that is, take measures to achieve the principles, but also to explain measures and their results.  The “apply and explain” approach should, by giving stakeholders more information in respect of the corporate governance of organisations, facilitate meaningful stakeholder participation.

JSE listed companies are already under an obligation to comply with King IV, however this is still on a “comply or explain basis”. However, when the proposed amendments to the JSE Listings Requirements come into force, JSE listed companies will be required to apply and explain their compliance with King IV.

Introduction of sector supplements

Part 6 of King IV contains sector supplements applicable to municipalities, non-profit organisations, retirement funds, small and medium enterprises and state owned entities.  These supplements provide specific guidance to the aforementioned categories of organisations in their interpretation and implementation of King IV.  These sector supplements are aimed at making it easier for organisations to achieve good corporate governance through the application of King IV.


Whilst King III included provisions pertaining to the remuneration policies of organisations, King IV addresses the controversial issue in a more succinct manner by requiring that remuneration policies specifically include arrangements towards ensuring that the remuneration of executive management is fair and responsible in the context of overall employee remuneration in the organisation.

Furthermore, the governing body is required to disclose remuneration by means of a remuneration report in three parts (the minimum contents of which are set out in King IV), namely:

King IV also requires that the implementation report reflect, in addition to disclosures required in terms of the Companies Act:

The remuneration policy and the implementation report must be tabled annually for separate non-binding advisory votes by shareholders at the AGM and, in the event that either document is voted against by 25% or more of the voting rights exercised, the board is required to commit to take measures pertaining to:

The background statement of the remuneration report succeeding a dissenting vote of 25% in the remuneration policy and/or the implementation report must disclose:

The increased level of disclosures regarding board remuneration will hopefully result in enhanced accountability and transparency within the organisation as well as encourage stakeholder participation/activism, however, whether King IV’s board remuneration provisions will lead to a reduction in board remuneration remains to be seen. 

Independence of directors

Whereas King III provided an exhaustive set of criteria in the classification of a person as “independent” non-executive directors, King IV has moved away from the position in King III and instead contains a list of “indicators” which the governing body should, holistically, and on a substance-over- form basis, consider when assessing the independence of a member of the governing body for purposes of categorisation.

Enhanced disclosure

The disclosure requirements introduced by King IV are broader than those contained in King III. These King IV requirements include, inter alia:

  1. its overall role and associated responsibilities and functions;
  2. its composition;
  3. key areas of focus during the reporting period; and
  4. whether the committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference for the reporting period;
  1. whether the audit committee is satisfied that the external auditor is independent of the organisation;
  2. significant matters that the audit committee has considered in relation to the annual financial statements and how these were addressed; and
  3. the audit committee’s views on the effectiveness of (i) the chief audit executive, (ii) the arrangements for internal audit,  and (iii) the CFO and the finance function;

The increased disclosure requirements introduced by King IV may result in enhanced transparency and, accordingly result in the improved governance of the company, however, the disclosure of (for example) findings of non-compliance with environmental laws, or criminal sanctions and prosecutions for such non-compliance may constitute a “sensitive” matter for stakeholders and, accordingly, prove difficult for the company to disclose without receiving negative feedback from its stakeholders and this may result in increased tensions between stakeholders and the company.

Social and ethics committee

Whilst King III recognised that certain categories of companies were required to establish a social and ethics committee in terms of the Companies Act, King IV goes further in that it encourages the establishment of a social and ethics committee, even in instances where an organisation is not legally required in terms of the Companies Act to do so.  Whilst the Companies Act and Regulation 43 of the Companies Regulations do not address the ethics role of the social and ethics committee, King IV attributes to the social and ethics committee the role of the oversight of, inter alia, an organisation’s ethics and the reporting thereon.  In terms of King IV, a majority of such committee’s members should be non-executive directors in order to ensure the committee’s independence; this is in comparison to the Regulation 43 of the Companies Regulations’s requirement of only one independent non-executive director.

Group governance framework

Whilst King III required that a governance framework be agreed between the group and its subsidiary boards, King IV goes further by placing a responsibility on the board of a holding company, to:

The board of the holding company should also ensure that the group governance framework addresses governance matters as is appropriate for the group, including the following:

On the face of it, King IV facilitates an increase in the consistency of the governance of group companies.  The implementation of the agreed corporate governance framework by the board of the holding company may result in an increase in the number of shareholders in the holding company, who have an interest in the subsidiary companies, taking measures to hold the holding company accountable in this regard. 

In addition, by placing the responsibility to ensure that the group governance framework does not conflict with, inter alia, the memoranda of incorporation, shareholder agreements, board charters, and related policies within the group, King IV creates a cleaner group management structure in which conflicting interpretations of the company’s policies are less likely to ensue.

Information and technology

Whereas, King III recognised the concept of information technology – as one source of value creation – King IV separates information and technology, which may overlap in certain instances, but which constitute two distinct sources of value creation in terms of King IV, and in terms of which separate risks and opportunities may exist.

King IV recognises the effects which the advances of technology and information may, separately, have on businesses.  Accordingly, King IV requires that the governing body exercise ongoing oversight of the management of, both, information and/or technology, as the case may be, so as to ensure:

Organisational ethics

King IV introduces the requirement that the governing body should ensure that the codes of conduct and ethics policies provide for arrangements that familiarise employees and other stakeholders with the organisation’s ethical standards, which arrangements should include, inter alia:


Also introduced by King IV are the requirements that:

These amendments, as introduced by King IV, place an increased responsibility on the governing body to facilitate and ensure an increased level of engagement between stakeholders, in particular shareholders, and the company.

King IV also recognises the need for the ability of the board, which controls the company and has access to information which shareholders do not, to explain their decisions to the shareholders and engage with the shareholders regarding certain matters affecting the company at AGM’s. In this regard King IV requires that all directors be available at AGM’s to respond to shareholders’ queries on how the board executed its governance duties.

Responsible investing

In recognition of the rights and influences of institutional investors, King IV requires that the governing body of an institutional investor assumes responsibility for governing responsible investing by the institutional investor.  In this regard, the governing body should approve policy, which should be disclosed its stakeholders, that articulates its direction on responsible investment, which policy should provide for the adoption of a recognised responsible investment code, principles and practices.


The changes introduced by King IV result in enhanced corporate governance through, inter alia, the increased involvement of stakeholders, the requirements for the independence of directors, increased disclosures of information by companies and the alignment of the management of group companies.  Not all of the amendments introduced by King IV are clear at this stage, however, through their practical implementation, one assumes that exactly what is meant by King IV’s provisions and the consequences thereof will become clearer.

Written by Franci Myburgh, senior associate, and Angela de Costa, associate Bowmans South Africa