Module III

Cadbury Report

It was established in May 1991 by The Financial Reporting Council, The London Stock Exchange, and the Accountancy Profession.

The Cadbury Report was oncereferred to as The Report of the Committee on the Financial Aspect Of

Corporate Governance

The report was published in December 1992, following the recommendations of the Cadbury Committee

Itaddresses concerns about The Working of Corporate Governance System. The committee made it its purpose to address the financial aspects of corporate governance and out of this produced a best code of best practice.

REASONS:

ü increasing lack of confidence of investors in the honesty and accountability of listed companies

ü financial collapse of listed corporations

ü auditors mispresentation of facts

ü lack of board accountability

Cadbury was the results of several high profiler companies collapse.it is concerned primarily with protecting weak and widely dispersed shareholders against self-interested directors and managers.

According To Cadbury Report On Corporate Governance Should Be Based On:

    good board practice

    control environment

    transparent disclosure

    well defined shareholders rights

    board commitment

STRENGTHS

    Creating confidence among shareholders, customers……

    improve leadership

    it triggered successive ways of rethinking

CONCLUSION:

Cadbury report was followed by 3 more major reports:

    Green Bury(1995)

    Hamper(1998)

    Turn Bull(1999)

King Report 

INTRODUCTION

The King Report on Corporate Governance is a guideline for the governance structures and operation of companies in South Africa. It is issued by the King Committee on Corporate Governance. Three reports were issued in 1994, 2002 and 2009 going by the name King I, King II, King III successively. A fourth revision was made in 2016 known by King IV. The Institute of Directors in Southern Africa (IoDSA) owns the copyright of the King Report on Corporate Governance and the King Code of Corporate Governance. Companies listed on the Johannesburg Stock Exchange has to adhere to the King Code of Corporate Governance.The King Report on Corporate Governance has been cited as "the most effective summary of

the best international practices in corporate governance".

HISTORY AND APPROACH

      In July 1993 the Institute of Directors in South Africa asked retired Supreme Court of South Africa judge Mervyn E. King to chair a committee on corporate governance. He viewed this as an opportunity to educate the newly democratic South African public on the working of a free economy.

The committee's report was to be the first report of its kind in South Africa.

The king corporate governance code is non-legislative and is based on

principles and practices. It also espouses an apply or explain approach.

The philosophy of the code consists of the three key elements :

● Leadership

Good governance means effective and ethical leadership.Leaders should direct the company to achieve sustainable economic, social and environmental performance.

● Sustainability

It views sustainability as the primary moral and economic

imperative of this century.

● Good Corporate Citizenship.

The code's view on corporate citizenship flows from a company's standing as a juristic person under the South African constitution and should operate in a ssustainable manner.

KING I

In 1994 the first King report on corporate governance (King 1) was

published. It established recommended standards of conduct for boards

and directors of listed companies, banks, and certain state-owned

enterprises. It also involved all stakeholders.

It was applicable to :

● All companies listed on the main board of the Johannesburg Stock Exchange.

● Large public entities as defined by the Public Entities  Act of South Africa.

● Banks, financial and insurance companies as defined by the Financial Services Acts of South Africa.

● Large unlisted companies which included companies with shareholder equity over R50 million.

The key principles from the first King report covered:

● Board of directors makeup and mandate, including the role of non-executive directors and guidance on the categories of people who should make up the non-executive directors.

● Appointments to the board and guidance on the maximum term for executive directors

● Determination and disclosure of executive and non-executive director’s remuneration

● Board meeting frequency

● Balanced annual reporting

● The requirement for effective auditing

● Affirmative action programs

● The company’s code of ethics

KING II

In 2002, the report was revised (King II) including new sections on sustainability, the role of the corporate board, and risk management. This revised code of governance was applicable from March 2002. In addition to those types of organizations listed in King I, it was applicable

to :

● Departments of State or national, provincial or local government administration falling under the Local Government abiding to Municipal Finance Management Act.

● Public institution exercising a power or performing a function in terms of the constitution.

● Public institutions exercising a public power or performing a public function in terms of any legislation, excluding courts or judicial officers.

The key principles from the second King report covered the following areas:

● Directors and their responsibility

● Risk management

● Internal audit

● Integrated sustainability reporting

● Accounting and auditing

 the code is not enforced through legislation. But it co-exists with a number of laws like the Companies Act and JSE Securities Exchange Listings Requirements.

King III

According to King II report , leading companies reported with regard to sustainability separately from other factors. The 2009 King III report, governance, strategy and sustainability were integrated.The companies were recommended to create sustainability reports according to the Global Reporting Initiative's Sustainability Reporting Guidelines. In contrast to the earlier versions, King III is applicable to all entities, public, private and non-profit. The code of governance was applicable from March s2010.

The report incorporated a number of global emerging governance trends:

● Alternative dispute resolution

● Risk-based internal audit

● Shareholder approval of non-executive directors’ remuneration

● Evaluation of board and directors’ performance It also incorporated a number of

new principles to address elements not previously included in the King reports:

● IT governance

● Business Rescue

● Fundamental and affected transactions in terms of director’s ffdresponsibilities during mergers, acquisitions and amalgamations.

King IV

King IV builds on King III . It has been revised to :

● Bring it up to date with international governance codes and best ractice.

● To align it to shifts in the approach to capitalism.

● To take account of specific corporate governance developments in relation to effective governing bodies.

● Increased compliance requirements.

● To align to the new governance structures (e.g. Social and Ethics Committee)

● To align to the emerging risks and opportunities from new technologies and new reporting and disclosure requirements.

Key new or enhanced features of King IV relate to:

● Fair, responsible and transparent organisation wide remuneration.

● Responsible and transparent tax strategy and policy.

● Balanced composition of governing bodies and independence of members of the governing body.

● Delegation to management

● Delegation to committees.

● Corporate governance services to the governing body.

● Performance evaluations of the governing body.

● Audit committee disclosures.

● Risk governance.

● The combined assurance model.

● Social and ethics committees.

● Performance evaluations.

● Responsible institutional investors.

● Technology and information.

King IV was released on 1 November 2016. It is effective for financial

years commencing from 1 April 2017.

Conclusion

Companies have to adhere to King report for good governance as

essentially being effective, ethical leadership. King believes that leaders

should direct the company to achieve sustainable economic, social and

environmental performance.