JSE set to adopt King IV Report on Corporate Governance

1 Nov 2016

Adoption of the King IV Report on Corporate Governance (“King IV”) into the Requirements, as well as other governance arrangements.

1 Part A Section 3: Continuing Obligations Section 4: Conditions for Listing Section 7: Listing Particulars Section 8: Financial Information Section 21: Alternative Exchange

King IV has been launched on 1 November 2016 and the JSE is proposing amendments on
(i) the adoption of King IV and
(ii) other governance arrangements. These amendments are subject to public consultation and we look forward to receiving comments thereon. Key proposed amendments include:
• General terms and application alignment with the provisions of King IV.
• The JSE expanded the mandatory board committees (audit committee and remuneration committee), to include the social and ethics committee.

The aim is that the social and ethics committee will place focus on oversight and reporting on organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships.
The responsibilities of the audit committee are expanded. The amendments stipulate that the audit committee must –
(a) ensure that the issuer has established appropriate financial reporting procedures, and that those procedures are operating; and
(b) request and consider the following in their assessment of the suitability for appointment of their current or a prospective audit firm and designated individual auditor:
(i) the decision letter and findings report of the inspection performed by the IRBA or the professional/regulatory body for auditors in their jurisdiction, on both the audit firm and their designated individual auditor;
(ii) the findings report of the internal engagement monitoring inspection performed by the audit firm on their designated individual auditor; and
(iii) the outcome and details of any legal or disciplinary proceedings instituted by any professional body of which they are a member or regulatory body to whom they are accountable, unless compliance with the requests referred to in (i) or (ii) above are unlawful for the auditor in the jurisdiction in which they are regulated.

• The JSE aims to introduce separate non-binding advisory votes by shareholders of the issuer at the annual general meeting on the remuneration policy and the implementation report (as described in King IV). Although the approach is included as a recommended practice in King IV, the JSE is considering including a mandatory, though non-binding vote on remuneration, in the Requirements.

The consequences of not passing the non-binding advisory vote will require disclosure and engagement with shareholders. Evidence suggests that companies that experience significant levels of shareholder opposition against their remuneration policies enhance the level of engagement between directors and shareholders. Generally shareholders are only engaged concerning votes on transactions and the like, now shareholders will have the opportunity to indicate their position on remuneration.

Further it is intended that disclosure will be required in the annual report of 3 the issuer concerned dealing specifically with:
(i) who the issuer engaged with and the manner and form of engagement and
(ii) the nature and steps taken to address objections raised by shareholders. Although some jurisdictions do have a binding vote on remuneration, uncertainty and practical issues arise when a binding vote on remuneration is not passed.
These issues include: (i) how and when the remuneration will be approved, (ii) how remuneration will be treated during the period that the remuneration is not approved and (iii) what if the remuneration is not approved at all.

These practical issues must be considered and could have a significant impact on the business of the issuer concerned. On balance therefore we feel that a mandatory but nonbinding vote will have the benefit of enhancing shareholder voice in this space but not have the negative practical effects indicated above.
• King IV application regime has been applied to the disclosure provisions in pre-listing statements and the annual report.
• The JSE Guidance Letter on Corporate Governance dated 30 September 2014 will be withdrawn and it will not be the intention of the JSE to issue a further guidance letter on corporate governance immediately once these amendments become effective.
Transitional Provisions
Should the amendments be accepted, the JSE will ensure that there is sufficient lead time from the effective date of the amendments to allow issuers to prepare for the implementation of these provisions. In this regard the JSE will seek implementation by Quarter 4 of 2017.


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