Kenya must adopt, implement new Corporate Governance code

Prof Mervyn King is a campaigner for justice and fairness. He chairs the Integrated Reporting Committee of South Africa, the International Integrated Reporting Council, and the Advisory Board of the Asian Centre for Corporate Governance.

He is also a member of the Private Sector Advisory Group of the World Bank on Corporate Governance among others. He was among the key speakers during the recent Corporate Governance Summit in Nairobi and shares views on Corporate Governance with Financial Standard.

How were you involved in developing the King Codes?

In 1992, at a time when South Africans were aware that they would be moving into a new democratic society, I was asked to chair a private-sector body to draft corporate governance guidelines.

The King Committee and its report, issued in 1994, was regarded as being ahead of its time in adopting a stakeholder inclusive approach to the business life of companies, other than giving shareholders primacy of place among stakeholders

What is good corporate governance according to King IV?

According to King IV, good corporate governance is defined as the exercise of ethical leadership by the governing body towards the achievement of an ethical culture with effective leadership.

Value creation in a sustainable manner, adequate and effective controls and informed oversight. and legitimacy of operations with trust and confidence in the organisation. Ethical and effective leadership should complement and reinforce each other.

Ethical leadership is exemplified by integrity, competence, responsibility, accountability, fairness and transparency. Effective leadership is results driven. It is about achieving strategic objectives and positive outcomes.

What is the difference between King III Code and King IV Code?

King IV advocates an outcomes-based approach. Achieving the principles - aspirations of the journey to good governance optimises the organisation to realise the intended governance outcomes, ethical culture, good performance, effective control and legitimacy.

Clear differentiation is made between principles and practices. Principles are achieved by mindful consideration and application of the recommended practices.
King IV has been designed and drafted to make it more accessible to users, and reinforce governance as a holistic and integrated set of arrangements.

What are some of the organisations named in the context of King IV?

In the context of King IV, organisations could be a company, retirement fund, non-profit organisation, state entities among others.

Supplements are provided to help organisations across a variety of sectors and organisational types to interpret and implement King IV as is suited to their particular circumstances King IV provides guidance on how to apply the recommended practices proportionally in line with the organisation’s size and resources, and extent and complexity of the organisation’s activities.

To balance the less prescriptive approach adopted in King IV, there is greater emphasis on transparency with regards to how judgment was exercised when considering the practice recommendations contained in King IV. To reinforce this, King IV proposes an “apply and explain” regime, in contrast to “apply or explain” in King III.

How can applying the King IV Code help county governments be more accountable to the communities they serve to enhance their legitimacy?

Understanding stakeholder expectations help an organisation to better plan their strategy. County governments are no exception. King IV advocates a stakeholder inclusive approach in which the Governor and Members of County Assembly take account of the legitimate and reasonable needs, interests and expectations of all stakeholders including county residents, individuals and businesses in the execution of their duties in the best interests of the county over time.

What about inclusivity?

Stakeholder inclusivity involves the balancing of interests over time by way of prioritising and, in some instances, trading off interests.

The quality of stakeholder relationships indicates how effectively an organisation is able to strike this balance in making its decisions. To do so, county administrations would need an ongoing relationship with those stakeholders.

There are mechanisms provided in Kenya’s constitution and through the political process about how this happens. But until now, one might say that besides the electoral process, there has been no satisfactory way to measure relationships, and thus no basis for creating relational key performance indicators or effectively measuring relational performance in organisations including county governments.