Does your board need to change?

King IV is to be launched at the beginning of November. The good news for companies assessing their board composition in light of King IV, is that no big changes will be necessary. If a company is complying with King III, it's already mostly complying with King IV, says Jean Milner, a partner at Webber Wentzel.

However, the drafters of King IV felt some changes were needed to achieve better governance outcomes. This was partly in response to the sense that other than by listed companies (who have to comply with JSE-specific rules), good governance is not taken as seriously as it should be and may even be seen as an impediment to business rather than being a value-added proposition. Proponents of meaningful good governance argue that well-constructed governance frameworks result in better decision-making in the long-term: better business, in short.

To achieve better governance outcomes, King IV introduces fewer, broader principles of good governance. These principles are supported by "recommended practices", which provide guidance on implementation of the principles. There is also recognition that application of governance practices will differ in different types and sizes of organisations, but that compliance with King's principles can still be achieved.

While, this more practical approach should be welcomed, the King Code is often so "short and sweet" that companies will need to refer to King III and other governance protocols for suggestions as to how to effectively implement King IV's principles. In line with the new approach, the principles relating to boards seek to foster corporate conduct likely to lead to good governance. The intention in King IV is clear: good governance is not about mechanics but is at the heart of good leadership, and the board is central to this.

It is imperative that businesses consider their governance frameworks with some regularity. The introduction of King IV is a good time to do just that. The boardroom is an obvious place to start and all entities - not just those required to do so by law - should strive to ensure that their board composition and practices can withstand scrutiny. This is especially important as accountability and transparency continue to be key: King IV expects disclosure on a board's composition, responsibilities, committee structures and functioning and arrangements in relation to evaluation of the job being done.

King IV urges companies to diversify their boards - in race and gender, and also in experience. It reiterates (but does not require) that the board should have a majority of non-executive directors, a majority of whom should be independent - the rationale being that this kind of board makes better decisions for the organisation and its stakeholders.

A new feature of this King Code is "sector supplements", designed to provide specific guidance to particular organisations. The supplement for SMEs recognises the resource constraints on boards of SMEs in complying with recommended practices on board composition and makes common-sense suggestions as to how they can still achieve positive governance outcomes.

Although the concept of independence has garnered attention, the only distinction going forward is that King IV has introduced a further subjective determination. Directors are now instructed to consider the stated indicators of independence with which most directors are familiar, but then to go a step further and consider the substance of applicable circumstances and assess whether there are other factors that may undermine a director's independence.

Succession planning which can provide an opportunity for improving a board's diversity, three-yearly reviews and ongoing training and mentoring of directors on how to properly fulfil their fiduciary duties are all fundamental to an effective board and should be formalised. So too is undue influence wielded by a director by virtue of his/her involvement in too many key committees. Additionally, while not a new concept, King IV reminds boards that professional directors may be spread too thin and that the chair has the responsibility to determine whether a particular director can fulfil his/her duties in the manner required, taking into account other directorships and the size and complexity of those organisations.

Finally, central to board composition is remembering that a company changes over time and that the board's composition will likely need to evolve too - hence the importance, as King IV reminds us, of regular evaluations of the efficacy and currency of boards.