Study Guide Extracted for AUE 2602 for 2022
For those who do not have access to the internet 24 hours a day or
requires a hard copy in order to make notes
No solutions provided
Most of the activity quizzes (system allowed) included
1
,Lesson 1: Corporate Governance and Statutory
Matters
Introduction
The aim of this topic is to explain and apply corporate governance in practical situations by
referring to statutory matters regarding company directors as contained in the Companies Act 71
of 2008, as well as the provisions of the King IV Report and Code on Governance for South Africa.
This topic is divided into the following lessons:
Lesson Title Learning outcomes Level
1.1 Background of corporate Briefly describe the background
governance in South Africa of corporate governance in South
Africa. 2
1.2 Statutory matters
1.2.1 The board, directors and Give advice, discuss concerns and 2
prescribed officers, apply the requirements for directors’
election, ineligibility and appointment and removal, and
disqualification, and vacancies.
vacancies
The board, directors and
prescribed officers (sec 66) –
also refer to Regulation 38
Election and removal of
directors (sec 67–71)
1.2.2 Board committees, Give advice, discuss concerns and 2
meetings and directors apply the requirements for board
acting other than at committees and their meetings.
meetings
Board committees (sec 72) –
also refer to Regulation 43(1)
Board meetings/directors’
meetings (sec 73)
Directors acting other than at
board meetings (sec 74)
1.2.3 Directors’ personal Give advice, discuss concerns and 2
financial interests apply the requirements for directors’
Directors’ personal financial personal financial interests.
interests (sec 75)
1.2.4 Standards of directors’ 2
conduct and prescribed
officers, indemnification
and directors’ insurance
Standards of directors’ Give advice, discuss concerns and 2
conduct (sec 76) apply the requirements for
Liability of directors and
prescribed officers (sec 77) · standards of directors’ conduct
Indemnification and directors’
insurance (sec 78) · the liability of directors and
Audit committees (sec 94) prescribed
· officers
· indemnification and directors’
insurance
· audit committees
1.2.5 Application of and general Give advice, discuss concerns and 2
requirements regarding apply the requirements for
2
, enhanced accountability enhanced accountability and
and transparency transparency, and vacancies.
Registration of secretaries and
auditors (sec 84 & 85) – also
refer to Regulations 26 to 28
1.2.6 Aspects concerning the Give advice, discuss concerns and 2
company secretary apply the requirements for
Company secretary (sec 86–
89) the company secretary.
1.3 King IV Report on Explain and apply the significant 2
Governance for South matters covered by the King IV Report.
Africa
1.3.1 Leadership, ethics and
corporate citizenship
1.3.2 Strategy, performance and
reporting
1.3.3 Governing structures and
delegation
1.3.4 Governance function areas
1.3.4.1 Risk governance
1.3.4.2 Technology and information
governance
1.3.4.3 Compliance governance
1.3.4.4 Remuneration governance
1.3.4.5 Assurance
1.3.4.6 Stakeholder relationships
1.1 Background of Corporate Governance in South Africa
INTRODUCTION
The Industrial Revolution began in Britain in the 18th century from 1760 to 1840 and from there
spread to other parts of the world (https://www.britannica.com/). ; During the Industrial Revolution
businesses grew from entities owned and managed by the same person into large organisations in
which the owners (shareholders) and management (executive directors) were separate parties.
Currently in most countries, the shareholders appoint the directors in a company to manage their
investment in the company. This is also known as principal-agent theory, where the shareholders
are the principals and the directors are the agents. Accordingly, it became necessary for the
development of guidelines for how the directors and managers of a company should act to protect
and manage the interest of the shareholders and other stakeholders. This led to the concept of
corporate governance.
Statements like the following have been made regarding corporate governance:
“The King Commission describes Corporate Governance simply as ‘the system by which companies
are directed and controlled’.” (King 1994)
In this topic you will learn about corporate governance in South Africa, with specific reference to
the King IV Report on Governance.
King I, II and III had their foundation in ethical and effective leadership. King IV is also based on
these foundations, but was drafted to make it more easily applicable to all organisations to include
public and private, large and small, for-profit and non-profit organisations (King IV 2016:6).
The fourth King Report on Corporate Governance in South Africa (King IV), issued by the
Institute of Directors in Southern Africa, is South Africa’s definitive corporate governance
code. King IV envisions good governance as the achievement of four outcomes: ethical culture,
good performance, effective control and legitimacy. These outcomes may be achieved by
adherence to King IV’s 16 governance principles and their accompanying recommended practices.
While compliance with King IV is voluntary, the listing requirements compel issuers to implement
certain of its recommendations, with the balance to be adopted in accordance with King IV’s “apply
and explain” disclosure regime.
You can find the King IV Code at this link:
3
, https://cdn.ymaws.com/www.iodsa.co.za/resource/collection/684B68A7-B768-465C-8214-
E3A007F15A5A/IoDSA_King_IV_Report_-_WebVersion.pdf
What is agency theory?
Agency theory is used to understand the relationships between agents and principals. This leads
to the principal-agent problem. The principal-agent problem occurs when the interests of a
principal and agent come into conflict. Companies should seek to minimise these situations
through solid corporate policy. The different interests of principals and agents may become a
source of conflict, as some agents may not perfectly act in the principal's best interests. The
resulting miscommunication and disagreement may result in various problems and discord within
companies. Incompatible desires may drive a wedge between each stakeholder and cause
inefficiencies and financial losses. This leads to the principal-agent problem.
· The King IV Report (2016:3–7, 20–38) [What does (2016:3-7) mean? – It means go to King
IV, pages 3 to 7].
· Richard, Roets, Adams, West (2021:4/2–4/16) [What does (2021:4/2) mean? – It means go
to chapter 4 of the prescribed textbook, page 2]
Note: Whenever this icon is displayed it means that you will have to go to study
references in the prescribed study material. This will include either one or
both prescribed textbooks Auditing notes for South African students and/or the SAICA student
handbook (or the electronic version). You then need to read the specific pages or paragraphs as
indicated and prepare your own summaries/study notes from this for further studying and revision
at a later stage.
Part 2 of the King IV Report (2016:20–38) contains the fundamental concepts and philosophy
on which King IV is based, the distinguishing features of King IV and how the various
developments in corporate governance, locally and internationally, since King III came into effect in
2009, have influenced the principles and practices in the Code.
The philosophy of King IV is focused on
• companies’ role and responsibility in society
• corporate citizenship
• sustainable development
• stakeholder inclusivity and responsiveness
• integrated reporting and integrated thinking
This philosophy is centred on three paradigm shifts in corporate governance:
· from financial capitalism to inclusive capitalism
· from short termism to long-term sustainability
· from silo reporting to integrated reporting
You will notice that King IV brings a more refined focus in terms of the obligation of the
organisation (to be accountable and transparent) as well as the accountability of the company as a
broader stakeholder within the broader society. King IV deliberately talks about ubuntu, an African
concept that implies “I am because you are”. Therefore there should be common purpose to all
human endeavours (including corporate endeavours), based on service to humanity.
To illustrate the philosophy of ubuntu: A successful businessman in Polokwane, South Africa,
showed ubuntu by buying 100 sewing machines at an auction, which he then made available to
men and women in the community who were interested in starting tailoring businesses but did not
4
