King takes dim view of directors' shares
February 18, 2009
By Sanchia Temkin
After 18 months of revision, a draft of the third King report on corporate governance will be issued next week for comment.
One of the more significant changes is expected to be tightening of remuneration policies on independent directors.
It is expected to recommend that remuneration for non-executive directors not include share options, Jayne Mammatt, a corporate governance expert at Ernst & Young, said on Tuesday.
"This would be in keeping with best international norms, such as the UK Combined Code," Mammatt said.
"Globally, executive bonuses are a big bone of contention in the light of the financial crisis, with big payouts being paid to the executives of banks, some of which are receiving government aid during the market turmoil
The King code would require more disclosure on executive remuneration schemes |
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The spillover effects of the financial crisis could undermine corporate governance practices in certain industries, particularly the financial services sector, Mammatt said.
The King code would require more disclosure on executive remuneration schemes, and companies would have to submit their remuneration schemes to shareholder scrutiny and approval.
Seven task teams of 90 specialists, led by Mervyn King, examined existing international corporate governance practices to bring the new report into line with those practices.
The teams examined issues such as boards and remuneration, risk management, internal audit, accounting and auditing, sustainability, enforcement law relating to directors and auditors, the business rescue of companies and alternative dispute resolution mechanisms.
The first King report was published in 1994.
Mammatt said a revision of the report was needed as a number of developments had taken place in SA since the publication of the second report in March 2002.
For instance, the accounting profession globally had undergone a mammoth change with the corporate scandals of Enron and WorldCom and those closer to home, such as Regal Bank and LeisureNet.
The Accounting Profession Act was passed into law in 2006. Listed companies have also been required to use international financial reporting standards since 2005.
Committee chairman King said recently that the new Companies Bill, which was released late in 2008, would form the basis of the report.
He said the role of a director was not easy in the light of corporate scandals. Rules, regulations and stringent legislation had forced executives to re-examine their role.
The code is expected to contain two new chapters on alternative dispute mechanisms for companies and enforcement. King said the committee had considered international trends when compiling the report.
For instance, the independence of directors should be tested annually, sustainable development needed to be a business opportunity and data in annual reports should include issues from which stakeholders could make an informed assessment of a company's economic value as opposed to its book value.
The report will be released next Wednesday by the Institute of Directors.
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