‘Risk management’ is a term that has been receiving a lot of attention since the 2007 financial crisis. The financial crisis was a massive failure which took all by storm, apart from the unpopular few who predicted it. Along with corporate governance and unscrupulous auditing, risk management has been identified as one of the biggest contributors to the financial crisis. This article will briefly discuss and compare the current risk management practices as set out in the Companies Act No. 71 of 2008 of South Africa (“Companies Act”), the King III Code, the UK Corporate Governance Code and the Australian ASX Revised Corporate Governance Principles.
In 1994, the King Report on Corporate Governance (King I) was published. After King I, the King Committee updated it and the result was the King Report on Corporate Governance for South Africa 2002 (King II). The latest version came into effect on the 1st of March 2010 and is called the King Report on Governance for South Africa 2009 (“King III Report”) and the King Code of Governance for South Africa 2009 (“King III Code”). The King III Report must be read with the King III Code; together they set out key corporate governance principles and best practices on how to implement those principles. Corporate governance is an essential ingredient to any business that seeks to be a competitive force in the domestic and global market.
The function of corporate governance is to both determine whether directors have complied with their duties and to assist them with such compliance. Good corporate governance comes down to effective and responsible leadership which is in turn characterised by ethical values of responsibility, fairness, accountability and transparency. Ethics are the basis for sound corporate governance. Minister of Water Affairs and Forestry v Stilfontein Gold Mining Co Ltd held that the implementation and practice of sound corporate governance is vital to for the welfare of the company and the South African economy as it influences the attractiveness of South Africa as an investment opportunity. The court in South African Broadcasting Corporation Ltd v Mpofu held that the main principle underlying good corporate governance is integrity.
The King III Report applies to all entities incorporated in and resident in South Africa. This means that the King III Report applies irrespective of size, industry, sector or manner of incorporation. This is a major difference between King II and King III as King II’s application was restricted to listed companies, financial institutions and public sector enterprises. The King III Report remains voluntary for all those companies who are not required by law or association to apply it. In contrast to the voluntary compliance approach of the King III Report, there are countries that opt for a more legislated approach.