Corporate governance is not something that many SME’s concern themselves with. For a long time now, it has been considered an issue for only larger organisations. The King IV code has changed this by making provision for principles that can be applied by SME’s as well. Sound corporate governance leads to healthy organisations and relates to ethical and effective leadership. Corporate governance involves strategy and direction; approving policies for putting the strategy into effect; oversight and implementation; and disclosure by being accountable and proper reporting.
The King IV
The King IV Report on Corporate Governance for South Africa, 2016 (“King IV”) contains corporate governance principles to be used by companies on a voluntary basis. To assist SME’s with the application of the principles contained in the King IV Report, the report includes a sector supplement to guide SME’s.
The sector supplement on SME’s in the King IV Report defines a SME as a private, for-profit company with a Public Interest Score (PI Score) of 350 or more as calculated based on regulation 26(2) of the Company’s Act 71 of 2008. Although this supplement is specific in its definition of an SME, the sector supplement can also be utilised, along with the principles contained in King IV, by smaller entities. Based on their size, smaller entities may decide to apply the principles of King on a proportional basis and as their resources allow.
Large or medium entities often have an audit and risk committee, but smaller entities may decide to have the governing body carry out risk management and audit committee related duties, or to request one member of the governing body to take responsibility for these duties. The sector supplement on SME’s also confirm this proportional application and suggests that if proportional application of the King IV Report is used, the board of the SME take responsibility to ensure that the board addresses all matters which would have been addressed by the committees.