Many have questioned King III’s effective date of 1 March 2010 in light of the speculation and confusion surrounding the date that the new Companies Act, 2008, is set to become operational.

Although the Companies Act was one of the driving forces behind the revision of the Code of Governance in South Africa, none of the principles in King III are dependent upon the law changing.

King III has been written in such a manner that the Companies Act requirements form the basis of the Code and the actual principles and recommendations are aligned to governance best practices. Therefore, the application of King III principles and recommendations will ensure full compliance with the Companies Act. Until the Act becomes operational, those requirements (which are currently phrased as “must” in the Report to indicate that it is a legislative requirement) should be read as practice recommendations. Applying those already, will give organisations a head-start for when the Act is due to come into effect.

The King III philosophy

When King II was issued in 2002 on a ‘comply or explain’ basis, the effective date was regarded as the cut-off for compliant companies to align their practices with the Code’s recommendations. The downside of this was that many companies adopted a tick-box approach which resulted in few practical changes or benefits to their organisations.

Good governance is a journey, not a destination, and this is one of the main reasons why King III was written on an ‘apply or explain’ basis.

Entities are not expected to have completed implementation of King III on March 1st; this should merely be seen as the start of the journey towards better corporate governance. The initial application of the principles of King III and the beginning of a process of continuous improvement of governance practices.

For listed companies, the picture is slightly different. The mandatory application of King III arises from the newly-released JSE listing requirements. The requirements pertaining to King III are effective for financial years commencing on or after 1 March 2010 (i.e. financial years ending 28 February 2011 and onwards).