Identifying the challenges to implement King IV in Chapter 9 and public sector institutions
Over the past decade, South Africa, the government and its state-owned entities have experienced turbulence as a result of ongoing scandals. More recently, a phenomenon called State-Capture has continuously been in the news and a subject of parliamentary inquiry. Public discourse and outcomes of investigations by the Public Protector and board inquiries by the Passenger Rail Agency of South Africa (PRASA), the Auditor-General and many others that have been concluded and are ongoing indicate a chronic failure of Corporate Governance. The purpose of this research was thus to investigate and identify the challenges experienced by state-owned entities as well as Chapter 9 institutions with regard to the implementation of the governance principles contained in the King Report on Corporate Governance for South Africa (more specifically, King IV). Guidance from the King Committee has produced at least four reports, of which some of the suggested principles have been codified into legislation. An example of one such legislation where the principles of the Report on Corporate Governance for South Africa have been codified is the Companies Act 71 of 2008. An expectation from most is that the principles should thus be embedded within a significant part of the organisation. If the principles were embedded and observed, there would not be the scandals referred to earlier. These events indicate that there are some deficiencies in most organisations’ governance practices. The literature review and empirical results conducted and analysed as part of this study, reveal that there are indeed challenges experienced by state-owned entities and Chapter 9 institutions with regard to the implementation of King IV. The primary impediment to implementation is contradictions observed between the King IV report and founding legislation governing Chapter 9 institutions. Additionally, an absence of a sector supplement for Chapter 9 institutions does not empower or enable these entities to attempt an alignment between their governance frameworks and the King IV report. Factors that enable good Corporate Governance were explored as part of the study. The outcomes indicate that Corporate Governance expertise, finances and cost of implementation are not a concern for most of the entities surveyed. However, transparency, accountability and adherence to the Rule of Law were identified as the key determinants of both the impediments to effective good Corporate Governance and the implementation process. The empirical study indicates that the relationship that the oversight structure has with its executive management impacts the effectiveness of the governance framework employed within that entity. This relationship was seen in the calculation of the correlation co-efficient. The calculation was deemed to be very significant at 0.933. The outcomes of this study outline a number of recommendations to ease the challenges experienced by state-owned entities and Chapter 9 institutions in the implementation of the King IV report. One of the recommendations is that there should be an amendment to legislation governing the Public Protector and the Auditor-General. The objectives of the amendments will be to align to the requirements of the King Code on Corporate Governance. Alternatively, a sector supplement (similar to those developed for state-owned entities, retirement funds, etc.) must be developed to guide these two institutions (and many other that may fall within the same class). The proposals put forward will improve the governance practices of these entities. A further recommendation is for an operational plan to be developed in order to guide implementation. The plan must include continuous evaluation and monitoring to ensure adherence to the provisions of the King IV report. Lastly, the findings of the study reveal that culture and ethical behaviour within organisations are driven by its leadership. Therefore, strict vetting and screening of the leadership of state-owned entities should be undertaken on a continuous basis, particularly as it relates to the ethical conduct of that leader.