South Africa has a number of companies listed on the stock market. These companies are regarded as some of the best in the world because of how they are governed. The governance frameworks seen in larger companies are something small to medium-sized enterprises (SMEs) should strive for. Following this practice will reap various long-term benefits, such as business sustainability and stakeholder confidence, which will assist with the growth of SMEs.
What is Corporate Governance?
Corporate governance is essentially about effective leadership. It can be used as a mechanism to create applicable processes, systems and controls as well as the appropriate behaviour to ensure sustainability and long-term continuity in an organisation, and in addition, helps to ensure that decisions are made in the best interests of the organisation and its stakeholders.
Improving corporate governance within your SMEs can drastically improve productivity, business growth and job creation. Additionally, SMEs looking to secure growth funding will need strong governance frameworks to boost investor confidence.
In this article, we look at the corporate governance model used in South Africa, what King V and the King Committee are, and why it matters and the best practices for developing your own corporate governance framework.
South Africa’s Corporate Governance Model
South Africa uses an inclusive “stakeholder-inclusive” model of corporate governance. Instead of solely focusing on shareholder wealth, this model requires boards to consider the interests of all legitimate stakeholders (including employees, customers, suppliers, the community, and the environment) to act in the best long-term interest of the company.
This framework is built on the following key pillars:
- The King Reports: The foundation of South African governance is the King Code of Corporate Practices and Conduct, overseen by the Institute of Directors in South Africa (IoDSA). The latest iteration is King V, which builds on previous reports to emphasise ethical leadership, corporate citizenship, and sustainability.
- Companies Act: South Africa uses a unitary board structure (similar to the UK) where executive and non-executive directors serve together on a single board. The Companies Act legally mandates certain governance practices, such as social and ethics committees for certain companies.
- Apply and Explain Principle: King V operates on an “apply and explain” principle rather than strict, rules-based compliance. Organisations are expected to implement the principles of the code and publicly explain how they are being applied to achieve good governance outcomes.
- Johannesburg Stock Exchange (JSE) Listing: Companies listed on the Johannesburg Stock Exchange (JSE) are legally mandated to comply with the King Code as part of their listing obligations.
Role of the Institute of Directors in South Africa (IoDSA)
The IoDSA is the primary professional body for directors in South Africa. Its core mandate is to promote corporate governance, maintain the integrity of directorship as a profession, and equip business leaders with the skills needed to govern organisations ethically and effectively.
Back in 1992, the IoDSA formed the King Committee after agreeing that there was a need for a committee to consider and address corporate governance for South Africa. It was resolved that former Judge Mervyn King be approached to chair the committee.
The Role of the King Committee
The Committee’s role is to develop and advance standards of corporate governance for South Africa for the benefit of the country, its economy, natural environment and its people, and to endeavour to influence corporate governance developments internationally.
The objectives of the Committee are:
- Influencing and shaping the agenda for corporate governance in South Africa
- Issuing reports and codes of sound governance principles and practice for South Africa
- Providing guidance on the interpretation and implementation of the aforementioned Reports and Codes, primarily through Practice Notes
- Researching and producing commentary on legislation and other governance developments, including codes, bills, and other relevant documents and papers
- Remaining attuned to the South African corporate governance landscape, including relevant court judgments, through stakeholder engagement and other activities
- Keeping abreast of, providing input to and leveraging international corporate governance and other relevant developments
King V Report and Why it Matters
King V report is the fifth iteration of the King Code of Corporate Governance for South Africa. It was issued in October 2025, nine years after King IV. Published by the IoDSA with help from the King Committee, it aims to reflect the significant changes occurring in the country, defined by the worsening climate crisis, evolving risks, and growing social and economic inequalities.
King V corporate governance was established to address the following goals:
- Aligning with recent legislative reforms, global governance and reporting developments
- Simplifying the Code’s language, structure and presentation to make it more accessible and practical across sectors
- Standardising disclosure requirements through a dedicated King
- Disclosure Framework, promoting consistency and comparability across organisations
- Refining principles and practices
King V applies to all organisations, including private companies, non-profits, state-owned entities, municipalities, healthcare groups, and higher education institutions.
Four Governance Outcomes of King V
For King V, sound corporate governance in South Africa entails a holistic system that considers economic, social, and environmental aspects. It aims for organisations to achieve these four governance outcomes:
- Ethical Culture: This refers to the cultivation of shared values, beliefs, and practices that guide ethical behaviour and decision-making.
- Performance and value creation: Strategic direction should consider both immediate and long-term objectives to create sustainable value.
- Conformance and prudent control: Complying with state and internal standards while maintaining strong internal controls, risk management, and transparent reporting.
- Legitimacy: Build trust and confidence of stakeholders by operating responsibly and transparently.
Corporate Governance Structure Best Practices
Your company’s corporate governance framework identifies the policies, objectives and associated culture for security and risk management. Alongside, it’s the need for a structure that classifies the distribution of rights and responsibilities in the business.
Implementing the framework and structure is the first step to strong corporate governance. To further improve governance, adopt the following practices:
1. Establish Codes of Conduct and Ethics
Businesses are sustainable when a robust code of conduct and ethics governs internal and external stakeholders. This document needs to contain the measures, rules, and responsibilities of internal stakeholders on how to conduct fair and honest business procedures.
Some of the best practices to include are making it comprehensive and easily accessible, and carefully planning it out based on the company branding. This usually includes your core values and vision, confidentiality procedures, community involvement, etc.
2. Setting Risk Management and Internal Controls
Businesses of all sizes require risk management and internal controls to ensure business continuity. This reassures investors, vendors, and other stakeholders that the company is financially stable, follows regulations, and operates effectively. Without both, there is little to no chance of investors trusting you.
The internal goals of your business and its internal stakeholders are the primary focus of internal control mechanisms. As defined by the COSO Internal Control-Integrated Framework, a reliable internal control system consists of risk assessment, control environment, control activities, information and communication, and monitoring. Consider evaluating your SME’s internal controls with this framework.
3. Evaluating Board Effectiveness and Performance
An effective board develops and creates its understanding of the business’s mission, culture, values, and behaviours it wishes to promote in conducting business. To avoid immobility in your operations, it’s ideal to hold board evaluations consistently.
Evaluating board performance is one of the best practices in effective corporate governance because it helps quantify the effectiveness of the current board. It also helps measure the relationship it has with the executive management. This is a good idea if you plan to grow your revenue and ensure stability long-term consistently.
4. Managing Stakeholder Engagement
Involvement and fairness play critical roles in corporate governance. Boards that create spaces and initiatives to serve the stakeholders, such as investors, shareholders, and employees, help increase engagement. It’s crucial that you treat stakeholders as elements with the same value that contribute to how your company operates.
Building strong corporate governance foundations will help your business’s future, as it will help you sustain both financial integrity and efficiency. Well-governed companies will outperform those with poor corporate governance, as investors are more attracted to companies with financial security.
