King III and PF130To regulate or not to regulate?

Introduction

PF 130 issued in June 2007 Currently being reconsidered to incorporate King III principles Possibility of new regulation with respect to governance for retirement funds

King III Code and the Final Report published on 1 September 2009 Implementation on 1 March 2010

Application of King III

King III applies to ALL institutions – companies as well as other institutions

King III requires corporate institutions to ‘apply or explain’ – Code of governance

principles for corporate institutions (not only companies)

King II provided for ‘comply or explain’

King III does not follow the Sarbanes-Oxley approach of ‘comply or else’

Directors need to apply the best practice principles, or explain to shareholders why

they opted not to

‘Must’ and ‘Should’

Result: Every decision counts!

Customise King III to suite the needs of the institution as well as the particular industry

To regulate or not to regulate?

PF 130 embodies guidance and good practice with respect to the retirement fund

industry

In many respects PF 130 was superseded by King III

Proposal:

Be careful to regulate good governance – tick box?

Rather provide a key to the retirement fund industry as to how to read, interpret

and apply King III

Set minimum requirements for large(r) funds

Provide guidance to small funds to ensure optimum benefit

Key focus area:Board

Board is the focal point and custodian of good governance

27 principles relating to Boards and Directors/Trustees

11 of these principles cross reference to other Chapters

Sound ethics, good corporate citizen, effective independent audit committee,

governance of risk, incl IT risk and governance, compliance with laws, codes, etc.,

effective risk based internal audit, stakeholder relations and management, integrity

of integrated reporting, effectiveness of internal controls

Independent non-executive chairman ... Not the CEO/PO

Key focus area:Board composition and committees

Composition of the board (execs, non-execs, independent non-execs)

Minimum 2 execs

Majority non-execs ... Majority independent

Board appointment process formalised ... Nominations committee

Assessment of skill and experience required by the board as a whole

Director orientation and induction, ongoing development and learning

Assisted by competent company secretary

Board, committees and director performance assessment

Key focus area:Audit committee

All institutions should appoint an effective audit committee, comprising at least 3

independent, non-executive, suitable skilled and experienced directors/trustees

Clearly defined role and functions of the audit committee, as per Companies act

Ensure independence of external auditor

Manage the relationship with the external auditor

Other functions as per King Report

Committee should be responsible for

Financial risks and reporting

Review of internal financial controls

Fraud risks and IT risks as it relates to financial reporting

Key focus area:Audit committee

Other functions as per King Report

Combined assurance model – management, internal assurance providers and

external assurance providers

Oversee integrated reporting (both financial and sustainability reporting)

Satisfied re expertise, resources and experience of finance function

Oversee internal audit

Integral to risk management process

Oversee external audit process

Report to Board and shareholders on discharging its duties

Key focus area:Risk management

Risk management intrinsically linked to company’s strategy, performance and

sustainability ... Board responsible for governance of risk – including IT, compliance, etc

The Board: consider the risk policy and plan determination of the company’s risk appetite and risk tolerance ensure risk assessments performed monitor the whole risk management process receive assurance (combined and the three lines of defence) regarding the

effectiveness of the risk management process Management:

design, implementation and effectiveness of risk management continual risk monitoring

The Board may assign its responsibility for risk management to the risk committee, or

audit committee

Retirement funds: Finance (or audit) committee to manage the performance of

outsourced functions (including risk) through, among others, service level agreements

Key focus area:Other issues

Sustainability

Stakeholder identification and management

Integrated reporting

A process of embedding a sustainable long term (competitive) strategy while

preserving short term value

Key focus area:Other issues

Questions?