An investigation of the concept of independent director with specific reference to the King III Report and how companies listed on the Johannesburg Securities Exchange (JSE) apply the King III codes
Thesis (MBA)--University of Stellenbosch, 2011.
This study investigates the independence of non-executive directors serving on the boards of the Top 40 companies listed on the JSE based on information collected from the companies‘ annual reports. It examines the definition of an independent non-executive director and analyses whether the directors of the Top 40 companies comply with the definition of the independent non-executive directors as set out in the King III Report. The third King Report on Governance for South Africa also known as King III Report was developed in response to the Companies Act of 2008 and the global financial crisis where the boards of directors were accused of not providing the required oversight in companies. Governments and regulatory bodies around the world were calling for the reform of laws and corporate governance codes to prevent occurrences such as the financial crisis and other corporate governance scandals. The new Companies Act mainly focuses on the duties and responsibilities of directors and their performance obligation. The King III report incorporated the amendments to the new Companies Act to ensure that companies are in line with best practice in corporate governance and that they comply with the law in terms of the Companies Act. The King code focuses on the role of non-executive directors with emphasis on the independence of directors because the role of directors is seen to be pivotal to good corporate governance. The findings of the study show that the majority of the companies analysed comply with the definition of an independent director as outlined in the King III Report. However, there is evidence that some companies are not yet compliant in terms of the disclosure of information concerning the tenure of directors as well as the number of directorships. The non-disclosure of information pertaining to the tenure and number of directorships held by some directors makes it difficult to assess whether the directors are fully compliant or not. There is also evidence that suggests that the majority of the boards do not assess directors‘ independence for those directors who have served on the board for more than nine years. Therefore, the majority of companies do not include a review of the independence of directors. Best practice stipulates that there be an assessment of the directors‘ independence when extending the directors‘ tenure beyond the given nine-year period. The study recommends that the King Report should be decisive on issues such as the number of directorships and that it should provide guidelines for the number of directorships that directors can hold. The study shows that some of the directors in the Top 40 companies listed on the JSE currently hold too many directorships and that there is a need for more clarity in this regard. 62 Pages. .