King III – Business at the Expense of CBOs?

King III - Mervyn King and the Institute of Directors (IoD) confirmed that King III was not specifically drafted with the non-profit sector in mind. In two recent articles, published respectively in the 12th and 26th August 2010 issues of the Business Day, the IoD stated that “Although the King 3 report on corporate governance was written generally with companies in mind, it also applies to nonprofit organisations…” Mervyn King further acknowledged, by implication, that not all the principles in King III can be implemented by nonprofit entities.

This makes for an incidental treatment of the non-profit sector in South Africa. It is inexcusable and detrimental. This treatment not only manifested itself in the development of King III but continues to manifest itself in the manner detailed below.

Firstly, the public communications by the IoD and Mervyn King on this matter have, to date, primarily been published in the business arena and the non-profit sector has seemingly not been the target of such communications. One cannot help but to wonder why?

Secondly, the King committee is only now turning its attention to the non-profit sector. The committee’s attention should have been turned to the non-profit sector when it conceived King III, not as an afterthought. This recent focus on the non-profit sector has apparently been prompted by international developments, not by the local context. Should the King committee not give more consideration to the local context?

Thirdly, the IOD as self-professed “Business Leaders” has for practical purposes adopted a (Buy and then) ‘Apply or Explain’ approach in relation the King III Report. The King III Code without the Report has limited value as many concepts and principles are explained in more detail in the Report itself. This begs the question - how many community-based organisations are capable of sparing R600.00 to obtain a copy of the King III Report?

The National Lotteries Board (NLB) has in February this year reported to Parliament that the introduction of rigorous funding criteria by the NLB had, by implication, meant that ‘fancy’ organisations received funding – whilst the ones in dire need, did not get funding. King III holds the same risks for community-based organisations. Should corporate governance be pursued to the detriment of community-based organisations in South Africa?

The King committee, understandably, fails to appreciate that the non-profit sector plays a key role in creating and maintaining conditions that are conducive for businesses to flourish. The demise of a vibrant non-profit sector will inevitably also impact on the business environment. Recent events in Zimbabwe provides a striking example of this, where the non-profit sector has been strategically undermined at the expense of economic development, to such an extent that conducting business there generally did not make good business sense.

Despite the concerns raised by some non-profit organisations when the draft King III report was published, the King committee was determined to apply King III to all entities. The concerns raised were not going to detract the committee from its timeline for publication. The King committee should perhaps have paid closer attention to its own sermon on the inclusive stakeholder approach and how boards should govern stakeholder relations. This top-down approach towards the non-profit sector is reminiscent of the recent debate around the use of technology in football.

Despite mounting criticism, FIFA remained adamant not to implement technology in football. This unyielding approach only changed in the face of blatant errors that, arguably, changed the outcome of the most prestigious football event. Likewise, King III remains adamant to apply a commercial code to the non-profit sector. It is doubtful whether any amount of consultation will change the commercial nature of King III. Hopefully this unyielding approach will not be at the expense of the non-profit sector in South Africa. The argument is not to support lesser standards of governance and accountability for non-profits, but for suitable standards.

The South African NGO Coalition (SANGOCO) Western Cape is working towards the culmination of NGO Week during 20-25 September 2010, where national dialogues on various developmental matters will be facilitated and considered. As part of the program for the 21st September 2010, a dialogue and debate pertaining to King III has been scheduled. It was confirmed by Jacky Thomas of SANGOCO Western Cape that an invitation was extended to the King committee for that session.

For further comment please contact:

Peter SA Hendricks
PSA Hendricks & Associates - Attorneys & Administrators of Estates
122 Frankfort Street, Churchill Estate, Parow West, 7500
PO Box 12459, N1 City Goodwood, 7463
Tel No: 021 911 3497, Fax: 086 654 4322
Website: www.psahendricks.yolasite.com

Ricardo Wyngaard
Ricardo Wyngaard Attorneys
Johannesburg Road, Croydon
PO Box 214, Eerste River, 7103
Tel: 021 8433 588 Fax: 086 5388 435
Email: ricardo@nonprofitlawyer.co.za
Website: www.nonprofitlawyer.co.za