The King II code only applied to certain entities and followed a rule-based based approach hence â€śComply or Elseâ€ť or mandatory corporate governance. â€śComply or Elseâ€ť refers to the companies obligation to abide by corporate governance standards. These standards are written into law and regulations and have to be obeyed. Failure to obey these standards and regulations may/will result into sanctions such as fines for the corporations, imprisonment of executive manager/director and prevention from listing or trading on the stock exchange.
The King III applies to all entities whether it be public, private sectors or non-profit sectors and regardless to the form of the establishment example a private company. This code, unlike its predecessor, is principle-based rather than rule-based in other words voluntary corporate governance. Hence â€śApply or Explainâ€ť. Advise and explanation is the theme in â€śApply or Explainâ€ť â€“ corporate governance standards are recommendations on principles and practices rather than strict rules, that companies are advised to act accordingly to.
Thus companies are allowed to use own discretion on whether to apply to the recommended principles and practices however it is expected of each company to explain why it chose not to comply in for example annual reports. In order for this approach to be effective companies must have regular reports and for its stakeholders to critically scrutinise these reports for relevance and accuracy.
To conclude this section of the question, I would say that there has been in increase in the emphasis on philosophical premises from King II to King III. All companies have now been included and the theoretical part of the philosophies are being emphasised. Philosophies are only theories and cannot always be applied as rules can be applied. King III gives corporations the freedom to choose which principle and practice will suit their company the best and apply but only with a good explanation for it.
Courtney from Study Moose
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