Implementing King II was difficult and costly because some of the principles were structured in an operational manner, Institute of Directors CEO Lindie Engelbrecht told a seminar on the draft of the third report. or King III, on corporate governance in South Africa in Johannesburg last week.
"Some of the principles had unintended consequences and we have tried to rectify this, as it has affected financial institutions, listed companies and private companies.
"Private companies were asked to comply but, because they were not specifically listed, decided not to comply.
"For example, if an entity or company does not have a risk committee, instead of complying, it will decide to explain the reason why it does not have a risk committee.
"The reality is that the process of risk management in that entity is compromised," said Engelbrecht.
The draft King III report was released in February for public comment and, once finalised, will be issued in September.
King III became necessary because of the anticipated new Companies Act and changes in international governance trends.
The seminar provided insight into the changes being introduced, including those related to the evolving role of the board, the management of modern key risks, risk-based internal audits, fundamental and affected transactions and alternative dispute resolutions.
Engelbrecht added that King III would be applicable to all entities.
"These codes are not rules. Corporate governance cannot be applied to a one-size-fits-all scenario. We decided to change the codes to include ‘apply' or ‘explain'. We want to move away from substantial compliance."
Last year, Prof Mervyn King, chairperson of the Global Reporting Initiative, said that he expected a 'revolutionary change' in the role internal auditors played in corporate governance within the next five years.
He added that King III would look specifically at whistleblowing and the role internal auditors played in managing corruption and fraud within companies.
He noted, however, that fraud and corruption could be managed through setting up codes of conduct within organisations, as well as through making use of internal auditors, external auditors and audit committees.
King further stated that many companies across the world were bigger than some governments and that companies were integral to society as many people spent more time at work than they did at home.
"Corruption has a rippling effect on thousands of people in a company that the corruptor might not know or see," commented King," adding that people wanted to have trust and confidence in a company.
"When there is corruption, the trust and confidence in the company starts waning, and, thus, the corruption must be stopped," concluded King.