The King Committee has issued new guidance clarifying one of the most frequently misunderstood aspects of corporate governance in South Africa – the role of a director’s length of service when assessing independence.
The guidance addresses the widespread misconception that a non-executive director who has served on a governing body for more than nine years automatically ceases to be independent. The King Committee emphasises that this is not what King V recommends.
“Good governance is not a box-ticking exercise,” says Ansie Ramalho, chairperson of the King Committee. “The purpose of King V is not to encourage mechanical compliance. The nine-year period is one of several indicators that should inform a board’s assessment of independence, but it was never intended to operate as an automatic disqualification.
“The focus should be on whether a director demonstrates independence of mind,” adds Ramalho. “Length of service is an important consideration, but it cannot replace the board’s judgement. Equally, simply satisfying objective criteria does not automatically mean a director is independent in practice.”
The guidance notes that King V deliberately adopts a holistic approach to assessing independence. Rather than elevating any single factor above others, governing bodies are expected to evaluate all relevant circumstances when determining whether a non-executive director should be categorised as independent.
The King Committee cautions that mechanical application of governance requirements can be just as inconsistent with good governance as ignoring them.
“Replacing experienced directors simply because they have reached nine years, without considering whether they continue to exercise objective judgement, is no more consistent with King V than retaining directors whose independence has genuinely been compromised,” says Ramalho.
Where a governing body concludes that a director remains independent despite one or more indicators that may suggest otherwise, King V requires the board to explain the rationale for that conclusion. Such explanations should be robust, objective, and capable of withstanding scrutiny by reasonable and informed stakeholders.
The guidance also highlights that independence is only one aspect of effective governing body composition.
Boards should also consider the appropriate balance of competencies, diversity, experience, and institutional knowledge needed to discharge their responsibilities effectively. Long-serving directors may continue to contribute significant value through their historical perspective, industry expertise, and organisational knowledge provided that their independence of judgement has not been impaired.
“The intention of King V has always been to promote thoughtful governance rather than rigid rule-following,” says Ramalho. “Boards should exercise informed judgement, supported by transparent disclosure where appropriate. That is what ultimately promotes confidence in governance.”
The King Committee hopes that the guidance will assist boards, investors, regulators and other stakeholders in applying this recommended practice of King V consistently and as intended.
The King Committee’s Guidance Note: Interpretation of the Nine-Year Term as an Independence Factor is available at: https://iodsa.co/Paper-9-Year-Term