Proposed amendments to the JSE Listings Requirements in relation to corporate governance following the recent launch of King IV
The Johannesburg Stock Exchange (JSE) released its proposed amendments to the JSE Listings Requirements (Listings Requirements) in relation to corporate governance on 1 November, the same day as the Institute of Directors in Southern Africa launched the King IV Report on Corporate Governance for South Africa (King IV) (click here to read our e-alert on the launch of King IV). Comments must be submitted to the JSE by 2 December 2016. If approved, the JSE intends to implement the changes to the Listings Requirements by the last quarter of 2017 to allow listed companies sufficient time to comply.
King IV amends the disclosure regime to "apply and explain". The JSE proposes to align the Listings Requirements with this new disclosure regime. Accordingly, unlike unlisted companies for which application of King IV is merely voluntary, listed companies cannot choose to ignore King IV. They will have to disclose in their annual report which recommended or other practices they have implemented in order to achieve the principles of King IV (the application of which is assumed under the new approach).
In this alert, we highlight the key changes proposed by the JSE in relation to corporate governance.
Proposed mandatory requirements in relation to corporate governance applicable to Main Board issuers
While in most circumstances, a company can decide which recommended practices set out in King IV it will implement in fulfilment of the King IV principles, the JSE proposes to make mandatory for listed companies certain of King IV's recommended practices as well as other corporate governance requirements. Key proposed requirements include:
- mandatory non-binding votes on remuneration: one of the most anticipated changes is in relation to executive remuneration. In line with King IV, the JSE proposes to introduce annual mandatory non-binding advisory votes by the shareholders on the issuer's remuneration policy and implementation report, respectively, at the annual general meeting. The JSE decided against proposing a binding vote of the shareholders on remuneration as it believes it would give rise to uncertainty and practical issues in the event shareholders voted against the policy or the report. In the event that either the remuneration policy or the implementation report, or both are rejected by shareholders exercising 25% or more of the votes exercised, the issuer must invite dissenting shareholders to engage on these issues. Issuers will also be required to disclose in their annual report the voting results and the nature and steps taken to address objections raised by shareholders.
- mandatory appointment of a social and ethics committee (SEC): the role of the SEC under the Listings Requirements goes beyond that set out in the Companies Act 2008 (Act). The SEC will oversee and report on organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationship.
- expansion of the role of the audit committee beyond the provisions of the Act: under the Act, a key duty of the audit committee is to confirm whether the issuer's auditor is independent of the issuer. However, the proposed amendments to the JSE Listings Requirements require the audit committee also to assess (i) the financial reporting procedures established by the issuer, and (ii) the suitability for appointment of the issuer's current or a prospective audit firm and designated individual auditor.
- promotion of race diversity at board level: in addition to a gender diversity policy, the JSE will require issuers to establish a policy on the promotion of race diversity at board level and to disclose their policy in their annual report. The JSE does not go as far as proposing that issuers must set targets for gender and race representation on boards as recommended by King IV. However, if an issuer has set targets for gender or race diversity, it must also, in its annual report, report on progress made against those targets.
- disclosure of B-BBEE compliance report: In terms of the broad-based black economic empowerment (B-BBEE) legislation, all listed companies must prepare and provide a report to the BEE Commission on their BEE compliance. The Listings Requirements will require issuers to publish on their website their annual compliance report. In addition, they will need to notify the JSE and announce via SENS that such report has been made available on their website.
- application of corporate governance requirements to AltX issuers: the disclosure obligations applicable to AltX issuers in relation to corporate governance are less onerous than those applicable to companies listed on the Main Board. AltX issiuers are only required to disclose how they have applied the principles of Part 5.3 of King IV in relation to "Governing structures and delegation" (comprising of 5 principles). Like Main Board issuers, they must provide an explanation as to which recommended or other practices have been implemented and how these achieve or give effect to these principles.