The Role of Human Resources in King IV™

28 July 20164th Annual SABPP HR Standards Conference

ELIZABETH DHLAMINI-KUMALO

Agenda 1. HR Governance

2. King Codes: From I-IV

3. New definition of Corporate Governance

4. Responsibilities of the Governing Body

5. Structure of King IV

6. Role of HR in King IV

7. HR Implications

8. Conclusion

HR Governance History Confluence of legal, political and economic ideas.

Question had been whether an organisation can manage itself without regulation – and if not, who should do the regulating?

2002 United States, responded by passing the Sarbanes Oxley Act.

Sarbanes-Oxley HR implications include but not limited to personal, legal accountability for the reporting and decision making for benefits plans and programmes. A big emphasis on compliance bordering on being dangerous.

King Codes In South Africa the response was a non-legislative, principle and practice based code:

1994 King I

2002 King II

2009 King III

2016 Draft King IV

The philosophy of the code consists of the three key elements of:

leadership, sustainability and good corporate citizenship.

Since inception there has always been a myriad of HR implications; today we will discuss a few.

Definition of Corporate Governance

Corporate Governance is about the exercise of ethical and effective leadership by the governing body.

King IV™ (IODSA, 2016)

Responsibilities of Governing Body

1. Providing strategic direction 2. Approving policy to put strategy into effect 3. Providing oversight of the implementation of performance 4. Disclosing

(IOD 2016)

CHAPTER AND CONTENT GOVERNANCE OUTCOMEChapter 1: LEADERSHIP, ETHICS AND CORPORATE CITIZENSHIPEthical leadership; Organisational values, ethics and cultures, Responsible corporate citizenship

ETHICAL CULTURE

Chapter 2: PERFORMANCE AND REPORTING Strategy, implementation, performance, Report and disclosure

PERFORMANCE AND VALUE CREATION

CHAPTER 3: GOVERNANCE BODY STRUCTURES AND DELEGATION Role of the governing body, composition of the governing body, committees of the governing body, delegation to management and performance evaluations

ADEQUATE AND EFFECTIVE CONTROL

CHAPTER 4: GOVERNANCE FUNCTIONAL AREASRisk and opportunity governance, technology and information governance, compliance governance, remuneration governance and assurance

ADEQUATE AND EFFECTIVE CONTROL

CHAPTER 5: STAKEHOLDER RELATIONSHIPSStakeholders (Responsibilities of shareholders)

TRUST, GOOD REPUTATION AND LEGITIMACY

STRUCTURE OF KING IV

IOD (2016)

Human Resource Governance: A Definition and Key Elements

HR governance is the act of leading the HR function and managing related investments to: Optimise performance

Fulfil fiduciary and financial responsibilities

Mitigate enterprise HR risk

Align the function’s priorities with those of the business and

Enable HR executive decision making.

Mercer Inc. defines five core elements in an HR function’s system of governance as: Structure and accountability

Effective Councils

Philosophy and operating principles

Core Management activities

Performance Monitoring

Having reviewed this what is the role of Human Resource Leadership and Practice including all the previous codes from 1994?

We had “appointments to the boards and guidance….., and Affirmative Action Programmes” in King I

We had “Risk Management and Integrated Sustainability Reporting” in King II

We had “Non-executive Directors’ Remuneration and Evaluation of Board and Directors’ Performance” in King III

Honestly, how have we fared?

The Role of HR in King IV As a Professional Body we embrace the draft, and believe it affirms South Africa as a world leader in Corporate Governance.

There are many HR opportunities and responsibilities. The HR Standards provide us with a solid foundation for HR Governance and practice. We need to fulfil our role as members of Excos, sub-committees and the Board. Developing proper HR governance framework. Managing HR Risks. Ensuring HR controls in place. Assurance of HR practices (non-financial reporting). Auditing the HR function.

HR Implications Role of Leadership in broader society – skills shortages & social issues (transformation).

Supporting and driving goals of the NDP.

Skills and talent development.

Ubuntu (from King II to King IV) – the real spirit of Ubuntu?

Concepts of fairness, innovation and collaboration.

Training of employees may diminish human capital over short-term, but it increases the human capital of the organisation.

Human rights abuses constitute poor citizenship behaviour and it depletes human capital in the supply chain of the organisation, and it could affect reputation.

King IV requires reporting on value chain processes. HR to provide the human capital value chain.

HR Implications HR issues to feature in integrated annual reports.

Shift from “financial capitalism” to “inclusive capitalism” taking into account employment, transformation and provision of all sources of capitals is positive.

Shift from short-term thinking to long-term thinking will assist in enabling the creation of long term human capital development in organisations.

The social responsible aspects of remuneration should be considered. Increased disclosure of remuneration policy and actual remuneration will require HR work.

Performance management to include business, social & environmental performance.

HR should play a more proactive role in supporting a digital business strategy in leveraging information and technology. Boards should consider the impact of digital business on the organisation, employees and broader society.

HR Implications HR contributing to combined assurance – HR to provide inputs regarding the HR control environment, including framework, policies, processes, systems and controls (audits).

HR Managers should keep up to date on the fiduciary duties of shareholders regarding investments in pension funds. Consider any factor which may materially affect the sustainable long-term performance of a fund’s assets, including environmental, social and economic performance.

Clear role for HR and ER Managers in dealing with dispute resolution together with management and unions. Need to resolve disputes quicker, efficiently and effectively.

Boards required to oversee that recruitment processes, promotion criteria & performance evaluations of employees recognise adherence to ethics norms as set out in codes of ethics & conduct that sanctions are in place for the contravention thereof. HR policy is key.

HR to play a stronger role in prevention of fraud & corruption – ethical culture.

HR Implications Organisation as corporate citizen: Sustainable development, human rights, impact on communities, fair labour practices, remuneration, employee well-being, employee development, employment equity & compliance to legislation.

Succession planning is a key priority – HR to provide professional service.

Proper policy and procedures for Nominations committees, Remco, Social & ethics committees.

HR Directors to raise concerns of undue influence/manipulation regarding remuneration/nominations committees.

Work with CRO or Chair of Risk & Opportunity Committee to determine if human capital risks included in risks register.

Training of governance professional/company secretary

HR Implications HR Director advice in performance evaluations of governing body, its structures and the company secretary where relevant.

The capacity of HR Director to contribute optimally at board and board committee level should be improved.

HR Directors training in corporate governance and King IV.

Next steps: 1. HR Governance Framework

2. King IV Implementation

3. Integrated Reporting

4. King V Planning

Conclusion King IV provides many opportunities for HR to step up in

playing the HR Governance role. We need to apply our corporate governance role as HR Practitioners. We also need to develop an HR Governance Framework to strengthen the

HR value chain and all HR practices in support of good corporate governance in the organisation. The SABPP HR

Governance Steering Group will lead these efforts.