King III and Non-Profits – What King Can Do For You

King III is a single set of guidelines around governance that has been made applicable to all entities in South Africa. There has been a significant outcry from the NGO sector, who were not consulted during the development of the code.  NGOs argue that the “one size fits all” approach does not take into consideration the nature, context and scope of non-profits and that King III is still written for big corporates, as was King I & II.

Two basic principles are important to note:

1. King III is not legislation. It has not been promulgated, and so adherence to its principles and process is not compulsory in the same sense as adherence to the new Companies Act will be compulsory for section 21 Companies. King III is a set of guidelines. Because the guidelines have been drafted and endorsed by respected and high-profile persons, some parts of them will, inevitably, work their way into our common law, in the sense that our courts will apply them as norms when they come to decide on issues such as duties of directors. But there will never be a legislated deadline for compliance, or a statutory penalty for non-compliance with King III. For the NGO sector, compliance with King III is likely to be donor-driven. Many donors have already started asking the organisations which they fund, whether they are “King III compliant”.

2. King III lets you explain. King III requires that you “apply or explain” every principle. Yes, there are large chunks of King III which are not relevant to NGO’s- these should be excluded from any assessment at the outset, with the explanation-‘not appropriate’. Many of the principles which larger NGO’s will be interested in applying (Audit Committees, Board and IT charters), will not be relevant for smaller organizations and CBOs.

The most useful way to view King III is as a process. It’s a long and often tedious and repetitive document, and many of the principles may be unattainable, but if you take the time to go through the process of examining each principle, every NGO will find something useful, something that will make them function more effectively, improve credibility with donors, or simply something that will build more resilience in their organisation.

In our experience, after an initial assessment of application of the code, organizations probably need a facilitated discussion around how and whether to apply those principles not already in place. Goals and timelines can then be set with regard to the chosen principles. The King III assessment thus becomes a ‘living’ document, which is updated as more of the principles are implemented.

Two aspects of King III which every NGO, no matter how small, could benefit from are:

• the processes around assessment of board members
• the integrated report.

A simple, yet structured, annual self and peer review of board members is a most useful tool for keeping board members engaged with the work at hand, and for weeding out those who are not contributing.

The Integrated Report suggested by King III, in particular one that is written according to Global Reporting Initiative (GRI) G3 guidelines, provides an excellent framework for an Annual Report for a Non-Profit Organisation. As more and more Non-Profit Organisations seek to tap into Corporate Social Investment funds, a GRI-aligned Annual Report will only serve to strengthen the organisation’s credibility in a language the corporate donor understands. The GRI has recently published a sector supplement for Non-Profit Organisations (which has included extensive consultation with the sector, including South African NGOs).  The Non-Profit Sector Supplement available on the GRI website www.globalreporting.org

It provides for narrative commentary on programmes, financial statements and indicators for Programme Effectiveness, Human Rights, Economic, Environment, Labour, Society and Product Responsibility.

Nicole Copley is an NGO lawyer who has worked in the NGO sector for 16 years, drafting and amending founding documents, obtaining tax exemptions and NPO registrations, and providing advice and assistance to NGO’s countrywide. Her background is in business law, and she also drafts and vets commercial agreements for her clients. www.ngolawsa.co.za

Mags Shapiro of Social Capital is a management consultant to corporate and NGO clients. One of Social Capital’s specialist services is communication, including production of GRI-aligned annual reports including research, writing, photography & layout. www.socialcapitalsa.com

Nicole & Mags collaborate to provide NGO’s with support around governance including training and King III application.