Corporate governance may be perceived as a very modern idea formulated by commercially sophisticated and intelligent human beings to structure and regulate their business interests. In essence, it is a set of rules and principles labelled with a catchy name but which has been applied and enforced by humans for millennia.

If we cast our minds back, say 4 000 years ago, and took a stroll along the boulevards of ancient Mesopotamia, we would come across a basalt stone in the shape of a fingertip, standing 2.25m tall (just a tad taller than a Springbok lock) with ancient writing that recorded the Code of Hammurabi.

Nearly one-half of the code deals with commercial transactions, establishing, for example, the wages to be paid to an ox driver or a surgeon. Other provisions set the terms of a transaction, establishing the liability of a builder for a house that collapses, or property that is damaged while left in the care of another.

Human beings have always had to adopt rules and laws to govern their affairs to ensure a prosperous and orderly society. If there are no such rules and laws, or if these rules and laws are not enforced, communities (both ancient and modern) could not and would not prosper, descending instead into anarchy, penury and chaos.

The legal framework that underpinned the Code of Hammurabi is also the foundational cornerstone of today’s modern, sophisticated society’s corporate governance principles.

It now has a different label but it essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community.

Just as Hammurabi’s code regulated all the affairs of the inhabitants of ancient Mesopotamia, so modern principles of corporate governance encompass practically every sphere of a company’s affairs, from action plans and internal controls to performance measurement and corporate disclosure.

The JSE is at the forefront of ensuring that companies listed on its exchange implement and enforce effective measures to ensure good corporate governance. The JSE’s listings requirements state, in peremptory terms, that all companies listed on the exchange must comply with the King Code.

The King Code sets out standards of good practice in relation to board practices and effectiveness, remuneration, accountability and relations with shareholders. Listed companies are required to report on how they have applied the main principles of the code, and either confirm that the provision was complied with, or provide an explanation for non-compliance.

In addition to the principles encapsulated in the King Code, the JSE’s listings requirements impose additional obligations on listed companies.

The provisions of the King Code and the JSE’s listings requirements dealing with corporate governance constitute a vital means to ensure the integrity of the JSE’s market and to promote investor confidence in the integrity of financial disclosure and corporate governance of listed companies. These objectives are inextricably linked to the public interest and integrity of the SA financial markets.

The legal principles that underpin the Code of Hammurabi and the modern code of corporate governance are prerequisites for sustained economic growth, and are essential to ensuring a prosperous society. Hopefully our descendants in the year 4000 will cast their minds back in history and agree that our adherence to well-established legal principles and good corporate governance was a cornerstone in the establishment of their prosperous society. 

Louis Cockeran
Legal Counsel: JSE

July 2017
Image: Wilnique Rall