King V: A Critical Blueprint for Boards Facing Corporate Distress

While earlier iterations of the King Code were often viewed through the lens of compliance, King V can be considered a manual for high-stakes decision-making. These decision makers are the “governing body” of an organisation, defined in King V as: “[T]he organisational structure that has primary authority and accountability for the governance and performance of the organisation. Depending on context, it includes, among others, the board of directors of a company, the board of a retirement fund, the accounting authority of a state-owned entity and a municipal council.” Furthermore, “members of the governing body” (also referred to as “those charged with governance duties”) “include for purposes of King V those who are duly appointed to serve on the governing body and/or its committees”. Notwithstanding the examples provided, this definition of “governing body” is broad enough to include anyone seized with the governance and performance of the organisation, i.e. anyone who has full management control of the business, including, as a further example, business rescue practitioners in the context of financially distressed companies during their business rescue proceedings. In the case of a company, King V is also instructive as to the standard of care, skill and diligence that would be expected of that company’s board of directors as envisaged in section 76(3) of the Companies Act 71 of 2008 (Companies Act), or its business rescue practitioners as envisaged in section 140(3)(b) of the Companies Act. Ethical leadership as a risk mitigation strategy King V consolidates the principles of ethical and effective leadership, integrating the South African philosophy of Ubuntu. For a company in distress, this is not a mere sentiment – it is a shift from shareholder primacy to stakeholder inclusivity. In times of crises, regrettably, those stakeholders are often confined to only the loudest or the largest creditors. King V, however, suggests that to maintain long-term viability, decisions must account for the broader ecosystem, including employees and even small-scale suppliers. Where the organisation concerned is a company, this accords with section 7(k) of the Companies Act, which states that one of the purposes of the Companies Act is to provide for the efficient rescue and recovery of financially distressed companies in a manner that balances the rights and interests of all relevant stakeholders. Streamlined governance: From 17 Principles to 13 Clarity and efficiency are the currency of a successful turnaround. King V has simplified the governance framework by reducing the core principles from 17 to 13. This consolidation emphasises that governance outcomes – ethical culture, performance, conformance (effective control) and legitimacy – are the ultimate metrics of success. By focusing on ethics in Principle 1 (dealing with ethical and effective leadership) and Principle 2 (dealing with governance of ethics), King V clarifies that a company’s governing body is the primary custodian of the company’s integrity. In a distress scenario, this clarity prevents the diffusion of responsibility that can lead to further corporate decline. To the extent that the relevant organisation is a company and the governing body is the company’s board of directors, this aligns perfectly with the principles set out in section 66 of the Companies Act regarding the management of the business and affairs of a company by its board, and, where the governing body is a business rescue practitioner, with the principles set out in section 140(1)(a) of the Companies Act. This section empowers a business rescue practitioner with full management control of a company in substitution for its board and pre-existing management during business rescue proceedings. A new Disclosure Framework: Transparency as a Shield One of the most significant shifts is the introduction of a standardised King V Disclosure Framework. Distressed organisations often default to vague, boilerplate disclosures to avoid signalling weakness. King V now requires specific, qualitative narratives. Although it may seem revealing, explicitly articulating how the governing body is meeting governance objectives under financial limitations enables leadership to document their good faith efforts to preserve the organisation in real time. The King V Disclosure Framework should be a living document rather than a year-end hurdle, which could serve as a shield for management and the governing body. Providing an ‘outside-in’ perspective King V introduces more rigorous standards for board independence to ensure that management is being effectively challenged. For example, King V includes the following factors, amongst several others, when categorising its non-executive members as independent or not: The nine-year rule: Tenure is now an explicit factor in independence assessments, rather than a mere suggestion. Cooling-off periods: Stricter rules apply to former executives transitioning into non-executive roles, and King V recommends a three-year cooling-off period during which there is no significant involvement in the organisation in any capacity. For a management team, a refreshed and independent board provides the ‘outside-in’ perspective necessary to identify approaching financial decline before it becomes an irreversible legal liability. Technology and AI: The New Frontier of Governance In the modern era, corporate distress is frequently tied to technological obsolescence or data mismanagement. It is unsurprising, therefore, that King V focuses on the principles of data, information and technology governance and risk and compliance. Boards are now expected to treat technology not as an operational ‘IT issue’, but as a strategic asset. For companies undergoing restructuring, the ethical use of artificial intelligence and the protection of data assets are often the key drivers of the entity’s ultimate valuation. King V sets a benchmark for what constitutes reasonable care and skill in managing these digital assets and associated risks. Emphasis on proportional application Perhaps the most practical addition is the explicit integration of proportional application. The practices recommended in King V are regarded as leading practices and should be tailored by organisations according to their particular circumstances, such as the size of their operations and the nature of their business, and that would also include any operational and financial constraints. A key requirement for proportional application of King V is that, ultimately, the objectives described within each principle are achieved. Where an organisation is in distress, it ensures that the governing body can focus on critical turnaround actions without being paralysed by a one-size-fits-all compliance burden. The bottom line is that by shifting the focus to impact-driven leadership, King V provides the tools to build a resilient, sustainable organisation. Following these principles is no longer just about being a good corporate citizen; it is about ensuring that decisions stand up to the scrutiny of the market, the regulators and the law.