King IV Practice Note: Declaration of interests

Practice 25 and 26 of the King IV Code Part 5 (“King IV Code”) makes recommendations concerning declarations of interests by a member of the governing body. The aim of this Practice Note is to provide clarity on the intentions behind Practice 25 and 26.

As fiduciaries, members of governing bodies have a common law duty to avoid any conflict of interest and to act in the best interest of the entity at all times. This is in addition to the statutory duties of members of governing bodies relevant to specific entities such as companies and state-owned entities. Conflicts of interest may arise where an individual’s personal or family interests and/or loyalties conflict with those of the entity. As a general rule, no conflict between the personal interests of members of a governing body and the interests of the entity which they serve should be allowed. Where a potential conflict of interest cannot be avoided, same has to be managed in such a manner as to ensure that the interests of the entity are at all times protected. It is for this reason that the law in certain instances as well as best practice recommendations call for disclosure of interest in any matter on the agenda of the governing body or any of its committees. However, considering that a matter may not necessarily find its way onto the agenda of the governing body and/or its committees, it is recommended that each member of a governing body submits a general declaration of interests that could assist the entity in identifying potential conflicts between its interests and that of the members of its governing body or parties related to such members. King IV supports this practice in the interest of good governance, transparency and accountability and it is for this reason that recommended practice 25 has been included in the King IV Code. It is worthwhile to also note that correctly managing a conflict of interest could be of value and assistance to a member of the governing body wishing to rely on the business judgement rule as part of his defence in the event of legal action being taken against him in his capacity as a member of the governing body.

 

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