The world’s population has grown at an unprecedented rate since 1950 – from 2.5 to the current 7.7 billion people. A considerable number of the world’s population now live in urban areas and this is causing a huge strain on infrastructure. As a result of the growing population, water and electricity usage have increased significantly. In his talk on good governance and managing reputations, delivered at The Trialogue Business in Society Conference 2019, Prof Suresh Kana of the Institute of Directors in Southern Africa described these conditions as a “massive ecological overshoot”. Moreover, Kana emphasised that “globally, the gulf between the richest and the poor is growing wider and wider – society has never been as unequal as it is today”.
The corporate pillaging of scarce resources and annual revenues that dwarf the economies of some countries mean that corporate decisions have an excessive bearing on society and the planet. These changing social and economic dynamics increasingly underscore the need for sound corporate governance.
“A fish rots from the head” – Ethical business leadership
Corporate governance contraventions such as the recent KPMG scandal, the revelations of the Zondo Commission, the VBS saga and Steinhoff have had dire effects. Steinhoff singlehandedly wiped over R300 billion from public funds. KPMG lost numerous clients because of their unethical conduct. Due to the incidents, companies have become increasingly vigilant of the impact that these scandals can have on their reputations.
Prof Kana believes that “a fish rots from the head” – this suggests that executive leadership should be held accountable for corporate collapses and successes alike. “The King Committee’s primary objective is to make corporate governance more accessible, relevant and applicable to a wider range of stakeholders through our provision for proportionality in the King Report,” said Kana. Boards of directors and executive management should implement good corporate governance to maintain the trust in and reputations of their businesses.
Good corporate governance is based on:
- Rule of law
- Consensus oriented
- Effectiveness and efficiency
Sound financial, sustainability and integrated reporting bodes well for stock exchange
Effective implementation of corporate governance influences the quality and the efficiency of companies. Most importantly, it assists the companies in preserving their reputation. King IV applies an “apply and explain” approach to move away from a tick-box approach. The 75 King III principles have been consolidated into 17 principles, each aimed at achieving one or more very distinct governance outcomes.
King IV has certain features which bode well for corporate social investment. The 17th principle is specifically aimed at ensuring that institutional investors invest responsibly. Prof Kana states that “investors are also putting pressure on companies that they invest in to consider their environmental, social and governance issues”. King IV directly addresses fair and responsible remuneration because the “gap between the highest and lowest paid employees is an area for scrutiny”. It also recommends that companies should establish social and ethics committees as prescribed board committees. King IV places emphasis on stakeholder centricity by stating that the board should consider the legitimate and reasonable needs, interests and expectations of stakeholders. It drives stakeholder activism by stating that “active stakeholders are required to hold the board and the company accountable for their actions and disclosures”.
King III advocated for triple bottom-line reporting – a concept which aimed to consider profit, planet and people when reporting on performance. The release of the Integrated Reporting Framework by the International Integrated Reporting Council in 2013, which introduced the six capitals, has taken the forefront. Although there is no formal requirement to apply the Integrated Reporting Framework, the concepts and principles such as integrated thinking are ingrained into King IV. King IV also has sector specific supplements which go beyond companies and aim to be scalable to government and non-government organisations. According to Kana, “research shows that companies that have good financial reporting, sustainability reporting and an integrated report trade at a premium on the stock exchange”.
IMAGE:Prof Suresh Kana (Institute of Directors in Southern Africa) on good governance
Article written by Claude Kamangirira
Photo taken by Cobus Oosthuizen