South Africa’s corporate governance guru Mervyn King has called for greater stakeholder engagement as a means to steer companies closer to the goal of sustainable capitalism that benefits all communities.
King statement may resonate with other calls for South African business to align itself with the needs of communities surrounding their operations. This is critical coming at a time when observers are saying the mining industry has not done enough to benefit mining localities festering scenes like the unfolding Marikana crisis.
King was speaking at the recent anniversary celebrations, hosted by the Institute of Directors in Southern Africa (IoDSA).
King said that while the three King Codes have done much to shape company laws and set benchmarks for best practice around the world since 1992, it is now up to market forces to push business the rest of the way.
“Some companies have set an excellent example for how to do good business, whilst doing good in the communities in which they operate. At the same time, implementation of the principles that King III espouses still lags rather significantly in many quarters,” said King.However, he maintains, attempting to legislate governance would be counterproductive.
“We believe the best way to move companies away from a tick-box approach to governance and encourage them to embrace principles of sustainability would be for market forces to steer them in that direction,” he said, referring to Walmart’s operations in China where the world’s largest retailer refuses to do business with suppliers that do not meet its strict criteria.
He said this would require stakeholders, not just shareholders, to make themselves heard – and for business leaders to listen to the needs of the people whose lives they influence.
According to IoDSA president and long-time King Committee member, Dr Reuel Khoza, it is the reluctance by certain business leaders in South Africa to do exactly this that has certain industrial sectors sitting on a time bomb, especially when it comes to workers’ interests.
“Good governance, which we as the IoDSA have for many years worked tirelessly to further the cause of, can today be seen as a human rights issue,” he said.
“The Code can’t safeguard South Africa against problems, but a reluctance to get one’s hands dirty when it comes to stakeholder engagement, particularly in a country where the majority of people live by the principles espoused by the ubuntu philosophy, will invariably have major repercussions. After all, leaders should lift others as they rise…or rise no more.”
One such area, where failure to engage all stakeholders could result in labour unrest – as recent events have demonstrated – is the question of executive remuneration.
“What is desperately required in many cases is greater investor activism, to bring pressure to bear where corporations fail to achieve a balance between short term incentives and long-term responsible leadership.”
“Unless you make a special effort in bad times to help those who’ve been retrenched, your business will gain less traction with communities during good times,” he added. “It’s not just about riding tides, but doing something practical to alleviate suffering.”
Khoza said the central pillar of the African humanist worldview captured in the concept of ubuntu is to spread benefits to stakeholders not just shareholders. “But, what we are increasingly seeing is decisions being made where those in charge stand to lose far less than those who’re most at risk – employees and their families – who invariably have the least say.”
“In the spirit of ubuntu, we do not seek to overthrow corporate structures, but we do need consensus about what is fair and right and to see attuned leadership in action,” Khoza said.
Furthermore, “Mandating change is not the answer,” added King. Essentially, rules and regulations won’t stop the kind of self-serving greed that harms people and the environment, but when people unite to stand up for what is right, this can be most effective.
“Just as there exists interconnectivity in the functions and relationships of a company, both internally and externally, that renders silo thinking useless, we’d like to see these relationships resulting in positive outcomes where, for example, banks insist on integrated reports.”
“The IoDSA believes that for governance to succeed in an era of stakeholder capitalism, each company must become more responsive to all who own it, buy or benefit from it; it’s that simple.”
“What the King Codes aspire to is to create an environment in which market forces will dictate how companies are directed and managed, while creating value for all stakeholders – and without harming the environment and society,” said King. “After all, the true purpose of the organisation lies outside itself: to build a better society in which it too can do better.”