On human rights and corporate citizenry
Professor Mervyn King SC, President of the Centre for Governance, Leadership and Global Responsibility, recently gave a seminar entitled "On human rights and corporate citizenry”. Professor King is one of the world's foremost authorities on corporate governance, reporting and sustainability and the Chairman of the King Committee on Corporate Governance in South Africa, which produced the landmark reports known as King I, II, III, and IV. He is a Senior Counsel and former Judge of the Supreme Court of South Africa, Chairman Emeritus of the Global Reporting Initiative (GRI) and former chair of the United Nations Committee on Governance and Oversight.
He has spent decades advocating for companies to be accountable for their impact on society and the environment. Indeed, Professor King is Chairman of the International Integrated Reporting Council (IIRC), whose vision is to align capital allocation and corporate behaviour to wider goals of financial stability and sustainable development through the cycle of integrated reporting and thinking. The key points of Professor King’s fascinating talk, which really captured the attention of his audience at Leeds Beckett University, are highlighted below.
According to Professor King, “a good corporate citizen develops a business model which takes account of the connectivity and interdependencies between a broad ranges of factors that affect a company’s ability to create value over time”. His address focused on the principle that “a company’s ability to create value for itself depends on its ability to create value for others”.
With the emergence of the knowledge-based economy, the need for a broader information set is clearly demonstrated by the small percentage of organisational market value now explained by physical and financial assets – down to under 20% in 2015 from 83% in 1975, which was highlighted by Professor King.
The focus on financial value was, according to Professor King, was advocated by economist Milton Friedman who stated that “the sole purpose of the company is to make profit, without deception or fraud, according to the design of its owners, the shareholders”. In accordance with the principle agency theory, an agent (the board of directors) must carry out the instruction of his or her principle (the shareholders). In Professor Kings view ‘this means that what Milton Friedman was saying is that the collective mind of boards should be steering their companies down a path of making money at any cost. And it was at a cost. It was a cost to society, and the environment”.
Indeed, according to Professor King, it was ‘society who created this artificial, incapacitated person (the company) and he agrees with the theologians of the middle of the 19th century who said, "Who is mankind to create a person that has no body to be kicked, and a soul to be damned, and has no conscience. Cannot even be charged with treason."
According to Professor King, “the world has to develop sustainable development, and sustainable development requires the recognition that the three dimensions of sustainable development, the economy, society, and the environment, are indivisible and integrated. These dimensions are crucial to organisations becoming ‘good corporate citizens’.
Key observations in this area by Professor King are:
- “If you look at the UK Companies Act section 172, it says - The duty of directors is to ensure the success of the business of the company in the best interest of its members, shareholders. While having regard to the employees, the community in which it operates, the environment and a whole lot of other things-"
- “Well, having regard to, is language different from taking account of. Having regard to, when you have to act in the best interest of the shareholders for the success of the business. That first part trumps the having regard to other stakeholders. Success of a business, well, if you are Milton Friedman adherent, success if going be increasing the bottom line of the share price at any cost. If you're a King adherent, success is going be that you're actually having a positive impact on the three critical dimensions mentioned in the SDGs. Namely, the economy, society, and the environment. You're adding true value to society long-term. That's success to me
“In our resource-constrained world, being a good corporate citizen is critical and we need companies whose business model has as little adverse impact as possible on society and the environment,” he said. “A ‘good corporate citizen’ develops a business model which takes account of the connectivity and interdependencies between a range of factors that affect a company’s ability to create value over time.
“Included is the impact which its business model has on the economy, society, the environment and the rights which are inherent to all human beings.
“International law recognises crimes against humanity but what of the wrongs lawfully committed by companies which impact adversely on individuals in society and society as a whole?
“In order to really apply integrated thinking, the board of directors have to cross what I call the Self River. They have to leave behind self-interest, self-concern. Self-interest inter alia greed, inter alia seizing for yourself, or your spouse, or nephew, whatever it is, some corporate opportunity. Which, actually, is illegal. Self-concern is when you have to take risk for reward. That's part of your duty as a director”.
“The question is have you left the world a better place, or a worse place? What do you think is your moral duty? “
Feedback from participants at this event included ‘fascinating’, ‘stimulating’ and ‘inspiring’.
If you would like to read more about Prof King's views, a good place to start is his book The Chief Value Officer: Accountants Can Save the Planet. His newest book (with Linda de Beer) came out in June, entitled The Auditor: Quo Vadis? You may also be interested in the Leeds Beckett University Integrated Reporting Group, which meets quarterly with an aim to promote the ethos of Integrated Reporting (IR) among our academic and local practitioner community. Please contact Dr Fiona Robertson (email@example.com) if you would like to join or receive more information.