Responsibility equals sustainability, as the example of Mervyn King reveals

He may lack the public profile of Al Gore or the populist appeal of rock star, Bono. But, when future generations of social analysts look back on the last two decades to identify those who had a significant impact on the way the world went about saving itself, it is likely that the contribution of Mervyn King will be no less significant.

King’s effectiveness in preaching the gospel of corporate governance to the captains of global commerce, industry and government is probably due to his impeccable establishment credentials: advocate, judge, corporate legal counsel, company director and chairman of the board. He is an establishment insider, impressing upon the system that – for its own survival – it needs urgently to change its ways.

Mervyn King SC, ex-attorney and Supreme Court judge, professor and honorary doctor of laws, is best known in this country for his authorship of the three successive “King Reports” on corporate governance in South Africa between 1994 and 2009. All have caused a stir in business circles for their far-reaching recommendations on the way businesses conduct themselves and report in a transparent manner.

He now consults and advises on corporate governance and sustainability in virtually every significant country on earth, as well as to organisations such as the United Nations and World Bank.

In boardrooms, government offices and in the minds of policy-makers from Australia to Zimbabwe, King and his ethos have become significant to the way business should operate and participate in the betterment of the planet.

It is about an inclusive approach to governance, taking into account the legitimate interests and expectations of all stakeholders, including the people of the planet and Mother Nature herself.

The early years

All this was not apparent in the early years, when King was building a successful legal career as an attorney, advocate, senior counsel and eventually Supreme Court judge. The latter role was short-lived, however, and he left in 1980 after a disagreement with then prime minister PW Botha, to become more active in the corporate world.

By the early 1990s, King had built a solid track record of serving as a senior executive, board member and chairperson of some of the country’s top companies.

At the time, the South African business community, aware of impending massive social and political change, was seeking to remodel its system of governance.

King had already established a reputation as a deep thinker and writer on the topic, and was asked to head up a committee to develop new guidelines. Initially, he refused due to pressure of work but, in the wake of a personal request from Nelson Mandela, eventually relented.

He takes up the story: “The Johannesburg Stock Exchange, Institute of Directors and others decided we needed to create our own guidelines, particularly because the majority of our fellow citizens had not been in the mainstream of the economy. So they were going into the marketplace with nothing to guide them.

“We couldn’t just cookie-cut what had been written for developed countries like the United Kingdom or the United States.

“In forming the committee, I decided I would invite persons who were representative of our Rainbow Nation, and we developed what became known around the world as the ‘inclusive’ approach to governance. This is different from the ‘exclusive’ approach common at the time, which was focusing on the interests of the shareholder and forgetting the other stakeholders. In our approach, the shareholder is just one of the stakeholders,” King continues.

“What we said was, in the decision-making process in the boardroom, you need to take account of the legitimate interests, needs and expectations of the various stakeholder groupings linked to the company. These include the community in which the company operates, the employees, shareholders, providers of capital, lenders, suppliers, customers, regulators and SARS [South African Revenue Service].

“In the decision-making process, businesses should take account of all these legitimate interests and expectations – but always with the guiding principle being that it must be in the best interests of the company and the total maximisation of its economic value,” he says.

The King I Report seemed to spread like wildfire around the world. The concept that a business should take account of the interests of all stakeholders was starting to find traction on a global scale.

King recounts that, only a year after King I was released in 1994, a book was published in Japan that was based on its findings and recommendations. He was later given a copy of the book and told that he was “better known in Japan than in South Africa”.

“Today, every company in the world adopts this inclusive approach to governance,” says King. “So, from out of Africa came something really new.

“I read recently that the United Nations ranks South Africa as the number one in governance in the world today. It’s a fantastic achievement.”

Sustainability to the fore

By the time of the 2002 Earth Summit in Johannesburg, King was convinced an environmental crisis was looming and that corporations had a critical role to play in making the planet sustainable.

“Toward the end of the 20th century, I became aware that the world was changing dramatically,” he recalls. “There were more people living in urban areas than rural areas for the first time in the history of mankind.

“I was also aware that the biggest impact on the planet, adversely and positively, is the corporation. Some of the great multinational companies today have gross revenues greater than the GDP [gross domestic product] of the entire SADC [Southern African Development Community] region. The decisions the directors of those companies make, can have a huge impact on, say, 100 different societies and environments.”

King laments that the world had adopted a “take, make and waste economy” and drove its companies on two false assumptions: that the earth had limitless resources, when in fact the natural capital of the planet is finite; and that we could take waste and put it into landfills without consequence.

“What? Did we think it would disappear? We forgot our lessons at school that matter doesn’t disappear, it just translates into another form,” he says animatedly. “Of course, it degraded and toxified our lands, our fresh water and our underground water.

“Then we have landfills in the oceans, too. One of the biggest is in the Pacific – the size of Texas. Just think about it… it’s horrific.”

At the time, King and his committee of top business leaders and academics were already working on a King II Report that would supersede King I, so it was decided to include a separate chapter on sustainability.

But, while a sustainability report became a requirement for companies listing on the JSE, it proved to be less than ideal.

“We made a mistake,” he admits. “Because it was a separate chapter, companies started reporting on sustainability in a silo, rather than integrating it. They’d say to a middle manager: ‘Look, we have to comply, so write something about sustainability issues relevant to our business.’ I call that greenwashing because it’s not the board applying its mind to the issue.”

As an example of a board successfully resolving a critical environmental and business concern, King cites the example of Coca-Cola which, nine years ago, realised the growing worldwide scarcity of water could ultimately derail its entire water-intensive bottling process. A “replenish, reuse and recycle” strategy is now in place, which will eventually see no water wastage at any of Coke’s plants worldwide.

“Was that to show what a good corporate citizen Coca-Cola is to its customers?

“Absolutely... because they want to protect the brand,” King says. “But it was also to show Warren Buffet and the trustees of pension funds, which are becoming the greatest shareholders in the world, that the board has applied its mind and developed a long-term strategic plan to make the business sustainable in this new economy, in which the planet is in crisis.”

Determined to make sustainability more than a mere side issue of corporate governance, the King III Report – which debuted in September 2009 and became effective from 1 March 2010 – made it a cornerstone of the revised Code of Practice.

“Governance, strategy and sustainability are inseparable,” King says. “Companies have to integrate them into the very fabric of their business.”

Effective communication

King is enthusiastic about the role that strategic communication must play in modern corporate governance. King III included a chapter on it, and he was recently honoured with the Excellence in Communication Leadership Award by the International Association of Business Communicators. The award honours non-members of the organisation who are ‘captains of industry’ and advance the cause of communication and active engagement.

“Interactive strategic communication is critical in modern governance,” explains King. “Many companies operated in the past as though they were isolated. But they are not; a company is like a person and deals with various stakeholder groupings.

“Some organisation now appointed corporate stakeholder relationship officers specifically to deal with outside stakeholders and identify their needs, interest and expectations. The board then gets fed this relationship report at each board meeting and can re-strategise and redirect the company, improve management, and you improve the way the company is strategically directed.

“For example, I believe if BP had had a strategic interactive communication, things would have been different for it,” he adds.

By the time you read this, Mervyn King, the self-confessed ‘driven’ man, could be anywhere in the world, delivering his messages of good corporate governance, sustainability, transparency and open communication.

In his own way, he is probably as much an activist for critical change as the likes of Greenpeace boss, Kumi Naidoo. Who, coincidentally, is also South African.

Mike Simpson