Leadership, Sustainability and Corporate Citizenship

Leadership, Sustainability and Corporate Citizenship as Philosophies of Corporate Governance Corporate Governance Summit, Harare 28 September 2009 Prof Mervyn E King SC

Not in a Vacuum
18 th and 19 th Centuries
Mid 20 th Century
Last decades of 20 th Century
More in urban areas
Resources and regeneration
IT and shareowner revolution
21 st Century – land, air and water

The Company
A juristic person
As integral to society as the family
Pool of human and capital resources
Link for stakeholders
The 100 largest economies

The Company Today
New capitalists
Legitimate expectations
Analysts and consultants
After quality of product
Trust and confidence in the company
By its stakeholders

Incapacitated Person
Human being
Good faith, care, skill and diligence
Decent citizen thing to do
Company totally incapacitated
Director as heart, mind and soul of company
Duties of a director

Leadership
Company dependent on it
In turn, leadership dependent
Ethical values
Right tone at the top

Ethical Values
R esponsibility
A ccountability
F airness
T ransparency

Responsibility
Steward of the assets
Responsible for outcomes – best interests
Maintain sustainable, long-term direction
Ethical conduct

Accountability
Accountable to the company
Qualitative governance
Explain departure from Code
Integrated report - ESG

Fairness
Many stakeholders
Maintain their trust and confidence
Take account of, not to
Legitimate interests and expectations

Transparency
Communication
Substance over form – impacts
Enable an informed assessment
Performance and sustainability

Moral Duties of Directors
Intellectual honesty – best interests of company
Inclusive approach in decision-making
Competence – induction and skills
Commitment – capacity and effort
Courage – risk for reward

Corporate Citizenship
A person and a neighbour
Ownership creates responsibilities
Social and moral standing in society
Company operates in a triple context
Economic, social and environmental
Rooted in the principle of ubuntu

Reputation
Intangible asset – brand
Nike and child labour
Social and environmental issues have financial consequences
Maintain the trust and confidence of stakeholders

Unethical
Filching in the short-term
Compromising the needs of tomorrow
If impact on social and environment is not sustainable
On society and future generations

Sustainability
“ Sustainable development”
The Brundtland Report of 1987: “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs”
Compromise long-term prospects
For short-term benefit
Counterproductive

Reality of Sustainability Issues
Key sustainability issues
Growing public attention
Example: Climate change
WEF – converted CEO’s
“ An Inconvenient Truth”

Why Are SI’s Reported and Managed
Competitors are doing it
Strategically managing reputation and brand
Stakeholders want it
Improved risk management
The G3 Guidelines – Number One

Food prices

Our world today and tomorrow Our world Today and tomorrow

Our resources

Should a company know about the materials it is using?

Where Do Birds Nest?

Bank of America, NYC

Sustainability Issues - Economic
Economic impact
Positive and negative
Local community
National community
Global community

Sustainability Issues – Environmental
Company’s impact on :
Ecosystems
Land, air and water
People, planet and profit
Inextricably intertwined

Sustainability Issues - Labour
Labour/management relations
Occupational health and safety
Training and education
Diversity and equal opportunity
Working conditions

Sustainability Issues – Human Rights
Investment and supplier contracts
Non-discrimination
Freedom of association
Child labour
Indigenous rights
Product responsibility
Marketing and communications

Strategy
Gubernare – to steer
Comes from the Greek word “strategos”
Means general
The art of the general
A continuous process when thinking about the future
Strategy involves risky decisions

Ordinary and Extraordinary
Good strategy – enable ordinary people to achieve extraordinary things
Bad strategy – extraordinary people will only achieve ordinary things
Facing in the same direction
Define purpose, values and stakeholders
Define the legitimate expectations of your stakeholders
Short- and long-term

Market Capitalisation
Not equal to book value – assessment
Brand and goodwill
Reputation of management and board
Quality of governance and management
Sustainability of the business
Strategic direction
Non-financial aspects, so-called

Measuring C ompany’s E conomic Value source: SAM market value $ 105,586 mil 30/09/03 13% Book value $ 13,560 mil 30/09/03 20 % ? 67% Brand value $ 70,453 mil (Interbrand)

Stakeholders
Financial information
Backward looking
Forward looking information
First priority – product
Second priority – trust and confidence

Integrated Reporting

How Report Economic Performance?
Financial information alone?
Not sufficient for informed assessments
How has the company positively and negatively affected a community’s economic life through its operations?
How is the company going to enhance the positive aspects and eradicate or ameliorate the negative aspects?

Good Corporate Citizens
Procter and Gamble
Coca Cola
Bank of America
Anglo American

Quotations (1)
UN 2008
WWF 2008
UK Government’s Stern Report 2006
Time Magazine 2008

Quotations (2)
WWF 2008
Fox News 2006
Microsoft 2008
GRI commissioned research 2008

ICGN
Disconnected assets and interplay of financial with other forms of capital
Traditional accounting and reporting emphasise discreet assets, presenting them as additive rather than interdependent. In the modern economy, it is increasingly the interaction among assets, e.g. people, technology, capital, networks, that drives creation. The interplay of various forms of capital – financial capital provided by shareholders and lenders, human capital provided by employees, natural capital (clean air, water, land) provided by the environment and social capital provided by society, community and government – is the foundation for value creation. Conventional accounting provides few insights into these critical interdependencies.

Inseparable
Governance
Strategy
Sustainability
Triple context
I am because you are

A Journey
Every day you may make progress. Every step may be fruitful. Yet there will stretch out before you an ever-lengthening, ever-ascending, ever-improving path. You know you will never get to the end of the journey. But this, so far from discouraging, only adds to the joy and glory of the climb.”
Sir Winston Churchill

Thank You Prof Mervyn E King SC

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Leadership, Sustainability and Corporate Citizenship

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