L to R: Professor Jean du Plessis, Professor (Corporate Law) and Director, Centre for Comparative Corporate Governance, Deakin Law School; Alfred Deakin Professor Mike Ewing, Executive Dean & Vice-Precident, Faculty of Business and Law, Deakin University; Professor Mervyn King, SC, Chair of the South African Corporate Governance King Committee; Professor Jane den Hollander AO, Vice-Chancellor and President, Deakin University.
One of the world’s leading experts in corporate governance and reporting has called for organisations to take a new approach in the way they plan, manage and communicate their business operations.
At a recent Deakin Law School (DLS) event, Professor Mervyn King – former Judge of the Supreme Court of South Africa and now President of the International Integrated Reporting Council and Chairman of the King Committee on Corporate Governance in South Africa – addressed the need for organisations to focus beyond purely profits and work toward sustained value creation.
Speaking at a breakfast seminar for the DLS’ Centre for Comparative Corporate Governance, Prof. King explained that a new approach would enable company boards to understand the needs, interests and expectations of all stakeholders.
‘Until the end of the 20th century companies focused only the value of financial capital … but to operate successfully, organisations depend on a variety of resources and relationships – including social, human and intellectual capital,’ he said.
A member of the Private Sector Advisory Group to the World Bank on Corporate Governance, Prof. King has also chaired the United Nations Committee on Governance and Oversight he was president of the Advertising Standards Authority for 15 years.
Prof. King’s breakfast presentation at Deakin’s corporate centre in Melbourne’s CBD was based on his most recent book The Chief Value Officer: Accountants Can Save the Planet which challenges some of the issues that prevent organisations from creating sustainable value.
‘The financial manager of today doesn’t deal only with the preparation of a draft EFS for consideration by an audit committee. He or she looks along the whole spectrum of value creation in the organisation. So the title Chief Financial Officer is becoming somewhat of a misnomer and really should be called a Chief Value Officer that reflects current thinking about integrated reporting,’ he explained.
With historical perspective, Prof. King spoke about the ‘intangible assets’ that, at the end of the 20th century, began to drive the need for integrated reporting.
‘We had reached ecological overshoot – which meant we were using assets faster than nature was creating them – and with a continuing population explosions investors and other shareholders began asking about the long-term strategy in the business of the company such as, is business going to create value in the resource-deprived world in which it is now operating?’
With the reputation of organisations becoming a priority, he explained that a growing range of issues added to the demands for enhanced business reporting. These include legitimate supply chains, human rights, stakeholder relationships, the global financial crisis and climate change concerns.
‘By 2002, we’d reached the stage that financial reporting, although critical, was not enough. No company works in silos with financial capital in one building and human capital in another – stakeholder relations are 24/7. So if that’s how companies are operating, then shouldn’t we be reporting on that basis?’ he questioned.
Other drivers for change, he added, have included the continued call for responsible investment alongside the explosion in digital communications.
‘Organisations began to realise that they could not carry on with business as usual and they would have to learn to make more with less. They had to move from concern about profits to a concern about the company’s health.’
Prof. King said that no company is an island that operates in a shareholder bubble but rather, in a community within a society that it’s dependent upon.
‘Integrated thinking focuses on understanding, knowing and then planning how the company makes it money and how it will sustain value creation in the long term.’
In 21st century world of business he said there have been three major shifts to transform the role and responsibilities of chief financial officers – an evolution that perhaps now requires the title of chief value officer.
‘We’ve moved from silo reporting to integrated report, from a financial capital market system to an inclusive market system and from short-term capital markets to sustainable capital markets.’
With company strategy no longer ending simply at output, he said companies need sustainability issues and outcomes embedded in their strategies and boards need robust and informed oversight. No longer does a company’s financial manager simply look at the numbers.
‘The corporate toolbox has changed completely … we’re also now bombarded by a mass of information and it’s important to make sure that knowledge isn’t lost in that information.’
Declaring that the time has now come for integrated reporting, Prof. King concluded his presentation with a quote from his friend and former President of South Africa, the late Nelson Mandela:
‘Action without vision is only passing time, vision without action is merely day dreaming, but vision with action can change the world.’
Prof. King has been chairman, director and chief executive of several companies listed on the London, Luxembourg and Johannesburg Stock Exchanges. He has consulted, advised and spoken on legal, business, advertising, sustainability and corporate governance issues in over 60 countries and has received numerous awards from international bodies around the world.
He is also the author of four books on governance, sustainability and reporting, sits as an arbitrator and mediator internationally and has recently received the ICGN Award for promoting quality corporate governance globally.