‘Boards can no longer continue to operate, quite lawfully, on trying to maximise profit but having a negative impact on society and the environment.’
Delivering the 2018 Deakin Law Oration, Professor Mervyn King SC – one of the world’s leading authorities on corporate governance – has reiterated the call for companies to focus on the need for good corporate citizenry.
Distinguished for his role in revolutionising international corporate governance, Prof. King delivered his address Human Rights and Good Corporate Citizenry to a 250-strong audience at Federation Square’s Deakin Edge venue on Thursday 22 February.
Hosted by the Deakin Law School, the annual Deakin Law Oration is delivered each year by a leading expert on some of the relevant and important legal issues that are shaping national and international communities.
In his opening remarks as MC, Deakin Law School’s Professor Jean Jacques Du Plessis said it was a privilege to be part of the Oration as Prof. King had served as a role model when Prof. Du Plessis was a young academic at the Rand Afrikaans University (now University of Johannesburg) in South Africa.
‘Professor King inspired many of us to take corporate governance seriously when he brought out the first King Report in South Africa in 1994. His inspiration was such that I developed one of the first corporate governance programs in the world in 1995 and it was without hesitation that Professor King opened the program and thereafter delivered the first lecture of the program from 1996-1999. The postgraduate students taking this course were mesmerised by his wise words and authority in the area of corporate governance,’ he said.
Delivering a warm welcome to Prof. King and his family, Deakin’s Vice-Chancellor Professor Jane den Hollander said the topic of Human Rights and Good Corporate Citizenry had emerged as a significant theme in the last decade.
‘[It is] driven perhaps, by the millennials, uncomfortable with the notion of profit at any cost. Corporate social responsibility may not be the panacea to the world’s problems, but it does move us closer the sort of world we all want to live in. People, the planet and profits matter ... with business models accountable for the bottom line across economic, environmental and social issues.’
Prof. den Hollander added that the social license of universities has also become recent focus of attention in Australia.
‘In an increasingly complex and uncertain world the benefits a university education bestows on society as well as on individuals has come under greater scrutiny, with the government looking for a greater evidence-based approach to public expenditure in higher education.’
For most of his distinguished career, Professor Mervyn King SC has been a tireless campaigner in the global push for companies to become good corporate citizens.
He is a senior counsel and former judge of the Supreme Court of South Africa, President of the International Integrated Reporting Council (IIRC), Chairman of the King Committee on Corporate Governance in South Africa, Chairman Emeritus of the Global Reporting Initiative in Amsterdam, and a member of the Private Sector Advisory Group to the World Bank on Corporate Governance.
Prof. King began his address with an historical overview of companies, boards and stakeholders explaining that the concept of ‘shareholder primacy’ (with its focus on profits) had been the mindset of companies until only a few decades ago.
‘As long as the company was increasing its profits, without deception or fraud, it could do so at any cost to society or the environment. The consequence was that the governance of companies, right towards the end of the 20th century, was focused on increasing the monetary bottom line even if it was at a cost to society and the environment. It will be seen that directors were acting lawfully but causing the company to commit wrongs against society and planet earth,’ he said.
He explained that the shift towards integrated reporting began with the rise of information technology (enabling faster research and communications) and the realisation that natural assets were finite.
‘Ecological overshoot had been reached, namely companies and individuals were using natural assets faster than nature was regenerating them ... landfills had started toxifying underground water systems and planet earth was running out of suitable space for landfills. Further, society was starting to turn its face against companies that were having a negative impact on society or the environment. Wireless and mobile communication started galvanizing civil society against poor corporate citizenry,’ he said.
In the early 2000s, Prof. King was asked to chair the United Nations (UN) on Governance and Oversight and overhaul the governance framework of the various UN agencies.
At the same time, he said the thought leaders in Boston (USA) began drawing guidelines for sustainability reporting which led to the founding of the Global Reporting Initiative (GRI) which he was invited to chair.
‘Companies now started reporting in two silos – the annual financial statement and a sustainability report according to the then GRI Guidelines, now GRI Standards.’
As chairman of the GRI, Prof. King maintained that a sustainability report, without the numbers, was meaningless and went on to argue that continuing to report in two silos was divorced from reality.
‘No company has ever operated on a basis that financial capital was in one building, human capital in another, natural capital in yet another, intellectual capital somewhere else, as with social and manufactured capital. There has always been a symphony of these sources of value creation because of their interconnection and interdependency together with the relationships between the company and its stakeholders, such as its employees, suppliers, lenders of money, service providers, shareholders, etc. These sources of value creation and relationships have always been integrated.’
According to Prof. King, today’s corporate leaders are now re-thinking the role of business in society and he said the companies that will survive and thrive into the 21st century are those which realise that they can no longer use the corporate tools of yesterday.
‘We are in the fourth industrial revolution. We are in the age of immediacy. Tomorrow is another day but it is a day of radical transparency where no company can keep a secret in its corporate closet anymore. Boards have to think on an integrated basis about the long term health of the company. That is when a company will be seen to be a good corporate citizen in a world which is not what it used to be. Boards can no longer continue to operate, quite lawfully, on trying to maximise profit but having a negative impact on society and the environment. That is poor corporate citizenry and committing wrongs against humanity,’ he said.
Prof. King concluded his address by stating there was a moral duty to ensure sustainable development.
‘After all, we are transient caretakers of this planet and have a duty to leave it in a state that will not further prejudice the needs of those who come after us. Replace the negative outrages of society against corporate wrongs with positive corporate outcomes on all three of the dimensions of the economy, society and the environment, then we will have a good corporate citizenry and humanity having its right to clean water, clean air and arable land – in short the right to life.’
During his visit to Deakin University, Professor King was also awarded a Deakin Honorary Doctorate in Laws.
Executive Dean of Deakin’s Faculty of Business and Law Professor Mike Ewing said it was an honour for the University to recognise the outstanding global contribution that Prof. King has made to corporate governance.
‘I am delighted that Deakin is recognising his international achievements in corporate governance, corporate law and accounting and his significant contribution to corporate social responsibility and sustainable long term economic growth globally. The Oration also builds on the work we are doing in integrated reporting within the Deakin Business School.’