King Report III on Corporate Governance institutionalises Stakeholder Relationship Management
In January 2009, King Report III will appear in South Africa, having been written by a committee of 90 members. One of them is Estelle de Beer from the University of Pretoria. If you are wondering what a PR academic is doing on this Committee, it might just be because Estelle is doing her doctoral thesis on Corporate Governance, Sustainability and Strategy.
To understand the significance of the title of this post, some background on Corporate Governance (summarised from the recently completed master’s degree of one of my students, Lynne Niemann): In May 1991, the Financial Reporting Council (its chairman Sir Adrian Cadbury), the London Stock Exchange and the accountancy profession in the UK set up a Committee on the Financial Aspects of Corporate Governance (a number of concerns regarding the accountancy practices of prominent companies in the UK having led to its establishment). The Committee defined corporate governance as the system by which companies are directed and controlled. Its work thus focused on these functions of a company’s board, as well as the role of its auditors.
The Committee viewed the responsibility of the Board as not only operating the company within the frameworks set by laws and regulations, but needing to take into account its environmental and social impacts as well. In December 1992, the Cadbury report was published in the UK as the first in-depth statement on corporate governance and a model for sound practice worldwide, its main recommendations dealing with the division of responsibilities among top management to ensure that the decision-making power was not delegated to one person alone.
In South Africa in 1994, a Committee headed by Judge Mervyn King issued the King Report on Corporate Governance, which later became known as King I. This report incorporated a code of corporate practice and conduct that went beyond the corporation and its financial matters, taking into account the organisation’s impact on the larger community. Almost a decade later, in 2002, the King Committee released yet another report known as King II, which took the inclusive approach to business even further.
The premise of King II is that there are increasing expectations for organisations to operate as good corporate citizens, due in part to the influence organisations have on the lives of stakeholders such as customers, employees, suppliers and communities, and on the environment. Organisations depend on these stakeholders, individually and collectively, for the goodwill required to sustain their operations and for maintaining their license to operate. “All organisations operate within the broader society and the natural environment. What an organisation can and cannot do in terms of its strategy is not only constrained by legislation, government policies and regulatory requirements but also by what is considered ethical and in accordance with the expectations of stakeholder and societal standards”. As such, organisational strategy development necessitates a sound understanding of social and environmental responsibility, sustainability, stakeholder engagement and the Triple Bottom Line.
Seven characteristics, or principles, of good corporate governance are listed in King II namely discipline, transparency, independence, accountability, responsibility, fairness and social responsibility. King II recommends that every organisation should report at least annually on the nature and extent of its social, transformation, ethical, safety, health and environmental management policies and practices, while stakeholder reporting is also important. Specific consideration should be given to the development of a code of ethics and issues such as HIV/Aids, the environment, social responsibility and human capital development.
The inclusive approach to corporate governance portrayed in King II recognises that stakeholders such as the community in which the organisation operates, its customers, its employees, and its suppliers need to be considered when developing the strategic intent of the organisation. As such, the inclusive approach requires that the purpose of the organisation be defined; the values by which the organisation will carry out its activities be identified; and it be communicated to all stakeholders. In essence, these three factors should be combined in developing strategies to achieve the organisation’s financial and non-financial goals in aiming to be sustainable in the long-run”.
Against this background, I am now quoting a comment made by Estelle de Beer, extracted from Toni’s post on Institutionalisation, re developments in South Africa on Corporate Governance and Stakeholder Management:
“In my experience, senior management now realises that the proper management of the Communication Function can make a strategic difference to the Triple Bottom Line. To illustrate how open senior management in South Africa is to the fact that our discipline can make a difference, the King Report III on Corporate Governance in SA (due to appear in January 2009) will have a separate chapter on Stakeholder Relationship Management (my direct involvement with the writing of the Report has led to senior managers realising that a proactive approach to managing relationships and communication is much better than a reactive one).
Although changing the perceptions of senior management about the strategic role of the Communication Function in the organisation is a slow process, communication managers in South Africa can now go to the C-suite with a document that will back up the validity of their discipline in business in general. After many years the results of the Excellence Study have paid off handsomely in practice, with the shared expectations between senior management and the communication function now being enshrined in the King Report III in a chapter on Stakeholder Relationship Management”.
Any comments on this development in South Africa? Or on the relationship between PR/Communication Management and Corporate Governance? Are you wondering what the heck the two have to do with each other –then please say so. Or if you think they do, then please tell us why or how.