King II applies to all companies listed on the JSE Securities Exchange South Africa, banks and financial insurance entities as well as public sector enterprises, and has been adopted as part of the listing requirements of the JSE.

The latter is also true of King III. So while in principle it relies on self-regulation rather than legislation (that can be enforced in court) and also there is no body that is mandated to enforce King III nor is there any sanction for non-compliance, there are however instances in which public interest companies and parastatals are obliged to comply. In terms of the JSE Listing Requirements, a listed company is contractually bound to adopt King III and any failure to do so would amount to a breach of the Listing Requirements. This is a round-about enforcement mechanism for listed companies since they will have no option but to follow King III or they will be in trouble with the JSE.

Please also see Estelle de Beer’s remark re compliance to laws, codes, rules and standards in my post titled Difference between King III and King II Reports on Governance.

Furthermore, the Introduction and Background to the King III Report (available on the Website of the Institute of Directors explains in more detail the “apply or explain” approach. Organisations are thus encouraged to go beyond mere compliance to acting as a good corporate citizen.

While King I incorporated a code of corporate practices and conduct that looked beyond the company itself (taking into account its impact on the larger community), King II (2002) took this inclusive approach considerably further by referring to the increasing expectations for organizations to operate as good corporate citizens. The failure of organisations such as LeisureNet, Regal Treasury Private Bank, Saambou and Unifer in South Africa highlighted the growing opinion that the proper governance of companies will become as crucial to economies as the proper governing of countries.

It is important to note that the principles laid out in the King II Report are recommendations that should not be legislated for, but instead need to be established and entrenched as accepted practice within society in order to cultivate a spirit of integrity for compliance with good corporate governance.

Also emphasized in King II was disclosure, e.g. significant events that could be negative or positive, and that could affect the price of the shares and how stakeholders–suppliers, for example–deal with the company, should be disclosed.

King II also recognized the importance of internal auditors in qualitative governance. Judge Merwyn King himself said that board members couldn’t know everything about the company and had to ensure that they did not rely only on the information fed to them by company executives, but had to test the quality of that information from other sources such as internal auditors. He suggested that the internal auditor have a functional reporting line to the chairman of the audit committee and the chairman of the board. The internal auditor may report to the chief executive officer, but there must be an open-door policy to the chairmen of the audit committee and board.

In my opinion (since this is a blog on public relations), it is the role of senior public relations practitioners to play the role of ‘internal auditor’ and ‘objective outsider’ by keeping both top management and the board informed on issues of strategic importance by supplying strategic intelligence (information that is interpreted with regard to the specific organisation) both on the internal and external environment.

Re the issue of the enforcement of corporate governance guidelines, King II places the primary responsibility for conformance with governance standards on the board and individual directors of the particular company’s board, by means of a kind of ‘peer-pressure’ system instead of placing the onus of enforcement on governmental authorities. King II highlights the role of internal and external stakeholders – individuals or organisations that have a direct link to the company, such as shareowners, employees, suppliers, auditors and financiers – in monitoring the company’s compliance with principles of good governance. The role of regulators (in South Africa, for instance, the JSE Securities Exchange, the Financial Services Board, and the Registrar of Banks) is to ensure that the necessary framework of legislation is in place and applied systematically, ensure enforcement of the legislation under their control, rather than to police individual companies’ boardroom activities.

In order to better understand how King II was approached, it is useful to note the changes from King II to King III.

Since I have focused on the aspects of interest to a blog on public relations, you can look at the following sources (referred to above) to get a more comprehensive view: ‘Principles, not rules’ as well as ‘King II: the buck stops with business leaders’.

please help me

http://www.mymobiflo.com/wordpress/?p=202

The Centre for Corporate Governance (in close cooperation with the field of Communication Management) is an exciting development, that I watch with interest.

Something that might be interesting (if you have the inclination), is to share with us some views on current political communication in SA. (I know it used to be one of your specialties at UNISA).

I have decided to become more active in these PRConversations. Time has been a very scarce commodity for me the past few years, but our discipline and practice is becoming more important in the current global environment. We have succeeded with Estelle de Beer’s PhD-topic in corporate governance and stakeholder engagement (as academics) to form closer relationships with the corporate environment in SA as well as globally. But we are also in the process of working towards the first phases of establishing a Centre for Corporate Governance at the University of Pretoria. We have the backing of the UP Executive and the buy-in of Judge Mervyn King, the Institute of Directors as well as numerous others captains of industry. The University of Pretoria aims to make the said centre a Centre of Excellence where interdisciplinary academic programmes, training courses, business research, environmental scanning, scenario planning for future trends, et cetera will be presented and managed. The intention is to launch this centre together with the completion of the King III Report.

With regards to the institutionalisation of public relations, the following might be applicable in the developing world in the years: the resurgence of the power of political communication, diplomacy and persuasion; a scrutiny of the professionalisation of public relations; a regionalisation of public relations education, and a globalisation of public relations accreditation.

King II defined corporate governance as “…the building of a balance between economic and social goals and between individuals and communal goals, with the aim being to align as closely as possible the interest of individuals, organisations and society”. This definition is not shared by all. Those with a narrow view of corporate governance see it as the formal system of accountability of the board of directors to shareholders (i.e. more financially oriented). Others take a broader view, seeing corporate governance as the informal and formal relationships between the organisation and its stakeholders; and the impact of the organisation on society in general (more non-financially oriented). Ultimately, good corporate governance is aimed at helping business rebuild their legitimacy and is a way to foster social cohesion between business and society.

Now, if one’s managerial worldview for PR propels you in seeing PR as ”a communication function of management through which organisations adapt to, alter, or maintain their environment for the purpose of achieving organisational goals” (Long & Hazelton, 1987) and also see the strategic contribution of PR mainly being focused on the social and environmental components of the Triple Bottom Line, then PR is much concerned with “assisting organisations to both formulate and achieve socially acceptable goals, thus achieving a balance between commercial imperatives and socially responsible behaviour” (Kitchen, 1997). Now ain’t this awfully close to King II’s definition of corporate governance?

With regards to Kristen’s question whether stakeholder relations have not always been important. Yes and no. The definition of ‘always’ depends on how old you are! Like Toni, I believe in learning from the historical context to understand the present before one can hope to change things in the future. Therefore, I am going to disclose (without Toni’s permission) that he and I were already out of nappies and listening to Elvis in the early sixties when the economist Friedman won the Nobel Prize.

What is the relevance of this? Friedman was the one who coined the phrase that ‘the business of business is business.’ This portrayed the institutionalised ‘shareholder approach’ to the role of business in society (prevalent for many decades to come), namely that social issues or politics are not the concerns of business people, that the social responsibility/ ethical duty of business is to maximise its profits (bound only by legal restrictions), and that shareholders are the only important stakeholders (a view that still clings to the wallpaper in many boardrooms even today, especially if the board members are ‘bean counters’ i.e. financially trained — at least in South Africa, if not more widespread).

A few souls started to see the light in the late 60s/early 70s, culminating in the ‘social responsibility approach’ to business in society, in which business was seen to be an actor in the environment that should respond to social pressures and demands, and stakeholders were increasingly thought of in terms of morality, ethics and social responsibility.

By the early 1980s there was a shift from the idea that organisations ‘should’ be socially responsible to ‘how’ they should respond to business-related social issues (the ‘corporate social responsiveness approach’ to business in society). The trend throughout the 1980s and into the 1990s to make the concerns for social and ethical issues more pragmatic led to ‘corporate social performance (CSP).’

But it was Freeman, in 1984, who placed the spotlight on the importance of stakeholders to business. (Therefore, in my view, ‘always’ started now. This would explain Kristen’s view, since she and Freeman probably saw the light of day at around the same time!!) According to Freeman, managers had to undergo a major conceptual shift in how they saw the organisation and its multilateral relationships with stakeholder groups — perceiving stakeholders not only as those individuals/groups that MANAGEMENT thinks have some stake in the firm but also those that THEMSELVES think they have a stake in the firm. (I think this is the foundation of modern day stakeholder relationship and issues management on which much of PR rests, and provides the justification for its very existence).

Freeman also pointed out that shareholders have an ‘equity’ stake (and thus formal voting power); customers, employees and suppliers an ‘economic’ stake (and thus economic power); and single issue groups (and government) an ‘influencer’ stake (and thus political power). So Kristen, investor relations is increasingly taking care of stakeholders with an equity stake, and marketing of those with an economic stake. In my country employee communication has ‘always’ been managed by PR so I think we have a clear internal ’stake’. I therefore want to agree with you that our uncontestable (external) stake lies with non-commercial stakeholders. (As practical advice, I always say to my students that there is a myriad of stakeholders out there. If you have a competent investor relations and marketing division who don’t want your assistance, leave shareholders and customers alone and focus on all those souls who do want attention. But always let marketing and investor relations know that you can assist with the drop of a hat).

The stakeholder approach was followed by the ‘issues management approach’ that also started in the 80s – the analysis of societal issues and trends considered important because the values and beliefs of key stakeholders are derived from broader societal influences, which can create opportunities or threats to organisations’ revenue growth and profit prospects. (This is an acknowledgement of the growing importance of those stakeholders with an ‘influencer’ stake).

The ‘corporate community approach’ to the role of business in society became prevalent (in the Knowledge economy) during the 1990’s and onwards, with the organisation being viewed as a socio-economic system and stakeholders are recognised as partners who create value through collaborative problem solving — creating wealth by integrating stakeholders into a productive whole (a so-called ‘corporate community’). I think many of us see PR’s ‘economic’ (rather than financial) contribution to the Triple Bottom Line here, but since we cannot prove it (yet), I don’t want to dwell on it now.

To lift out important points from the epistle above:

• The approach of individual Board members with regards to the role of business in society could be any of the above. But in the Boardroom they have to reach some kind of consensus. A separate chapter on stakeholder management in King III finally and formally acknowledges the death of the shareholder approach and the growing influence of society on organisational decision making, i.e. of those stakeholders with an influencer stake and ‘political’ power (whose management/ governance is up for grabs).

• The Board ‘manages management’ (to coin Toni’s def of corporate governance). Because of society’s insistence on good corporate governance, I think the Board’s influence is currently growing rather than receding. They give direction with regards to organisational priorities. So if they acknowledge the growing importance of ALL stakeholders in a direction setting document such as the King Report (which in SA is followed kind of slavishly and even has influence outside our borders), the inclusive approach to stakeholders is in the process of being ‘institutionalised’.

• However, there is a difference in acknowledging stakeholder importance and following a two-way communication approach with stakeholders (synonymous to many of us in PR). But boards are lagging in this respect—they are much into stakeholder ‘reporting’, which is one-way communication. And it is here that the ‘window of opportunity’ lies for PR. Boards are groping in the dark as to how exactly stakeholders are to be governed (managed). The PR domain has a long history of stakeholder/ communication management and can provide many of the answers. But it has to be offered. PR is not going to be asked for it. (It is here that the role of the PR ‘strategist’ comes into play).

Please note that my views are strongly influenced by the situation in South Africa. Maybe in some of your countries two-way communication with stakeholders is institutionalised at Board level and they openly acknowledge the contribution that PR can make. In my country it is not so. Here they have (finally) formally acknowledged stakeholder relationship management—that is the good news. But as Estelle says, they don’t relate it to PR—that is the bad news!

However, this does not seem to be the case only in South Africa. If you go and listen to the pre-conference interviews on the Euprera website, Prof Invernizzi says that PR does not feature in the titles of senior communication executives in Italy. Prof Graeme Sterne says that in his latest study in New Zealand, 53% of PR managers/executives report to top management, but PR does not feature in the title of a single one of them. So it is not academia that is ‘hiving off’ PR. It is practice itself. And the reason—Boards probably do not relate PR to stakeholder management. And if we don’t do something about this by acquiring knowledge of strategic PR/communication management and offering it where it is now desperately needed, there will be no future for PR—at least not the way I see its potential (but probably for those who are happy providing technical support to other functions).