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Ethical and effective leadership in a time of crisis – Prof Mervyn King

BY: Advocate Annamarie Van Der Merwe, Chairperson of FluidRock Governance Group (Pty) Ltd.|8 April 2020
BLOG| Business leadership and strategy, Effective Directorship, Strengths

Key lessons from the webinar hosted on Friday, 3 April 2020 by the FluidRock Governance Group and Stellenbosch Graduate Institute

Prof Mervyn King from the Wits Business School, internationally acclaimed corporate governance doyen and better known in South Africa for his chairmanship of the King Committee responsible for a number of King Reports on Corporate Governance for South Africa, addressed more than 100 webinar participants on the topic of being an ethical and effective leader in a time of crisis.  The key takeaways from his address can be summarised as follows:

  • Even before the corona virus hit our shores, South Africa was already facing a serious economic crisis.
  • With both the economic and virus-related crises facing organisations in South Africa today, these businesses are like islands caught in the sea of ‘coronanomics’ –a phrase coined by Prof King, saying that organisations in South Africa are like islands in a sea of ‘coronanomics’.
  • Organisations have to rely on the conscience of its corporate leaders – it is about the tone at the top, the tune in the middle and the beat of the feet at the bottom.
  • As a result of the seemingly mindless compliance and tick box approach taken towards good governance and responsible corporate citizenship in the past, the King Committee proposed in the King IV Report™ that corporate leadership should strive to achieve the outcomes of value creation in a sustainable manner, leadership being in effective control while at the same time ensuring trust and legitimacy with stakeholders and embedding an ethical culture throughout the organisation.
  • The thinking behind the outcome-based approach is that the governing body should at all times apply its mind, think about how it’s achieving these outcomes and then explain this to its stakeholders.
  • The concept of an application of mind is not only relevant in the context of corporate governance but also when corporate leaders have to make rational business judgement calls in the long-term best interest of the financial health of the organisation.
  • The focus in the 20th century on the creation of shareholder value has resulted in an unsustainable business model and unsustainable development.
  • In considering the long-term best interest of the organisation, the legitimate interests of all stakeholders have to be taken into account and it is for this reason that the King Committee recommended that oversight of stakeholder engagement should become a standing item on the agenda of the governing body.
  • The main objective of the governing body, also in a time of crisis, should be to secure the long-term survival of the organisation for the benefit of all its stakeholders.
  • For this purpose, corporate leaders need to know and understand the legitimate needs, interests and expectations of all key stakeholders, talk to all key stakeholders and facilitate a compromise amongst stakeholders in an integrated manner to secure the long-term financial health of the organisation.
  • It is also worth noting that, for capital raising, not only is a financial due diligence done but providers of capital have also started to focus on the ESG (environmental, social and governance) aspects of the business.
  • Finally, it should be remembered that ‘coronanomics’ shall pass (as all other crises in the past have done) and when it passes, South Africa needs its organisations to have survived by avoiding li liquidations through a compromise between the organisation and all its stakeholders so that organisations, and the economy, can once again start to prosper.  This will require conscious, ethical and effective individual corporate leaders.

Click on the video below for the full discussion:

 

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