GIBS Ethics and Governance Think Tank

Author: Luleka Mtongana
Source: GIBS News

​The changing role of the modern corporation means that business has a "moral imperative to act as a force for good," founder of the Gordon Institute of Business Science (GIBS) Ethics and Governance Think Tank, Gideon Pogrund told a recent forum.

Bonang Mohale, chairman and general manager of Shell South Africa said it would be in the "enlightened self-interest" of business to become more engaged with the broader social problems facing South Africa: "Unless business wakes up and recognises that these are our problems too, we are going to be found wanting."

Placing stakeholders at the centre

While corporations previously existed only to maximise shareholder wealth, they are now understood to be moral protagonists, Pogrund explained. This raises questions around their purpose and what they owe to others and to stakeholders. The extraordinary growth in the power and influence of corporations comes with increased responsibilities and expectations. This was especially true in South African terms, Pogrund said, where the country is confronted with enormous social problems: "The tyranny of short-termism means South African companies need to adopt a more stakeholder-centered approach."

Thandi Orleyn, co-founder of investment company Peotona Group Holdings accused local business of being detached from the reality on the ground: "Those who are more affluent, regardless of race or gender, disassociate themselves from the problems of the majority of people. We are a society that hasn't dealt with the real issues."

She said there is a very real disconnect with company ethics and sustainability reports and reality: "Business often has challenges understanding stakeholders and seldom takes the time to listen." Often, it will only apply laws such as those for transformation through compunction.

Translating governance frameworks into ethical action

Bobby Godsell, c​hairman of Business Leadership South Africa (BLSA) said business is simply not changing fast enough: "The need to transform in terms of race and gender is an ethical imperative. But progress in terms of values has also been too slow." 

"We need a debate where changing board rooms and executive management also changes the values of the organisation in a deep and meaningful way," he said.

Godsell called South Africa's corporate governance framework, including the King Codes and the Companies Act of 2008 "spectacular" and said they are "leading the world in giving meaning to the stakeholder model." However, these law and codes of conduct were of little use if they don't translate into a different pattern of action.

Suresh Kana, chairman of Imperial and former Africa CEO of PwC said South Africa had exemplary governance models, and there was widespread recognition of the importance of the separation of powers and the selection of competent boards. Kana explained there was increasing interest for public entities such as state-owned enterprises to be brought under the King Codes in order to prevent governance problems that lead to ethical issues: "There are many positive ongoing discussions around extending the role of the codes to a wider stakeholder group and the realisation that governance doesn't only apply to private entities."

Encouraging enlightened self-interest

Business must recognise that the decisions it makes are fundamentally ethical ones, including decisions made around executive pay and remuneration. Kana called the pay gap between management and workers "a huge issue. It is unhealthy and growing. It contains within it the seeds of revolution in just about every country in the world." He said it was essential to do away with short termism in the broader interest of the organisation and its sustainability. Godsell said the increase in executive pay globally since the 1980s was "obscene" and said it was a failure of governance.

Every business decision that is made should be done so by applying ethical norms and principles, Orleyn explained. "It is very critical that business takes a step back and examine its actions. Business must listen, engage with stakeholders and take action that will have reverberating effects on society."

Encouraging corporates to embrace ethics is often a difficult task, as it is often seen as the sole responsibility of those in compliance functions. However, Pogrund said it was only by  "confronting business with a sense of our interconnectedness that we will create a sense of responsibility and convince them to take ethics seriously."

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