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Mervyn King – Integrated thinking and corporate citizenship

Mervyn King

In the early years, equity capital had consequences because other stakeholders viewed the shareholders as the primary stakeholder. This was exacerbated by Milton Friedman’s doctrine in the 1970s that the sole purpose of the company was to make profit without deception. The consequence was that the 20th century was one of unsustainable development.

By 1995 ecological overshoot was established, namely that in the main companies, and to a lesser extent individuals, were using natural assets faster than nature was regenerating them. This led to the establishment of the Global Reporting Initiative to produce guidelines on how to report on the so-called nonfinancial aspects. By the end of 1995 the make-up of the market cap of companies consisted mainly of so-called intangible nonfinancial assets. This led to a meeting at the United Nations, where it was agreed by international institutions that financial reporting, although critical, was no longer sufficient for boards of directors to discharge their duty of accountability. As then chairman of the Global Reporting Initiative I in turn was able to say that sustainability reporting, although critical in a resource constrained world, without the numbers was meaningless. But the discussion progressed on the basis that reporting in two silos, namely financial and  sustainability, was divorced from reality because the resources used by a company and its relationships with its stakeholders were integrated 24/7.

The financial capital model of acting in the best interests of the shareholder and the shortterm increase of shareholder capital in the hope that it would trickle down to the impoverished at the bottom failed, if not exploded, in 2008 with the global financial crisis.

Capitalism evolved from financial capitalism turning into inclusive capitalism. The question started to be asked, how has the company made its money and how, in its business model or strategy, did it intend to eradicate or ameliorate the negative impacts on the three critical dimensions for sustainable development, the economy, society and the environment.

In consequence the International Integrated Reporting Council was formed and corporate reporting became outcomes based. Also strategy was looked at no longer from inputs to outputs but inputs to outcomes or how the company’s product or service impacted on the resources used by the company or generally on the three critical dimensions for sustainable development.

Four critical outcomes of any organisation, if it has been practising good governance, would be an ethical culture and effective leadership; value creation in a sustainable manner; adequate and effective controls with informed oversight; trust and confidence of the community in which the organisation operates and legitimacy of operations.

That the corporate world was now looking at outcomes because of the resource constrained world in which companies now operated was reinforced by the issuing of the Sustainable Development Goals in 2015 and Stewardship Codes in many countries including the Code for Responsible Investment in South Africa. The Financial Services Conduct Authority has recently issued guidance notes on how asset managers and owners have to take account of the ESG factors in their investment decisions.

That famous blind woman, Helen Keller, said that there is something worse than being blind; it is having sight and no vision. The vision of the collective mind of a board today is to accept that it has to steer the company’s business in a resource constrained world but with increasing population. We have 7.6 billion people on the planet at the moment and by 2045 we will have 9.3 billion. Change is needed. Realism is dictating change. It is driving inclusive capitalism and integrated thinking around the planet.

Responsible Corporate Citizenship today is an influence that the company has a value creation strategy which is sustainable and its corporate leaders are conscious leaders. The company, in fact, being incapacitated and artificial has no heart, mind, soul or conscience of its own. It is the conscience of its corporate leaders that determines the reputation of the company.


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