Ethics have become a permanent and pronounced feature of corporate governance. This growth in prominence can be traced through the different versions of the King Codes of Governance for South Africa.
King III, the latest code, starts with a chapter on "Ethical leadership and corporate citizenship".Ethics has a key role to play in ensuring that corporate governance systems actually work. If ethics are hardwired into how the company operates, then it will naturally follow corporate governance best practices and the company will realise the benefits from that course. Achieving this lofty goal starts with the board, and there are three ethical responsibilities that boards, collectively and individually, must discharge.
First, individual board members have to accept that they have a set of broad ethical duties to the company over and above their specific board responsibilities. It is impossible to discharge your duties as a director if one does not behave ethically towards the company. This begins with avoiding conflicts of interest, and always acting in the best interests of the company.
King III identifies five moral duties that directors should discharge: act with conscience, be inclusive, develop the necessary competence, be diligent, and show courage.
The second ethical responsibility is one to society. The board has to ensure that, at a minimum, the company has no negative impact on society and the environment and, if possible, a positive one. Generally speaking this responsibility is best discharged by investing in the future of the society through corporate social responsibility programmes. Such actions are born out of moral conviction, but also enlightened self-interest-businesses need to build relationships with fellow stakeholders in society and depend on society' s health to be sustainable.
The third ethical responsibility is perhaps the most difficult of all: to ensure that the company integrates ethical standards into the way it operates. This is a much more ambitious target than simply developing a code of ethics and implementing a whistle blowing line. It means the board must put the necessary ethics management processes in place as well as people to run them. The latter must be familiar with the company's ethical standards and competent to see they are adhered to.
The requirement for a social and ethics committee under the new Companies Act is helping to ensure that boards are aware of their ethical responsibilities, and fulfil them. The social and ethics committee requires management to report on (and the board to consider) progress and risks regarding social and ethics performance, and so puts these matters onto the board agenda.
EthicsSA has noticed a considerable increase in demand for our ethics services, indicating that ethics are now part of the board conversation, and that boards want to be able to see social and ethics matters in concrete and measurable terms.
Professor Deon Rossouw is the CEO of the Ethics Institute of South Africa.