Ethical leadership – The key
to understanding King III
CIS Corporate Governance Conference
Sandton Convention Centre
Johannesburg
10 September 2009
Willem A Landman
Ethics Institute of South Africa (EthicSA)
www.ethicsa.org
willem@ethicsa.org
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Introductory remarks – Ethics and King III
Principle 1.1 – Ethical leadership by board
Principle 1.2 – Board and company as responsible
corporate citizen
Principles 1.3 – Board and effective ethics
management
Ethics vocabulary
• Ethics
– Values-based conduct
– Discretionary decisions grounded in values
• Values
– Standards/norms for good, right and fair conduct
– Examples: respect, integrity, responsibility, accountability, fairness
• Compliance
– Rule-based conduct (following laws, regulations, rules)
– Ethics codified
• Ethical dilemma
– Values clash
• Ethical reasoning
– Using values-based reasoning to solve ethical dilemmas
3
Making an ethical decision
An “Ethics Quick Test”
1.
2.
3.
4.
5.
6.
7.
8.
Is it legal?
Do my organisation’s Code of Ethics/Conduct and
other policies allow it?
Do my professional standards allow it?
What would my ethical role model do?
How would it look on the front page of tomorrow’s
newspaper?
How does it make me feel?
Would I be comfortable sharing my decision with my
closest family?
Does it pass the Golden Rule test?
4
Ethics in all human activities
Religion
Personal
relations
Animals and natural
environment
Science
Professions — Law,
medicine, accountancy, etc
Education
Organisations
ETHICS
Sport
Politics
Art
5
Ethics in all aspects of
business
• Business ethics – The application of
ethical values to organisational
behaviour
–
–
–
–
–
–
Boardroom strategies and control
HR, IT, technical
Product development
Sales and marketing
Accounting practices
Relationships with agents, suppliers and
customers (stakeholder relations)
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King III – “Stakeholder triple
context approach” to corporate
governance
QUESTION 1
To whom is the board
responsible?
All stakeholders
Stakeholder (vs shareholder)
model of corporate governance
QUESTION 2
For what is the board
responsible?
Triple context performance
and reporting
•Economic
•Social
•Natural environment
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Relationship ethics/governance
in King III
• “Ethics of governance”
– Ethics is the reason for
corporate governance and
the King reports
– Every aspect of corporate
governance is grounded
in ethical values
•
•
•
•
• “Governance of ethics”
– A company’s ethics
performance needs to
be actively governed and
managed
– By means of a ethics
programme
Board responsibilities
Risk management
Internal audit
Sustainability
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Introductory remarks – Ethics and King III
Principle 1.1 – Ethical leadership by board
Principle 1.2 – Board and company as responsible
corporate citizen
Principles 1.3 – Board and effective ethics
management
• Principle 1.1:
– “The board should provide
effective leadership based on an
ethical foundation.”
Ethical leadership
• “Ethics of governance”
– Corporate governance requires that the
company is run ethically through effective
ethical leadership
• Strategic direction – Board sets tone at the top
• Control – Board delegates operational aspects of
ethics management
• “License to operate”
– Company earns approval from all its
stakeholders
Ethical leadership
• Ethical leaders
–
–
–
–
–
–
Set the tone at the top
Make ethics explicit
Legitimise ethics discourse
Are ethical role models
Encourage ethical conduct in others
Hold others accountable for the ethics of
their conduct
“Ethics of governance” — Ethical
values (“RAFT”)
1. Responsibility
– Board responsibility for company’s assets
2. Accountability
– Board able to justify its decisions
3. Fairness
– Board considers interests of all stakeholders
fairly
4. Transparency
– Board discloses information in manner that
allows for meaningful analysis of the company’s
actions
“Ethics of governance” — Ethical
duties of directors/leaders
1. Conscience
– Intellectual honesty; avoids conflict of interest;
independence of mind
2. Care
– Devotes serious attention to affairs of company;
acquires all relevant information needed for effective
control and direction
3. Competence
– Has knowledge and skills; develops competence
4. Commitment
– Diligent in performing duties
5. Courage
– Courage to take risks associated with directing a
successful sustainable enterprise and to act with
integrity
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Introductory remarks – Ethics and King III
Principle 1.1 – Ethical leadership by board
Principle 1.2 – Board and company as
responsible corporate citizen
Principles 1.3 – Board and effective ethics
management
• Principle 1.2:
– “The board should ensure that
the company is and is seen to be
a responsible corporate
citizen.”
Responsible corporate citizenship
• Company as collective citizen, analogous to
natural person
• Discharges duties in manner sensitive to
triple context
– Economic
– Social
– Natural environment
• In South Africa it means that company builds
trust by respecting rights
– Universally recognised human rights
– Constitutional rights
Introductory remarks – Ethics and King III
Principle 1.1 – Ethical leadership by board
Principle 1.2 – Board and company as responsible
corporate citizen
Principles 1.3 – Board and effective ethics
management
• Principle 1.3
– “The board should ensure that the
company’s ethics is managed
effectively.”
“Governance of ethics” —
The ethical challenges
• Proactive: Building
– Trust
– Reputation
• Defensive: Preventing
– Fraud, corruption, theft
– Cartels, insider trading
– Conflicts of interest
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2.2 Develop ethical
standards
(code and policies)
2.1 Assess
ethics
risks and
opportunities
1. Build
ethical
culture
2.3 Integrate
ethical
standards
(ethics code)
2.4 Monitor, report
and disclose
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Ethics in organisations
― A statement
• “Ethics is not an optional add-on to
‘normal’ business, nor it is a ‘soft’ issue.
All business strategies and operations
have an ethical dimension that we cannot
escape — as we cannot escape our own
shadow. Ethics holds enormous risks for
companies, but ― more importantly ―
creates reputational and competitive
opportunities.”
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