Responsible leaders build sustainable businesses

Item 2 of Chapter 1 of the King 3 report stipulates the following:

Responsible leaders build sustainable businesses by having regard to the company‘s economic, social and environmental impact on the community in which it operates. They do this through effective strategy and operations.

The tone of this point is clearly set from the outset. The drafters clearly make mention  of "Responsible leaders" which shows that they are referring to not only wanting these individuals to be responsible, from which can be inferred accountable, but also that they want them to be leaders. It may be stated that referring to the various persons as leaders implies a more leadership driven approach which includes the collaborative nature of that relationship.

It is valuable to consider that these leaders are to be found throughout the business. It will be interesting to see to what degree lower level leaders may be help to the values espoused in the report.

The key point is that businesses need to be sustainable and by inference long term commercial citizens of the country; with rights, duties and obligations; which accompany that privilege.

The clause also highlights the fact that the business needs to be responsible not only in its business dealings as a business but it also needs to heed its expanded responsibilities such as its environmental impact and its social impact on  society. This expanded view of a business's responsibilities has become a global phenomenon. The importance of this expanded view of corporate responsibility has triggered a whole new view of what good governance is.

The report's drafters clearly mention that 'operations and strategy' should serve these lofty aims and that these should operate as the channels through which the above mentioned objectives must be achieved.

It may be noted that in the spirit of a completely aligned organisation, that these aspects and values shall need to form part of mission statements etc because only through inclusion will this provision truly be taken on board and not merely be seen as a beautifully word craft. It is through incorporation and alignment that these values can truly become inculcated in the very fibre of the organisation.

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Thinking - have we decended into 'Group Think'?

Innovation unlikely

Einstein once said that: "We cannot solve our problems with the same thinking we used when we created them."

In business we often lament about lack of innovation and our corporate sounding mission statement's flowery tributes to our forward change orientated culture. But at the same time we hold onto our existing structures and organograms while chanting the mantra of "We have always done its this way" or its modestly better sounding variation "This is the way we do things." 

It is good to have stability and its natural to aspire to a state of stasis for these are normal and natural human tendencies. Why should be invite change? Why should we even allow a dissenting voice who questions everything we hold so dear? Why should we encourage the new?


If we go back to Einstein's sage words we learn one important lesson; unless we shake the tree, unless we add a measure of agitation, unless we invite an element of chaos and different view we will always get the same outcome and never will the result be worse; but neither will it be better.


But 'Group Think' is a natural outcome of homogenised hiring processes ('We only hire from within") and teams that are together for too long, who have in most cases been sourced from the same pool of employees, who have all been subjected to the same policies and procedures and whose thinking is all very much in line. The question is how different is their thinking really going to be?


Which brings me to 'Competitive Advantage' it is often seized by entrepreneurs who break the mold who disrupt the industry, but as time progresses these businesses begin to do the same stuff every one is doing, the net result cultures begin to mingle and apart from the logo everything begins to be the same.


But what if you allow some room for alternate views, make outside hires into key positions, change the status quo and even if a process is working, why can it not work better of be done more efficiently? Can we not save costs by rethinking? Innovation comes from agitation and disrupting the comfort zone.


Practically, I have found that 'Group Think' can be far more insidious, it allows potential to go unrealised, it hides risk, it threatens the very vital soul of innovation within the organisation. 


So not only can the same thinking not solve our problems we have now its suffocates an organisation and creates the semblance of security and comfort, while the organisation's culture is sacrificed and team members are transformed into mindless clones.

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Ethical Leadership and Corporate Citizenship: Principle 1.1: The board should provide effective leadership based on an ethical foundation (1.1.2)

What follows are some personal insights into the provision of the code set out in the King III report on corporate governance; how it affects business and how it transforms business not only into lighthouses of virtue, while maintaining the purpose of business; but it also stirs business into becoming model corporate citizens which are able to conduct their business in an effective, responsible and in a sustainable way.

Principle 1.1 of the Code : The board should provide effective leadership based on an ethical foundation:

Item 2:

"Responsible leaders build sustainable businesses by having regard to the company‘s economic, social and environmental impact on the community in which it operates. They do this through effective strategy and operations."

 This is indeed a profound statement, which possibly has been ignored especially in the US, namely that "Responsible leaders build sustainable businesses". Business as usual, was to secure the greatest gains, which in many cases has proven catastrophic. Business practises need to be sustainable, so short sighted approaches cannot be allowed to take precedence even if it makes sense on the bottom line. Quarters move along and the short term profits, soon like the seasons move onto winter, which if no sustainability was worked into the business could prove to be the businesses last; which will go down the tubes dragging communities with it. The consequent suffering will be what is remembered, not the short term gain. So indeed, these words: "Responsible leaders build sustainable businesses" are indeed profound beyond measure.
But even such great wisdom needs a context, it needs to be expanded to truly create no uncertainty as to its ambit of application.
Businesses of any size, are corporate citizens, hence as citizens of an increasing enlightened and educated country and the world; businesses need to be responsible as to how their choices impact the their employees, their families, the economically connected (such as other businesses dependent on the custom of the aforementioned), those in term connected to their client businesses and of course the tax revenue generated in the process, which is substantial. Seen in this context every business is an enabler of a better society. Seen in this context, business, not the civil service, needs to be encouraged. But given the benefits of business on the community, the need to ensure that businesses are stable and sustainable should be of paramount success.
Given the fact that one cannot ignore the fact that businesses have an impact and a part to play socially and environmentally; further highlights the fact that the businesses activities need to pass muster when seen in relation to these aspects.
Does this mean that businesses must become charities? Some might say so, but that is unsustainable in the long term. Businesses, by being good businesses, which are sustainable naturally uplift the community in which they operate and through their tax revenues allow government to carry out their required duties with regard to those in need.
This part of the code is brilliant in its simplicity -  which gives the key to how businesses are to do perform their awesome task - that is through effective strategy and and operations.
It is not lost on me that much this has been propounded for centuries in various forms in business literature, but it is refreshing to see the synthesis which has been highlighted here, that being good at what a business does is not wrong, but it needs to done the right way and with the correct guiding principles.
This one can see a corporate version of Ubunthu; but with the added business view - in other words businesses have to recognise the fact that they need to be competitive internationally, not just locally.
As a closing comment is that at last maybe business, can be seen as being part of the community, not apart; that the community can see the contribution business makes and appreciate its inputs and maybe, just maybe if business fully embraces this new way of seeing itself - maybe business will take its rightful place in society.

Ethical Leadership and Corporate Citizenship: Principle 1.1: The board should provide effective leadership based on an ethical foundation (1.1)

What follows are some personal insights into the provision of the code set out in the King III report on corporate governance; how it affects business and how it transforms business not only into lighthouses of virtue, while maintaining the purpose of business; but it also stirs business into becoming model corporate citizens which are able to conduct their business in an effective, responsible and in a sustainable way.

Principle 1.1 of the Code : The board should provide effective leadership based on an ethical foundation

"Good corporate governance is essentially about effective, responsible leadership. Responsible leadership is characterised by the ethical values of responsibility, accountability, fairness and transparency."

Good governance is more than just a slavish following of the law and the industry standards, governance goes beyond that encompassing the and meshing the purpose of the business with ethics - ensuring sustainability. This places a heavy burden on the leader / stewards of the business; they cannot ignore all else to ensure financial gains only; they have to also do this ethically and sustainably.
But often one is faced with words like "effective" and "responsible" in a context of a code, one cannot but feel that that the bonds and restrictions closing on already stressed management necks. But there is also an undeniable positive spin to these words, which shine a light on the higher nature of humanity, which does not preclude profits.
Being effective is at the heart and soul of almost every business leadership  book on the shelves; to be a leader is a relatively easy task; but to be effective; that is quite another. Being an effective leader could be seen as having attained the holy grail of leadership; within a corporate environment; it is without doubt vital to the business to ensure that all leaders are effective leaders.
But why would an code mention effective leadership? This is because the great minds who played a part in casting this code recognised the fact that for good governance to be effective and sustainable it must be relevant to businesses. It must bake business sense and what more sense than ensuring that providing leadership which is effective, become part of the code. This also clearly shows that there is an attempt at creating a conspiracy of effectiveness. Who would have thought that one could use those two words together?
It is also interesting that the the code further requires that the leadership be responsible. It is interesting that in addition to making it clear that leaders must ensure that they are responsible; it is also vital to recognise that together with effective; the authors clearly wish to make it clear that leader are also responsible to communicate this call for effective and responsible leadership through the business. This is evident from the fact that the corporate entity needs to ensure that to ensure complete compliance, it needs to ensure that through leadership it communicates the guiding principles of "responsibility, accountability, fairness and transparency" throughout the business, to ensure that the businesses ethos becomes one characterised by these laudable principles.
In any community or society these virtues are vital to good governance and stability, without them no endeavour is truly a sustainable success.
It is also important that in the South African context that these virtues be upheld, because people generally learn by example, and where do most people spend most of the their waking day, but at work. This positive influence on the business cannot but have a positive effect both on the business itself, but also by providing an a shining example to suppliers and customers, of what is good in the world and worth emulating. Then there is the positive effect on the extended family of those who are part of the business.
In a society which some have described as on the verge of moral bankruptcy, this example by business, cannot but be seen as being part of what is required of corporate citizens of our great country.
But what is encouraging is that the approach is refreshing in its approach and message.
These principles and how they are set out in this section are not only inspirational but also make for not just good business, but for great business.
[Quotation above from the King III report]

Compliance issues in business (Port Elizabeth, South Africa)

Compliance is a strange topic in many businesses. So often it is taken to be a reactive preventative requirement which is necessary expense or cost centre. This is the case in many cases because it is not unusual for many boards to be dominated by people with commercial degrees.
This in itself is not unique because as many would say business needs commercially trained people; which by necessity have one or two legal subjects in their training at varsity; so if everyone on the board or on the management team have similar qualifications, why does one need to bring a dedicated legal human resource on board?

It has always been my experience that the practise of law is very much like the profession of plumber; it is quite conceivable that someone can read a book on plumbing, go to a short course or maybe even watch a few YouTube videos on plumbing; but most experienced plumbers will be quick to tell you that unless you have actually done the actual job and all that that entails; can one truly say that one knows how to plumb.
In law it goes without saying that that litigation will in all likelihood remain the domain of external attorneys; but this very approach ignores the fact that lawyers have in most cases developed the ability to look at situations analytically, in many cases are extremely proactive and if combined with a commercial tendency; have the unique ability to bring a proactive approach to many aspects of businesses; which are traditionally approached reactively.
In addition; new regulations may seem to be restrictive; but in the very restriction lies the potential for taking a strategic advantage over the businesses competitors by exploiting opportunities afforded by the legislation; which has not been recognised by the competition.
It goes without saying that internal lawyers offer a unique opportunity for tactical advantages for businesses.

Why businesses should look at integrating legal

In South Africa, we tend to see the law as a reactive option and our closest we get is using law for compliance. The fact is that law is the rules the play book if you will. They say that most errors (to 90% says one study) that error is decision making are usually based on an error not of logic, but of perception.

Could this be why is SA lawyers are seen as a necessary evil or even worse a cost centre?
Let's not tackle this issue head on let's rather look at some things that lawyers are good at:

Thinking
A good lawyer is not only someone who can look at and interpret law and some say are masters of gray, but rather let's look at what a good lawyer's thinking skills should be:

1. Structured
2. Logical
3. Tactical
4. Proactive
5. Solutions driven
6. "Big Picture" or "Global" view

 Team orientated

1. Lawyers need to be able to work across multi-disciplinary teams with different personalities
2. Can move effortlessly between team member and leader
3. Knows the importance of many of the core principles behind project management
4. Understands conflict, can engage in it when tactical required or resolve it
5. Good people skills
6. Excellent communication skills
7. Can change roles quickly
8. Understands how to work within set parameters

Flexibility

1. Can be moved within the business to any position or project without too much disturbance
2. The dynamic nature of law means that lawyers are more comfortable than most with position changes 
3. Can easily be moved within reporting structures

Potential areas where the occupation of lawyer can help business

1. Obvious is legal interpretation and compliance
2. Handling legal problems and bringing in external legal assets when tactically and economically requires
3. Disciplinary issues and appearance on behalf of the business in legal forums
4. Naturally are risk conscience, so risk and its mitigation are a natural fit
5. Contract management
6. Procurement
7. Project management
8. Taking meetings
9. Organisation
10. Negotiation
11. The list goes on ....
12. Why are lawyers so capable, because as stated above they become masters of the rule book and from that everything else follows.

Other advantages:

1. Helps secure "first mover advantage" (this was shown in a Harvard Business School Study)
2. Reduced legal expenses
3. In high risk industries, having in-house legal on site dramatically increases the ability of the business to contain and mitigate risk
4. Lawyers bring a different view which can provide different insights into the business

There are many more advantages, but the items above and other will be dealt with in future posts. In South Africa securing the best possible legal minds for you business unit may be one of the best decisions that your business has made. Don't believe me, just step back from your present view and look at the potential and then put the cost into perspective. Its a good move to make.