I wrote this short piece as a Reflection Paper for the Newsletter of the INSEAD Corporate Governance Initiative. It illustrates my commitment towards the transformation of business governance and the profound impact that South Africa has on my reflections about who I am: descending from African ancestors and man of white skin.
When INSEAD Corporate Governance Initiative accepted the invitation of the University of Stellenbosch Business School and their Executive Education branch USB-ED to partner in the offering of the Africa Directors Programme, I was especially interested in the programme’s intention to bring ethics at the centre of the governance discussion and practice.
Crises of many types are currently raising new challenges for business organizations. In a context where capitalism is being questioned in its foundations, improved governance has emerged as one response and a critical issue for the credibility of the whole system. A new paradigm is emerging where business and boards have a new and more active role to play, where responsibility and power are two keys going together. This includes a shift towards a stakeholder view of boards, away from the previous shareholder view which is now recognized as having imposed too many negative externalities on other stakeholders (employees, bondholders, communities, governments and the environment).
South Africa at the leading edge of governance for social transformation
In this respect, it is remarkable that South Africa plays a leading role in the current discussion about corporate governance. As part of the post-apartheid transition led by Nelson Mandela’s arrival to political power, a committee on corporate governance was constituted in 1993. Chaired by retired Supreme Court of South Africa judge Mervyn E. King, the “King Committee on Corporate Governance” has produced a series of reports over the last 20 years - the “King Reports”- that apply to all listed companies in South Africa.
It is important to understand that the political changes of the post-apartheid South Africa is one more instance of what is a profound transition, one that goes much deeper than the already complex change of political and economic dominance from white to black ownership. As program co-director Arnold Smit taught me, the King Commission was about designing a corporate governance framework that would be able to mirror the values of a progressive constitution, one that would match the new democratic dispensation and one that should guide the rebalancing of South Africa’s economic and business landscape to make it fairer and more inclusive for all the country’s citizens. As it faces this challenge, South Africa is an important point of focus and even a source of inspiration for the wider transformation of our societies.
Leadership, sustainability and good corporate governance citizenship are at the core of this new vision for governance. The King committee has brought South Africa at the leading edge of the discussion about corporate governance, heralding a different approach, for example, than that which Sarbanes and Oxley have advocated for the U.S.. The latter does not question the supremacy of shareholders, and has instead focused on a greater ability of detecting responsibility for value destruction and in particular fraud. This is mainly because SOX came as a legislative response to the big fraud cases of the 90’s and early 2000’s (WorldCom, Enron, Tyco …).
The South African approach has to be applauded and has indeed been recognized. It certainly has increased the perception of a greater effectiveness of South African boards. For instance, South Africa ranked #3 in board efficacy according to the Davos World Forum Global Competitiveness ranking.
In this program for African Directors, we are of course guided by the King Reports, which are an inspiration to identify and discuss key principles that could be implemented all over the African continent, a context that offers a broad range of worldviews and business systems. Especially, we allow stakeholders to take a prominent position when conceptualizing the role of corporations. It is held explicitly that business organizations shall be governed in a sustainable manner and for the benefit of society as a whole. This view goes well beyond the primacy of shareholders model and brings new perspectives to the governance conversation. It acknowledges the un-sustainability of the shareholder view and considers that, for business to exist in the future, it has to pay greater attention to human values, ethics, social justice and environmental sustainability. This rejoins the idea that greater performance arises when looking not narrowly at profitability, but also considering social and environmental impacts like in the “Profit, People, Planet” framework. In a sense, this program is one of the first in the world that is strongly built on such a transformative paradigm.
Developing a Capacity for Directors to Use Power Responsibly
In terms of pedagogical intention, the program aims at building capacity of directors for the contribution of business governance towards societal transformation. When we go to the details, it is crucial to realize that, ultimately, governance is very much about the responsible and irresponsible use of power. Thus, building capacity in governance is about developing effective uses of power that contribute to effective corporate transformation, and ultimately beneficial societal transformation. The creation of business value is not an end in itself but a means towards a greater end: the transition to a more cohesive, just and sustainable society. Business rationality is reversed: society is not used as a means to profits but profits are a means to a greater purpose which is to benefit society in the respect of environmental impacts.
Responsible uses of power give meaning to power and the program intends to give meaning to the power of boards. Rather than top down lectures, this is achieved through facilitated conversations: conversations amongst business, political and social actors, conversations across business actors, conversations at board level with employees and stakeholders, conversations preparing these boards which ultimately require deep conversations amongst board members and finally conversations within each board member. In this program, we enter into conversations that give meaning to the use of power in business governance and that prepare board members for the responsible use of power for the benefit of corporations and their positive impact on “people and planet.”
As the world is undertaking a profound transformation on its own sustainability, it is critical that business governance develops a language that allows conversations about the use of board power and its impact on profits, but also people and planet. As a result, this program is unique in its ambition to discuss the broad extent of the power of corporations on their environment.
As an outcome of the program, participants become empowered to give new meaning to their contribution to the boards they chair or sit in. For instance, they find new ways to empower their boards to tackle issues of risks – where excessive risks often lead to fraud and then corruption. Resisting the temptation of excessive or unwarranted risk, and then fraud, and ultimately corruption is thus a novel manner to preserve the value creation of an organization. As my mentor Ludo Van Der Heyden puts it, value preservation more than value creation is the most important responsibility of boards. It is also an opportunity to enter into a new meaning for the role of board members, and through them, of business in society. It is an opportunity that promotes strategies that are based on sustainability and justice. By proposing a language that overcomes the narrow mindset of shareholders profit maximization, we open a space that gives business a greater purpose and a more positive contribution to society and its ongoing and necessary transformation.
Enlightened Power and Ethical Shadows
Going deeper into the theoretical realm, the articulation of governance has been traditionally approached either about interests (how to further the interest of a particular actor, how to coordinate interest of different actors), either about ethics (how to constrain interest by ethical principles, norms and rules). The reality is richer and more complex because it must articulate both.
Governance is about the smart articulation of both interests and ethics. A fundamental principle of this articulation of a bias that characterizes us all: each of us are very good to perceive, think and communicate about the ethical side of our own interests and, conversely, to see and communicate the unethical sides of the interest and actions of the other actors. There is generally very little awareness of our own shadows, while there remains a very strong bias against those who may judge us or infringe our particular interests. This bias creates a sort of tiny corridor where one thinks about ethics, focusing only on one’s own interest like the light at the end of the corridor. A main objective of the program is to empower participants to be free from that sort of ethical bias, if not blindness, i.e. to bring light to our own ethical shadows. That is the challenge that needs to be overcome to allow for deeper societal and thus ethical discussions at board level.
The word ethics has been used a lot, so much so that in many quarters it leads to dubious or even cynical reactions. We indeed believe that it should be understood in the presence of another notion: enlightened power. Through the use of carefully designed and facilitated processes, such as a cognitive, emotional and shall we dare say a spiritual awareness of our and our corporation’s negative and harmful shadows, we can liberate that enlightened power from having dared to bring new light to our shadows. In the program, the harnessing of directors’ enlightened power increases capacity of participants 1) to be free to think strategically about a wider range of opportunities for action and vision, 2) to be emotionally more mature to fully hear and understand the hidden risks of strategies that oppose legitimate interests, so as to combine them better in resolutions that are more satisfactory to stakeholders 3) to enter into board dynamics that leverage the grey zones of interests and ethics in an inspirational manner.
As a result, and as a final comment, this program is not just about governance for social transformation. It also becomes an opportunity for personal transformation. A transformation that equips us with a way to talk about some of the most pressing issues that capitalism face today in Africa and beyond, one that gives us the language to find meaning in our professional life and experiences as a director so as to truly become actors building and contributing to a better world.
As directors become leaders of their organizations, and even enlightened leaders, they integrate the changes and new mindsets their corporations need to acquire by anticipating, integrating, living and being the change before leading, inspiring, supervising it on the others, and particularly on the corporation. Isn’t this leading a responsible and new view of the board?
Marc Le Menestrel
Co-Director of the African Director program
