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Ethical leadership – The key to understanding King III
CIS Corporate Governance Conference
Sandton Convention CentreJohannesburg
10 September 2009
Willem A LandmanEthics Institute of South Africa (EthicSA)[email protected]
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
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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
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Making an ethical decision
An “Ethics Quick Test”1. Is it legal?2. Do my organisation’s Code of Ethics/Conduct and
other policies allow it?3. Do my professional standards allow it?4. What would my ethical role model do?5. How would it look on the front page of tomorrow’s
newspaper?6. How does it make me feel?7. Would I be comfortable sharing my decision with my
closest family?8. Does it pass the Golden Rule test?
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Ethics in all human activities
Personalrelations Education
Politics
Organisations
Science
Religion
Professions — Law,medicine, accountancy, etc
ETHICSSport
Animals and naturalenvironment
Art
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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 1To whom is the board
responsible?
QUESTION 2For what is the board
responsible?
All stakeholdersStakeholder (vs shareholder)model of corporate governance
Triple context performanceand reporting
•Economic•Social•Natural environment
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Relationship ethics/governancein 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
• Board responsibilities• Risk management• Internal audit• Sustainability
• “Governance of ethics”– A company’s ethics
performance needs to be actively governed and managed
– By means of a ethics programme
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
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
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“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
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
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“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 ethicalstandards
(code and policies)
2.1 Assessethics
risks andopportu-
nities
1. Buildethicalculture
2.3 Integrateethical
standards(ethics code)
2.4 Monitor, reportand 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.”