IN 1994, THE YEAR THAT SOUTH AFRICA ENDED WHITE-MINORITY RULE and elected Nelson Mandela president, South African businesses underwent a more subdued but highly significant transition of their own. That year, a committee headed by Mervyn King, a corporate lawyer and former High Court judge, issued the "King Report on Corporate Governance." King I, as it is now known, incorporated a code of corporate practices and conduct that looked beyond the corporation itself, taking into account its impact on the larger community.
A second King Committee report--known inevitably as King II--was issued in 2002, taking this inclusive approach considerably further. "There is a growing weight of expectation on organizations to operate as good corporate citizens," the report says. "This is because of the influence they exercise on the lives of so many individuals. Each organization is the sum of its stakeholders, such as its shareowners, customers, employees, suppliers, and the communities within which it operates. It depends on them--individually and collectively--for the goodwill required to sustain its operations."
King spoke recently with Internal Auditor about King I and II and about how the South African initiatives compare with efforts to improve corporate governance in the United States.
Mr. King, the first King report was issued in 1994, during the momentous change in South Africa's government from white-minority rule to black-majority rule. What prompted that report and your involvement in it?
By 1991, there was a realization in South Africa that our previously disadvantaged fellow citizens were going to be in a new democratic society and would be moving from limited involvement in the economy into the mainstream. They had no experience with that, and there was nothing written down to guide them. There was also no guide as to how a board should treat stakeholders other than shareholders. I had practiced as a corporate lawyer for many years in South Africa, and I had sat on many boards. The Institute of Directors [in South Africa] and the Johannesburg Stock Exchange, as it was then called [now the JSE Securities Exchange], got together and asked me to chair a committee that was assembled to look at these issues.
The main item we discussed was, considering the special circumstances in the country, how to approach corporate governance in the new South Africa. Rather than focusing just on the financial aspects of governance, like the United Kingdom's 1992 Cadbury Code, we went for an integrated approach that looked at stakeholders as a whole who were linked through the company, and at how the board should deal with those stakeholders. It was the first time anyone had taken an integrated approach in articulating governance guidelines.
We decided to do King II because the governance of corporations is a dynamic thing. It doesn't stand still, and there were huge global developments from the time we published King I to the time we did King II. Companies around the world had learned over the years to approach reporting on an integrated basis, addressing social, economic, and...
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