Putting ethics and social responsibility back into corporate governance

29 April 2024 ,  Millisanté de Wee 181
The King IV Report published in 2016 (“King IV”) remains essential to understanding the concept of good corporate governance in South Africa. In today’s times when the media is littered with disreputable reporting and inefficient governance, it is worthwhile to perhaps circle back to King IV and what it holds out as the standard for entities to ensure their corporate governance is ‘above board’.

King IV considers organisations of relevance to include companies, retirement funds, non-profit organisations, municipalities, state-owned entities, trusts and similar juristic persons. Although there were many changes from the King III Report introduced by King IV, the one aspect that is often overlooked is the social and ethical facet of an organisation. 

King IV moved away from the notion that only certain categories of companies in the Companies Act 71 of 2008 (“Companies Act”) are required to establish a social and ethics committee. King IV is adamant in encouraging all organisations to establish a social and ethics committee regardless of whether it is required to do so in terms of the Companies Act or other relevant legislation in South Africa. This is indicative that corporate governance must be held in the strict and bright light of the ethical and social responsibilities that every organisation must identify, determine and implement continuously within the organisation. 

Should an organisation consider following the recommendations of King IV, it must consider the provisions of Regulation 43 of the Companies Act which outlines the constitution and membership of a social and ethics committee. Amongst others, Regulation 43(4) provides that an organisation’s social and ethics committee must compromise of not less than 3 directors or prescribed officers of the organisation and at least 1 of them must not be involved in the day-to-day management of the company’s business or have been so involved within the previous 3 financial years. 

Once the social and ethics committee is established, and perhaps even during this establishing process, an organisation must focus on the prescribed roles that such a committee has in how it must monitor the organisation’s activities taking into account relevant legislation, codes of good practice relating to social and economic development, as well as the organisation’s standing in terms of the goals and purposes of – 

  • the 10 principles set out in the United Nations Global Compact Principles;
  • the OECD recommendations regarding corruption;
  • the Employment Equity Act 55 of 1998; and 
  • the Broad-Based Black Economic Empowerment Act 53 of 2003
The social and ethics committee must also monitor the organisation’s activities against good corporate citizenship including the following key roles:

  • Promotion of equality, prevention of unfair discrimination, and the reduction of corruption. 
  • Contribution to the development of the communities in which the organisation’s activities are predominately conducted or within which the products or services of the organisation are predominantly marketed. 
  • Sponsorship, donations, and charitable support given to and by the organisation. 
In addition to the above responsibilities, an established social and ethics committee must monitor the activities of the organisation with matters relating to: 

  • The environment, health and public safety. 
  • The consumer relationships including the advertising, public relations and compliance of the organisation in light of relevant consumer protection laws.
  • Labour and employment matters. 
Over and above all these roles listed above in terms of Regulation 43, the social and ethics committee must draw matters within its mandate to the attention of the board, as may be required from time to time, and must report through one of its members to the shareholders at the company’s annual general meeting on matters that fall within the mandate of the committee. 

Organisations are allowed to develop and implement terms of reference for their social and ethics committees, but such terms of reference must be based on the Regulation 43 obligations and must be focused on the specific niche needs of the organisation. 

Needless to say, as much as shareholder returns and overhead costs may keep management busy, sight should not be lost of the ethical and social responsibility of organisations or undervalue the important role organisations play in curbing undesired issues such as corruption, unethical conduct or harm to the environment. The flip side is also true, in that organisations that aspire and advocate responsible governance will benefit from a positive reputation and public image which in turn can impact their bottom line beneficially.

For guidance on how to establish and create the correct framework and mandate for a social and ethics committee in your organisation, make contact with our Compliance Team for assistance.

Visit our Compliance Team page.

Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s). 
Related Expertise: Corporate, Corporate Governance