The Social and Ethics committee – a driver of value

Successful companies are one of the crucial cornerstones of a thriving economy. Exceptional financial returns and healthy profit margins tend to be the natural primary focus of most companies. However, a company cannot exist in isolation and forms part of a complex interconnected business ecosystem. This view is echoed in King IV ™ ¹ where it defines corporate citizenship as “the recognition that the organisation is an integral part of the broader society in which it operates, affording the organisation standing as a juristic person with rights but also responsibilities and obligations …”

The reality is that in generating financial returns the company’s activities have a direct and indirect impact on the company and all its stakeholders. Stakeholders can include employees, shareholders, service providers, communities and the environment. The company, as a corporate citizen, has financial and economic responsibilities but also social, cultural and environmental responsibilities.

The Companies Act ² require that the Social and Ethics committee ³ monitor good corporate citizenship but does not include granular detail on the role of the committee, especially in relation to the ethical component. In this regard King IV ™ ¹ has expanded the role of the Social and Ethics committee to include, in addition to its statutory duties, oversight and reporting on organisational ethics, responsible corporate citizenship, sustainable development and stakeholder relationships. King IV ™ ¹ encourages all organisations to establish a Social and Ethics committee and emphasizes that the committee should be established to contribute to the creation of value and not just to satisfy compliance requirements.

In view of the expanded role and responsibility of the Social and Ethics committee, it is imperative that a company appoints suitable members to the committee and ensure that the committee has a clear directive on the objectives to be achieved. As a driver of value an effective Social and Ethics committee will play an integral role in the sustainability of the company.

Mindful and active engagement will be imperative as the task of evaluating the impact of a company on external factors such as society and the environment is a complex task. Fulfilling the mandate of the Social and Ethics committee is a journey and definitely not a task that can be executed in a short timeframe – careful planning with a focused committee work plan will be essential.

“No man is an island” – John Donne
No man is an island…and no company either.

¹ “The King IV ™ Report on Corporate Governance for South Africa 2016, Copyright and trade marks are owned by the Institute of Directors in Southern Africa” and the IoDSA website link is: http://www.iodsa.co.za/?page=AboutKingIV. King IV ™ Report on Corporate Governance for South Africa 2016 published on 01 November 2016
² Section 72(4) and Regulation 43 of the Companies Act 71 of 2008, as amended from time to time
³ The Social and Ethics committee is a statutory committee in terms of Section 72(4) of the Companies Act 71 of 2008

By: YOLANDI VAN ZWEEL
Governance Professional
FluidRock