From Pretoria to Wall Street: Profits, Purpose, and the Impact of South Africa’s King Reports
By Jason D. Schloetzer, Assistant Professor, Georgetown University McDonough School of Business
On September 13, 1970, The New York Times published a now infamous opinion piece by Milton Friedman entitled, “The Social Responsibility of Business is to Increase its Profits.” In only a few pages, Friedman described recent public discussions of the social responsibility of business (such as the effort by Campaign G.M. to elect three activist directors to the board of General Motors in May 1970) as “pure and unadulterated socialism.” Moreover, according to Friedman, executives who viewed the social responsibility of business was anything other than to increase its profits displayed “a suicidal impulse.” Friedman dispatches with the argument that some problems “are too urgent to wait on the slow course of political processes, that the exercise of social responsibility by businessmen is a quicker and surer way to solve pressing current problems” by simply noting “one man’s good is another’s evil.”
The notion of political processes and businesses working together to address social issues has been increasingly on display since Friedman’s forceful words some forty years ago. While the debate over whether and how shareholders, directors, and executives can best shape the role of business in society is far from settled in the United States, other countries have taken actions that are informing boardroom discussions. Since the release in 1994 of South Africa’s King Report on Corporate Governance (King I), government leaders and corporate directors in that country have worked to change corporate policies in order to help unlock productivity in systematically oppressed employees.i,ii
The revisions to King I in 2002 (King II) and 2009 (King III) brought considerable integration to notions of social responsibility, corporate governance, and financial reporting. King III in particular places corporate social responsibility at the forefront of corporate governance by encouraging directors, as shareholders’ representatives, to focus on effective leadership, sustainability, and corporate citizenship.iii
- Effective leadership requires ethical, socially-aware directors and executives who will commit corporate resources to sustainability and corporate citizenship.
- Sustainability is necessary for long-term corporate performance.iv King III emphasizes the complete integration of sustainability reporting into financial reports.v
- Corporate citizenship motivates corporations to continually engage with their economic, environmental and social surroundings. King III argues that corporate citizenship requires investment in the community that surrounds the corporation.vi This contact enables the ethical, transparent evaluation of corporate decisions and the associated impact on society and the environment.vii
The King Reports’ treatment of corporations as agents of positive change has started to resonate around the globe. King I’s scrutiny of Apartheid-era workplace injustices increasingly parallels contemporary efforts in Europe and the United Nations to address perceived social injustices and environmental degradation often associated with the global activities of domestic corporations.viii For example, it seems that Nike’s multi-year effort to improve its suppliers’ manufacturing processes in eleven developing countries has led to a significant reduction in serious labor violations throughout the supply chain.ix Such evidence suggests that corporate policies aligned with socially responsible intentions can contribute to corporate profits and have lasting, positive effects on labor standards in many countries. And these results should please Friedman and social responsibility enthusiasts alike.
About the Guest Blogger:
Jason Schloetzer, Assistant Professor, Georgetown University McDonough School of Business
Professor Schloetzer’s research focuses on the monitoring and control mechanisms used to manage the modern organization. This includes examining issues related to the design, implementation, and performance consequences of performance measurement systems. His articles have been published in leading academic accounting journals, including Journal of Accounting Research and The Accounting Review. He serves on the Editorial Advisory and Review Board of The Accounting Review.
To link his research with practice, Professor Schloetzer is a frequent contributor to The Conference Board Governance Center. He is particularly involved in current issues regarding CEO turnover, CEO succession planning, and board structure. His research has generated over 250 media mentions in leading U.S. and international news outlets, including Forbes, Fortune, The Wall Street Journal, and USA Today.