What does King III say about Corporate Citizenship?

One expects most of the principles to be contained in Chapter 1, since the title is: “Ethics and Corporate Citizenship”. Looking further, sustainability is also considered in Chapter 3 (Audit Committees), Chapter 4 (The governance of risk), Chapter 5 (The governance of information technology), Chapter 7 (Internal Audit) and in Chapter 9 (Integrated reporting and disclosure).

The King III Report uses the terms corporate citizenship and sustainability as follows:

Corporate Citizenship:

Responsible corporate citizenship implies an ethical relationship of responsibility between the company and the society in which it operates.

The Report continues to note that corporate citizens have rights but also corresponding obligations:

- – Legal and moral obligations with respect to the economic, social and natural environments within which they operate;

- – Investment and sustainability obligations to protect and enhance the well-being of these environments.

Sustainability:

Sustainability of a company means conducting operations in a manner that meets existing needs without compromising the ability of future generations to meet their needs.

In this way, the report expects that the company must consider the impact that it has on the economic environment within which the community operates. Furthermore, it must consider the environmental, social and governance impact it has on the community in which it conducts its business.

Chapter 1 defines principles with respect to corporate citizenship:

With respect to Ethical Leaders:

1. They must use the company’s strategic and operational planning to ensure that a sustainable business is being developed;
2. They should not “compromise” the natural environment and “consider” the impacts of the company’s strategies on the full environment (social, economic and natural);

1.  Should consider the impacts of the company’s operations on the full environment (social, economic and natural);
2. Should invest in the maintenance and improvement of the full environment; and
3. Should find ways to ensure that the company’s stakeholders also practice “good corporate citizenship”.

Chapters 3, 4, 7 and 9 address sustainability:

Chapter 3 (Audit Committees)

The audit committee provides the board with assurance on financial information and engages with independent external assurance providers where required.

In the case of sustainability, this committee is to:

- – Provide assurance that the financial information does not conflict with any sustainability information being used and disclosed;

- – Provide assurance that the sustainability information disclosed in the Integrated Report is valid information. One would expect this to be specifically that information relating to the economic aspect of the environment within which the company operates, as well as any financial transactions undertaken in the support or maintenance of the social or natural environments;

- – Engage an independent / external assurance provider to provide assurance where required.

Chapter 4 (The governance of risk)

As one would expect, the risk assessment process must also consider the company’s sustainability in the full environment (economic, environmental and societal environments). King III captures this accordingly in Chapter 4.

Chapter 5 (The governance of information technology)

With respect to information technology, King III expects the board to ensure that opportunities to improve the sustainability of the company, with the use of technology, are considered.

Chapter 7 (Internal Audit)

Chapter 7 considers internal controls. It is here where King III notes the principle that sustainability should not be excluded from the need for internal control.

Chapter 9 (Integrated reporting and disclosure)

As was indicated in Chapter 3, it is reinforced in Chapter 9 that the audit committee should be providing assurance to the board on the validity of the company’s “sustainability disclosures”.

NOTE: The comments in this page are to be read within the context of the candor legal notices which can be found at this web site. The Institute of Directors in Southern Africa’s ownership of the copyright in the publications “King Report on Governance for South Africa 2009” and “King Code of Governance for South Africa 2009” is hereby acknowledged.

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