Sustainable business

“It is no longer business as usual,” Professor Mervyn King, chairman of the King Committee on Corporate Governance, said in a keynote presentation at the IRM’s Risk Leaders 2017 conference in London in November. Over 160 senior risk managers from around the world attended the event. Rapid population growth, climate change and advances in technologies are changing the agenda for organisations and their risk managers, he said.

“We have moved to a world of value creation in a sustainable manner,” he said. “Companies are no longer solely focused on maximising profit, but are interested in the long-term health of their organisations and the interests of long-term stakeholders.”

King, who has been a pioneer in corporate governance and a champion of sustainability reporting, said that today boards were more aware of their broader responsibilities, which had resulted in bringing together financial and sustainability reporting in many organisations. This has come at a time when intangible assets, such as patents, royalties and trademarks, account for a larger share of many corporate balance sheets.

King said that good corporate citizenship could be costly because it could mean adding cost to the production and services processes to, for example, remove toxins from manufacturing processes. The alternative was to fail to act and allow profit making to impact the environment adversely.

But enhanced reporting transparency has important implications for risk management, he added. For example, if child labour is found in an organisation’s supply chain, it can wipe millions off the share price overnight. “Civil society has become one of the great disrupters of our time,” he said, “because through social media channels, its voice can destroy a company.”

King outlined the concepts on which modern governance should be based. Those included sustainable development, where the company viewed itself as an integral part of society. He advocate developing a mindful, rather than mindless, checklist of risks and ensuring its metrics were outcomes based. “Integrated thinking and reporting needs to be understandable,” he said, “based on clear and concise material mattes for ‘shareholders’.” Shareholders in this context relates to the wider stakeholder community.

“The vision must be to have a company-centric governance model which moves away from yesterday’s primacy of the shareholder,” he concluded. “It needs to be implemented mindfully to achieve the four outcomes of effective leadership, value creation, adequate controls and legitimacy of operations.”

Read a write up of the Risk Leaders Conference 2017.