Time is running out to build truly inclusive capitalism: iLIVE
King III and the new Companies Act show that South Africa has definitively chosen the model of inclusive capitalism. Marikana is telling us we have a way to go in achieving it. What needs to be done?
Incidents like the Marikana massacre, as well as ongoing dissatisfaction in the mining, transport and agricultures sectors, provide opponents of capitalism with excellent ammunition in their quest to change the dominant economic model. Those who believe that capitalism offers South Africa the best chance to generate economic growth and, most importantly, jobs need to come up with some solutions to what are, I would argue, structural rather than systemic problems.
First, a little history. We should not forget just how hotly debated the future economic model for the fledgling South African democracy was in the late 1980s and early 1990s. Given the important role played by the Soviet Union and China in backing liberation movements, and the high position that communists in particular held in the African National Congress, it was surprising to many that capitalism emerged triumphant. One can speculate why that should have been—the collapse of the Soviet Union and other communist regimes must have played a role—but the important point is that capitalism, in South Africa at least, was very much on terms to deliver social benefits.
In short, then, classic free-market capitalism was never going to be acceptable.
The devil, as they say, is in the details. Corporate South Africa has spent the intervening years wrestling with the precise type of model by which it should govern itself—and deliver the social benefits required to ensure social peace and redress past inequalities. Speaking broadly, two forms of capitalism were contenders: enlightened shareholder capitalism, and inclusive stakeholder capitalism.
Enlightened shareholder capitalism advocated running the company for the benefit of its shareholders, as in classic capitalism, but it considered the interests of other stakeholders in so far as they affected shareholder value. Whatever its shortcomings, this model nonetheless acknowledged that companies make an impact on a wide range of stakeholders, and that this social impact could influence (positively or negatively) the value that the company generates for its shareholders.
When all is said and done, this is really enlightened self-interest rather than enlightenment pure and simple, and does not imply any moral imperative to consider wider stakeholder interests.
A more appropriate capitalist model?
By contrast, inclusive stakeholder capitalism situates the company within a social, economic and environmental context, demanding it be governed in the best long-term interest of the company by giving due consideration to the interests of all its stakeholders. Of course, there is a core of enlightened self-interest at play here, too, as this model is premised on the understanding that a company’s profitability is ultimately tied up to its stewardship of its people, the environment and the society in which it operates. But this model goes well beyond mere self-interest, and confers on the wider group of stakeholders a right to have its legitimate expectations taken into account.
As we all know, the inclusive stakeholder model is one that was eventually adopted, largely through the governance models developed by the three King Reports. By the time of King III, in fact, the principle of stakeholder engagement had led to Principle 1.2, which argues that a company should be a “responsible corporate citizen”, and that it stands in a relationship of ethical responsibility to the society in which it operates. This principle resonates with the requirement in the new Companies Act for a social and ethics committee that would ensure that the company considers the impact it has on a range of internal and external stakeholders.
So far so good, but not far enough. King III and the Companies Act may require companies to look beyond narrow shareholder interests, but they fall short of creating formal structures in which the voices of wider stakeholder groups can be heard. The social and ethics committee remains purely a board committee, and thus the engagement with stakeholders remains at the behest of the same narrow group of players, the elected representatives of shareholders who serve as non-executive directors on the board and the executive management of the company.
No matter how effective a company’s engagement with its stakeholders is, or how sincere, this structure denies the stakeholders the right to a voice within the company and must, of necessity, constrain communication.
The challenges that South Africa faces are so complex and pressing as to make multi-stakeholder forums an absolute necessity. Such forums exist at the national and industry levels in the guise of Nedlac and collective bargaining councils respectively, but they do not exist at the company level.
We have had some lost opportunities. During the hearings on the Companies Act, it was suggested that labour should have a place on company boards, but there was stiff resistance. Similarly, the first draft of the act and regulations provided for an advisory panel that had multi-stakeholder representation, but again the proposal was dropped. The social and ethics committee—consisting of non-executive and executive directors—was the compromise.
Time to make a change
To anyone who has followed the news around Marikana, it should be readily apparent that workers feel excluded from the running of the company. This sense of exclusion has, of course, historical roots and is not solved by the periodic wage negotiations conducted on workers’ behalves by unions. Important as these mechanisms are, they are simply too removed from the coal face, shop floor, and ultimately the boardroom. The situation is complicated by the indisputable fact that the unions themselves are running the risk of losing touch with workers as they involve themselves more and more in national politics.
For all of these reasons, and in order to provide a workable solution to the challenges companies face, I want to argue that we need to create formal, permanent mechanisms to enable multi-stakeholder dialogue between individual companies and their stakeholders.
My suggestion is not as radical as it might, at first, seem. Such formal mechanisms do exist (and have proved useful) elsewhere in the world. The examples of Germany and Japan come to mind. In both these countries, workers have a voice within the governing structures of companies.
Nationalising mines and land has been proven time and again not to work, but calls for this to happen are becoming not only more strident but more persuasive in the national debate. We already have a highly advanced system of corporate governance, and one that is already explicitly based on a value system that includes wide corporate responsibility. What we now need to do is create the formal structures at company level to make stakeholder engagement an integral part of the way companies are governed.