Lessons from South Africa: Ubuntu in Corporate Governance

Ubuntu. “I am because of you”, as roughly translated as part of a fuller expression in the Nguni languages. It stems from the notion of universal bonding and collectivism.

In spring of this year, Adam and I got to meet many of our South African clients on their farms, in their factories, or in their offices. For many South African companies, the pandemic, high price of oil, drop of the Rand in value, and staying afloat, especially as a publicly listed company or company invested in neighbouring African countries, has been a real struggle. However, many of these companies still comply with integrated reporting (including ESG) – it isn’t so controversial as ESG currently is in the US, plagued with its plethora of lawsuits both for or against ESG.

I had the pleasure of interviewing Ansie Ramalho, arguably one of the “mothers” of South African corporate governance including King IV, a guiding but voluntary framework. Ansie noted that in comparison to ESG and CSR, King IV corporate governance has a much broader framework. More importantly, King is appropriately tailored to the needs of South African society and inequalities.

The most recent King IV with its “Apply and Explain” model includes the objective of “reinforcing corporate governance as a holistic and interrelated set of arrangements” and as “an ethical consciousness and conduct.” King IV includes a “stakeholder-inclusive approach” which means that the shareholders interests are not the sole and absolute interest of a company’s corporate governance model.

Such a double materiality standard allows for a corporate governance model to deal with the internal exercise of power but often with a conscious awareness of external impacts. As such, companies must assess their impact on the community and environment, and disclosure of such. Value is not just for shareholders but also for stakeholders. The Board therefore becomes the focal point of corporate governance and should take responsibility for corporate governance.

History of King

There have been many versions of King with the most recent being King IV. Furthermore, it was developed by South African Judge Mervyn King as the country moved forward post-Apartheid with a new constitution in mind and borrowing from the Cadbury Code’s “comply or explain” style of corporate governance in the UK. The objective of King I post-Apartheid was to attract FDI (Foreign Direct Investment) with an emphasis on ethics and employees. King II and King III took into consideration sustainability and reporting by companies who incorporated it.  

At the time King was being developed, South African history was heavily taken into account, which excluded a huge part of society from participation in the economy, and historically human rights was not essential to South African trade. Parallel to the inclusion of human rights being integrated into the South African Constitution, King also heavily included ethics in respect to human rights and the inclusion of black South Africans.

US v South Africa Corporate Governance Development

Contrast this with the US, with a primarily single materiality system where maximising shareholder value is of the utmost importance, in which external stakeholders are not even a close second. While this is changing slowly, it still has a long ways to go. For starters, the SEC in the US intends to include aspects of ESG, particularly climate-related disclosures relating to greenhouse gas emissions.

Furthermore, Ansie noted that in comparison to ESG and CSR, King corporate governance has a much broader framework. More importantly, King is appropriately tailored to the needs of South African society and inequalities.

Ansie and I had an interesting discussion in which we both agreed that both the US and South Africa have dark histories in the acknowledgment and treatment of its minority citizens. However, how both countries have tried to provide pathways of fairness and equality differ, particularly in terms of corporate governance and the Board’s responsibility. In King, the Board should take responsibility for its oversight in matters not just related to maximising shareholder profit and solely impacting shareholders and the company. South Africa’s newer Constitution allows and provides a foundation for this enhanced materiality captured in King.

In addition, South Africa has very specific legislation called “Broad-Based Black Economic Empowerment” Codes of Good Practice with the fundamental object to enhance the economic participation of black people in the South African economy. B-BBEE participation has varying levels as well as an accreditation and independent verification process. Quite interestingly, a lot of B-BBEE reporting shows South African company’s strong commitment to this initiative.

Many companies, our clients included, have hard statistics on their progress including vaccination rates and disclose relevant statistics such as free, voluntary HIV tests as HIV/AIDS has taken a heavy toll in South Africa. Some clients even provide on-site flu vaccinations for their employees and report these statistics as part of their disclosures.

King IV is a highly localized framework that, although voluntary, is specific to South African society and markets and incorporates a collectivist approach to corporate governance. More jurisdictions could learn from this South African corporate governance model to develop their own contextualised reporting mechanisms that adequately address the needs of their society.

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