The King IV report, released late last year, was generally well-received and for good reason. In sharp contrast to King III which was rules-based, leading to a box-ticking approach for companies, the revised code focuses on the application of principles with a view to achieving specific outcomes.
King III created a space for companies to apply principles selectively and explain away the rest, but from April 2017 when King IV came into effect, companies are required to explain how they are applying all of the principles.
This principle-driven approach in King IV calls for ethical leadership with an underlying expectation of transparent governance.
In our experience of working with business leaders through the leadership development programmes at TowerStone, we have found that the ethical leaders are easily recognisable because they set examples of attitude, mind-set and behaviour that drive the fulfilment of promises made to customers, and inspire their teams to do the same.
Our focus is on equipping leaders to model and coach a culture where everyone shares an understanding of what the organisation must achieve and their individual roles in fulfilling the promise made to their stakeholders. This transparent approach to corporate governance creates the context for employees to contribute ethically and shareholders to endorse an ethical culture.
King IV strongly encourages transparency and I believe that it will serve South Africa’s economic future well if corruption can be discounted.
The country’s national broadcaster is a very public example of how the market responds when it discovers that leaders have misrepresented themselves. What started as a routine verification of someone’s qualifications ended in a total breakdown in corporate governance and resignation of the SABC Board.
The real tragedy here is that organisations often discover that they have unethical employees only when they invest in developing those employees to take the lead in their organisations.
The shift in King IV towards principles means that, increasingly, the commercial success of an organisation is becoming dependent on the character and competence of its leadership.
In the past, it may have been acceptable to hire managers who could enforce compliance with a set of rules, but now we will see a demand for ethical leaders who care about the impact of their enterprise and set an example of principled decision-making.
This means that organisations need to attract leaders who relate to and promote the organisational values in their personal capacity. These leaders should be empowered to inspire their teams to live out those values through aligned behaviour, in fulfilment of the organisation’s promise to customers.
This article was first published by Leadership Online and is republished here with permission.
Malcolm Ferguson is Academy Head at TowerStone, a Leadership Centre, which empowers leaders to build a values-driven culture for sustainable success.