The research findings of a new study undertaken by Nelson Mandela Metropolitan University (NMMU) Business School which examined conscious corporate governance has delivered fascinating results on the future sustainability of companies.
The sample size included 371 senior executives from 167 JSE-listed and 54 unlisted companies in South Africa who participated in a study focussed on the role of conscious leadership in the achievement of sustainable business practices.
“Conscious leadership is a powerful but relatively new and understudied area in leadership studies. It is a form of leadership which draws on holism, creativity and inspiration to allow companies to solve business issues in a more ethical way through increased leadership consciousness,” said Professor Cecil Arnolds, Graduate School Director at NMMU Business School.
“It differs from traditional leadership where leaders manage their firms through authority structures and relationships through the use of force, intimidation, manipulation and political-power relationships. Conscious leadership, on the other hand, employs inspiration, evocation of greatness, mutual trust and truth-telling where leaders have strong levels of trust in themselves and in their followers.
“It was rewarding to see that the majority of respondents regarded conscious leadership as an integral part of governing and indeed the success of their companies. This allowed us to create a new term, namely, conscious corporate governance or a higher level of conscious leadership in corporate governance.
“We began to explore the relationship between systems-thinking and conscious corporate governance; and the relationship between conscious corporate governance and sustainability outcomes such as profitability, employee relations, and equal opportunities and workforce diversity.”
The empirical results revealed two important findings. Firstly, conscious corporate governance was positively related to healthy employee relations and the achievement of equal opportunities and workforce diversity. However, conscious corporate governance was negatively related to profitability. Secondly, systems-thinking competency was positively related to conscious corporate governance.
“A finding that conscious corporate governance reduces profitability draws attention to future debates of profit maximisation at all costs. Should this kind of corporate governance be avoided in favour of increasing profitability? How do we find and maintain the balance on triple bottom-line dimensions of sustainability including people, planet and profit?”
He said that empirical results clearly showed that the pursuit of profitability – by reducing conscious corporate governance, as the questionnaire responses suggest – would impair healthy employee relations and the achievement of equal opportunities and workforce diversity.
“The reduction of conscious corporate governance for short-term profitability gains, but at the expense of employee relations, and the achievement of equal opportunities and workforce diversity, is not a viable option in any firm, especially not in the South African context.”
Managers’ conscious corporate governance behaviour could be increased by enhancing their systems-thinking competencies, Professor Arnolds advised.
“This can be fostered by encouraging and training managers to serve on audit and remuneration committees independent from one another; by participating in designing, testing, implementing and evaluating the firm’s strategies and plans, by participating in the analysis of economic and environmental issues related to sustainability, amongst other.”
Conscious corporate governance includes managers doing the following:
- exhibiting the capacity to think systemically about the future of the firm;
- actively supporting their firms’ public commitment to complying with internationally accepted governance standards, such as King IV;
- actively supporting their firms’ review procedures for both internal and external audit findings;
- actively supporting their firms’ code of ethical policies;
- actively supporting their firms’ efforts to hold senior staff responsible for ethical management;
- actively supporting their firms’ efforts to ensure that training and/or communication on the code of ethics takes place (e.g. as part of employee-induction programmes);
- actively supporting their firms’ efforts to ensure a secure communication channel for employees to seek advice or voice their concerns (e.g. a confidential fraud hotline);
- actively supporting their firms’ efforts to have compliance-monitoring and regular reviews of the implementation of the code of ethics in place;
- actively creating an ethical environment in their firms, by using their own transformational influence;
- understanding the potential of interventions to produce unintended consequences and to plan accordingly;
- understanding that a fragmented approach to sustainability is unlikely to be successful – because of its integrated and complex nature.
Professor Arnolds concluded: “Conscious leadership should be the driver of sustainability competencies, sustainability behaviour and corporate governance, in order to achieve sustainability outcomes. Conscious-corporate governance, which includes characteristics of conscious leadership, should be developed to higher levels in companies, so that healthy employee relations, equal opportunities and workforce diversity could be achieved.