In our previous blog, we discussed the vital importance of board committees, specifically elaborating on the audit committee and its valuable oversight of the financial reporting process, the audit process and its internal controls, and the organisation’s compliance with laws and regulations. Today, we will briefly discuss the importance of a social and ethics committee.
A social and ethics committee is very important to protect both the environment in which an organisation operates and stakeholders’ interests. It is a formal structure that ensures that appropriate attention is given to a company’s value system, particularly its ethical standards. Organisations’ social and ethical values are a crucial element of decision-making and general conduct. Any negativity about a company’s social and ethical conduct can cause serious economic damage. Therefore, the appointment of a social and ethics committee is a statutory requirement for some companies. Any organisation’s board that is not specifically obliged to do so should nevertheless consider appointing a dedicated committee to oversee and report on organisational ethics, responsible corporate citizenship, sustainable development, and stakeholder relationships. The social and ethics committee must comprise at least three members, both executive and non-executive. King IV™ recommends a higher standard, stating that the majority of the committee’s members must be non-executive board directors to ensure that independent judgement is exercised.
King III™ provides a principle-based framework to enable the board to lead effectively, supported by an ethical foundation, and states that the organisation should establish an ethical culture and good corporate citizenship. King IV™ recommends an integrated approach that will create value over time. It furthermore expands the role of the social and ethics committee to include oversight, reporting on organisational ethics, responsible corporate citizenship, sustainable development, and stakeholder relationships. The statutory functions of the social and ethics committee in terms of s 43(5) of the Regulations to the Companies Act 71 of 2008, include the following:
- Monitor the company’s activities, having regard to any relevant legislation, other legal requirements or codes of best practice, about matters relating to –
- Social and economic development, including the company’s standing in terms of the goals and purposes of –
- the Ten Principles of the United Nations Global Compact;
- the OECD Recommendation regarding corruption;
- the Employment Equity Act, as amended; and
- the Broad-Based Black Economic Empowerment Act, as amended.
- Good corporate citizenship, including the company’s –
- promotion of equality, prevention of unfair discrimination, and reduction of corruption;
- contribution to development of the communities in which its activities are predominantly conducted or within which its products or services are primarily marketed; and
- record of sponsorship, donations, and charitable giving.
- The environment, health, and public safety, including the impact of its activities and its products or services.
- Consumer relationships, including the company’s advertising, public relations, and compliance with consumer protection laws.
- Labour and employment, including –
- the company’s standing in terms of the International Labour Organization Protocol on decent work and working conditions; and
- the company’s employment relationships and its contributions to the educational development of its employees.
- Bring matters within its mandate to the board’s attention as occasion requires, and report via one of its members to the shareholders at the company’s annual general meeting on the matters within its mandate – while still ensuring that its ethics are managed effectively.
Companies with an excellent social and ethics committee stand to benefit on many fronts that contribute to their overall sustainability. These include ethical leadership, greater trust from the employees, improved company culture, effective accountability, better management of risk, compliance and ethics, stronger stakeholder relations, and a solid reputation.
If you are unsure about how to establish a social and ethics committee or have established a committee that is not functioning optimally, we can assist you with the framework, policies, reports, reporting and guidance at Okina Company Secretarial Services. Contact us at email@example.com.