Deva Armoogum : Governance and sustainability in a world of turmoil

As the world is watching in bewilderment, the unfolding of the Trump saga, following in the trail of an equally confusing Brexit vote, here in Mauritius we have after years of dilly-dallying given birth to our second edition of the Code of Corporate Governance. The new version intends to provide flexibility but at the same time is a call to move away from selective compliance to more meaningful governance practices. The private sector, through the voice of Business Mauritius, has pledged to inclusiveness and sustainability. Unconnected as these events may seem, there is a clear thread linking them, and that is the shift of power and responsibility from governments to corporations as regards the burning issue of sustainability of the planet and of human activities.

There seems to be an abnegation of the duties of the state towards its citizens and the devolving of discretionary powers to corporations on what was thought so far to belong to the realm of public governance. As dangers of global warming become increasingly imminent (a recent commentary referred to the climate as being wicked) it is not sure how states and corporations will share the burden to protect the planet. In the very first days of his administration, Donald Trump has pledged to renege on previous commitments on global warming, and appointed as head of the EPA (Environment Protection Agency) a person known to be insensitive to the cause of the environment. Is the present administration setting the tone for the world to follow?

Our code of corporate governance, which is modelled on the King report, leaves no doubt as to the responsibility placed on corporations regarding sustainability. Principle 6 states that “the Board should present a fair, balanced and understandable assessment of the organisation’s financial, environmental, social and governance position, performance and outlook in its annual report and on its website”. In the guidelines, it is spelt out that environmental issues are vital to the economy, and organisations should “be actively involved in managing their activities in a way that minimises any negative impact on the environment”.

Taking on the responsibility for society and the environment is built on a presumption of corporate citizenship, which according to King IV (draft) “is about an organisation’s status in the broader society. It is an inevitable consequence of being an integral part of society. As a corporate citizen an organisation has rights, but also obligations and responsibilities towards society”. The report further explains that this status implies not only accountability for financial performance or “isolated corporate social initiatives”, but also for outcomes in the economic, social and environmental context, and it would be very unethical that the costs and burdens of its operations are passed on to future generations.

At a global level, this wider accountability arises out of the impacts, positive or negative, on society and the environment, and is a consequence of the fast growth in economic power of multinational organisations:  thirty seven of the world’s largest economies are corporations! Given the considerable resources at their disposal, and with the reliance that states place on them for job creation and economic growth, the battle for economic control will inevitably slide towards the corporation’s advantage.

This became evident from a recent report by five international human rights groups. Scrutinizing the Regional Comprehensive Economic Partnership which is currently being negotiated among sixteen Asian and Pacific states, they found that there was an intention to promulgate an Investor-State Dispute Settlement which gives multi-national corporations the right to derogate from national legislation and even to sue governments if they pass legislation detrimental to their activities in the country. Many cases exist where governments have had to dish out massive compensations to stop multinationals from damaging the environment, adding to the already enormous legal costs.

It is in this context that one must ask the question of how voluntary codes will help to curb the propensity to harm society and the environment. All the codes of corporate governance so far are voluntary in nature. In South Africa, there has been a gradual shift in the application regimes from the “comply or explain” in King II to “apply or explain” in King III, and now to “apply and explain” in the draft King IV. It is admitted that the previous regimes were not effective enough to obtain adherence to all the principles. The intended purpose of this new “apply and explain” regime, as adopted in our own code, is that corporations will have to implicitly adopt all the principles, with explanations as to how these have been applied in their specific contexts.

Whether this new application regime will be effective or not remains to be seen. Nonetheless one may legitimately ask whether the planet is safe in the hands of corporations. Can they be expected to care more for society and the environment than governments?

Perhaps a close look at agricultural practices may help to bring in sharp focus the real underlying issues. For instance, multinationals control the entire food supply chain, from genetically modified and patented seeds, to distribution in proprietary and branded products, leaving behind an impoverished farming population. The greatest irony of it is that thousands of farmers commit suicide, millions of people are underfed and children are starving to death, while there is over abundance and waste in the rich countries.

Conventional agricultural practices, with its massive deforestation and vast expanses of land exposed to the ravages of heavy rain and winds, are not sustainable and are manifestly in conflict with nature. The use of toxic chemicals destroys soil ecology, and pesticides indiscriminately eliminate natural predators, leading to the proliferation of pests. The most critical impact is the decimation of bee and other pollinator populations, which threatens the very future of agriculture.

Finally, climate change is undoubtedly the biggest threat that confronts mankind. Agroecology can contribute significantly to carbon sequestration and help to reverse global warming faster than any other method, yet its adoption implies a complete overhaul of the current market economy and a new mind-set.

There is therefore something fundamentally flawed in a system where the unremitting spread of consumerism, needed to keep business going, trick consumers in a logic of work, shop and die. It is perhaps fortunate that corporations, not unlike governments, ultimately derive their power from people. Customer choice is therefore an even easier process to control the power of big business, and more and more enlightened customers are refusing to be victims of the infernal trap and are increasingly ecological minded in their buying preferences.

In parallel there is also a growing community of ecologists and social entrepreneurs who are willing to walk the talk and demonstrate how they can sustainably create heathy ecosystems. Capitalism is at crossroads, being blamed for all the evils afflicting the current world, including extreme concentration of wealth and the rise of populism. Only an effective governance regime, bringing together state and non-state actors, at local as well as at global level, can help to create a safer planet for our future generations. “Apply and explain” may simply not be enough when so much is at stake.