From Financial Capitalism to Sustainable Capitalism

Mervyn E. King, PhD, LLD

Since the 1930s, we have looked at things through a financial lens, and I'm afraid that cannot pertain in the changed world of the 21st century. In 1994, I spoke about an inclusive approach to governance—that a board should understand the major stakeholder groupings relevant to the company and try in its strategic decisions to meet the reasonable expectations of stakeholders. The first stakeholder report was, in fact, issued by Ben & Jerry in Vermont in 1995. And in Boston, Bob Massie and Allen White brought up the fact that 80% of value is found in intangible assets not on the balance sheet (see Exhibit 1), and in 1997 they started the Global Reporting Initiative (GRI). I recommended sustainability reporting as a listing requirement, and the Johannesburg Stock Exchange adopted the requirement in 2002. The world's top body on accounting, IFAC [the International Federation of Accountants], said that financial reporting is critical, but it's not sufficient. When I was chairman of the GRI, I said that those factors that are critical and relevant and material to the business of the company should be embedded in its short-, medium-, and long-term strategic thinking. If you look at sustainability, it involves three aspects: economic growth, social responsibility, and environmental protection. Any board of directors that develops a strategy and ignores how the company makes its money—and how it impacts on society and the environment—is actually failing in its duty of care to the company.