Environmental, Social and Governance narratives in South Africa

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“The Role of the General Counsel in Guiding Environmental Social and Governance narratives related to the Corporation”

Author: Zunaid Lundell

Corporate corruption and malfeasance have been on the rise globally with corporations exposed to capital markets haemorrhaging financially and reputationally as a result of poor governance structures and an over-prioritisation on short-term profit maximisation. In order to stem the rising tide of corporate corruption the theory and practice of Environmental, Social and Governance (ESG) aspects of a business cannot continue to be viewed as separate from legal compliance and the pivotal role of legal officers or general counsel.[1] Robert E Freeman notes the importance of eschewing the separation thesis, which archaically views business as separate from ethics and corporate citizenship. This view is supported by Ben Heineman, who underscores the proposition that the role of modern general counsel is about moving beyond the question of “is it legal” to the more pertinent and incontrovertible question of “is it right”.[2]

The Role of the General Counsel Beyond the Narrow Scope of Legal Compliance

An appreciation for the fact that capital markets have become increasingly reactive and responsive to media reports covering a corporation’s affairs highlights the damaging effect negative publicity can have on a listed entity’s share price. This excludes the costs of depreciated brand equity value, lawsuit fees and the costs related to internal human capital dissatisfaction.

South Africa’s legal framework should be more explicit in requiring corporations which operate in its jurisdiction to move away from the dominant theory advocated by Milton Friedman in the 1970s of pursuing a singular objective of short-term shareholder profits,[3] and move toward value-based multistakeholder approach, which comprises (i) employees, (ii) creditors, (iii) the local community, (iv) customers, (v) the environment and (vii) shareholders.[4]

Moreover, R. Freeman promotes general counsel espousing ESG factors and long-termism at senior leadership roles within companies, which would have the corollary effect of mitigating corporate risk and increasing ethical corporate leadership. This would require General Counsel to be well versed in a multiplicity of socio-economic factors whilst having a firm grasp of the law and the manner in which it is reflected onto society through the lens of ESG and long-termism.
R. Freeman also notes that the role of legal practitioners and general counsel now requires
broad-based value judgments vested in present-day public interest narratives coupled with the ability to understand long?term implications of a corporation’s actions which is not only premised on private good.[5]

An increasingly prevalent view is that a general counsel’s role should be inextricably linked to the rapid pace of public perception through social media and other communication platforms, requiring not only technical legal knowledge, but also a broad range of skills which create well rounded solutions to legal and ESG issues. Heineman stresses that general counsel should have the “quintessential quality of the great generalist to envision and understand multiple dimensions of issues to define the problem properly…”[6].

Concluding Remarks

Companies need to ensure that their market reputation is managed appropriately by ensuring their employee confidence, investor relations, customer base, and environmental awareness are continuously placed at the forefront of decisions and above those which promote short-term shareholder profits.  The role of the general counsel should be intrinsically vested with corporate social responsibility and ESG mandates which extend beyond the purview of legal compliance in the narrow sense. This is particularly important as shareholders tend to be physically and socially distant from the companies in which they invest.[7] Ultimately, the role of the general counsel must be seen as integral to the corporation’s business success and hold an office which is consulted by the board often to ensure a company’s long-term vision is maintained and its risk is managed and where possible mitigated.

* BA(Hons) (Cum Laude) Wits University | LLB (Cum Laude) Wits University | LLM (Magna Cum Laude) UC Berkeley

[1] A New Approach to CSR, Company Stakeholder Responsibility, R. Edward Freeman & Ramakrishna Velamuri (2005).

[2] B Heineman, The General Counsel as Lawyer Statesman, Harvard Law School, p. 5.

[3] M Friedman, The Social Responsibility of Business is to Increase its Profits, New York Times Magazine (1970), p. 1.

[4] B Heineman, The General Counsel as Lawyer Statesman, Harvard Law School, p. 5.

[5] R.E. Freeman, New Approach to CSR: Company Stakeholder Responsibility, (2005), p 8.

[6] B Heineman, at fn.4, p. 7.

[7] J L Bower and L S Paine, The Company’s Health not the Shareholder’s Wealth”, 2016. p. 53.

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