Conscious Companies Awards 2017

A new dawn.

By Prof. Mervyn King

In the middle century the wealthy families rebelled against providing risk capital to unincorporated entities where they were still liable for all the debts of the company, their discussions with politicians centred on creating an artificial person by statute with limited liability.

There were socio-political pressures at the time in this regard. Theologians and other academics said that a person could only be created by the Almighty. It was inappropriate for human beings who were creatures of the Almighty to create a person that never had, to quote John Poynter, “a soul to be damned nor a body to be kicked.”

A company when registered is a person, artificial it is true but a person with characteristics different from an individual because it is theoretically immortal and has neither a soul nor a mind of its own. An individual being a curator for a young person being incapacitated of mind would not dream of filching for him or herself some benefit from this unfortunate young person’s circumstance; would use their skills voluntarily in the best interests of that person; would take great care of the person’s assets and great care in their decision making and would be diligent in planning for the person, short, medium and long term assuming that the physician would have told the curator that this young incapacitated individual could live well into his or her 90’s.

However, our unfortunate company is totally incapacitated. It has no heart, mind or soul of its own. Directors from the middle of the 19th century had the duties of good faith, care, skill and diligence owed to the company and not to shareholders. This was believed during the era of the primacy of the shareholder and the myth that shareholders owned the company. The latter myth formed the erroneous foundation for the agency theory of governance. On this theory directors had to act on the instruction of the shareholders as their principals.

A director’s duty is to be independent of mind and come to board meetings unfettered. Consequently, his legal duty from the middle of the 19th century was inconsistent with the agency theory which developed and held sway right until the end of the 20th century.

In consequence directors become the heart, mind and soul of a company because it has neither of these as its own. It certainly does not have a soul to be damned nor a body to be kicked. Consequently, directors in their offices and in the boardroom create the heart, mind and soul of a company. A conscious company therefore is dependent on the conduct of its directors and its leadership.

A conscious company is one where the directors have honestly applied their minds in the best interests of the incapacitated artificial person, the company, so that it is seen by society to be an ethical and responsible corporate citizen. Society can perceive whether a company is a conscious one or not. They see the company having achieved the outcomes of effective leadership, adequate and effective controls, value creation in a sustainable manner and legitimacy of operations.

With these stakeholder perceptions, it is timeous to have awards for those companies that stand out among their peers. It is the quality governance practised by directors that leads to the outcome of a conscious company. This quality governance journey by directors should be awarded. Therefore, the time has arrived to have the Conscious Companies Awards. It will also raise the awareness of other companies that they are perceived by their stakeholders as to whether they are a conscious company or not.