WHY WE NEED TO LINK BEE TO CSR

"Participation Builds Unity"

"MADE IN AFRICA - FOR AFRICA"

PRESENTS

WHY WE NEED TO LINK BEE TO CSR
Business Day
24 January 2005
African Institute of Corporate Citizenship
NEWSLETTER JANUARY/FEBRUARY 2005

***********************************

Why we need to link BEE to CSR

Black economic empowerment (BEE) is a dominant theme in South African boardrooms and the business press. In many ways, BEE is a uniquely South African phenomenon. It represents the need for comprehensive redress in the wake of apartheid and the important role of the state in pushing transformation.

But there is a danger that this focus on BEE is too inward-looking and too focused on the particular nature of South African challenges. This may alienate foreigners who are participating or interested in our economy and it may lead to duplicated efforts and inefficiencies. This article argues that we need to link the South African debates on BEE to the increasingly prominent international pressures for corporate social responsibility (CSR) and sustainable development.

In South Africa, BEE is well understood and it is codified in government policy. It requires companies to increase historically disadvantaged South Africans’ (HDSAs’) access to ownership, management positions, employment equity, skills development, supply chain opportunities, services (such as bank loans), and community development benefits. Much of the controversy surrounding BEE centres on the relative importance of the ownership criterion and the widespread concern that BEE should be more ‘broad-based’.

CSR, on the other hand, still evokes confusion amongst South Africans. There is still the lingering perception that CSR is primarily about corporate social investment or philanthropic initiatives in education, health, or welfare.

This is despite the fact that nearly all prominent companies active in South Africa define their social responsibility more broadly. Their sustainability reports include issues such as corporate governance, occupational health and safety, HIV/AIDS, human resources development, environmental performance, small business development, affirmative procurement, and stakeholder engagement.

It is apparent that there are important overlaps between these issues and BEE. This is most obviously the case with issues such as human resources development and affirmative procurement. But even occupational health and safety, environmental issues, and community engagement – though not explicitly part of government’s BEE policies – do represent important concerns related to the empowerment of HDSAs.

South African initiatives related to this broader version of CSR include the second King Report on Corporate Governance, which explicitly requires companies to report on non-financial performance, and the recent launch of the JSE Securities Exchange Socially Responsible Investment Index.

Generally, however, the most important pressures for increased CSR are located at the international level. For instance, the United Nations Secretary General’s Global Compact initiative commits participating companies to core labour, environmental, human rights, and anti-corruption standards. A further example is the Global Reporting Initiative (GRI), which provides guidelines for companies’ sustainability reports.

Investor pressure for CSR is also most prominent in the largest markets, with an estimated 10% of US funds under professional management dedicated to socially responsible investment. Most UK pension funds are incorporating CSR principles into their investment decisions.

Considering the significant overlap between BEE and CSR principles, and considering the growing international interest in CSR, it is surprising that the South African BEE debate generally ignores the CSR agenda. For instance, Business Day recently reported on a Deloitte survey on CSR (“Suitable BEE candidates in short supply, says Deloitte”, December 9 2004), but it focused on the controversial ownership element of BEE, without reference to how broad-based BEE relates to CSR and why it may be in companies’ interest.

There are at least two good reasons why linking BEE to CSR and sustainable development is important for companies, as well as for the South African economy as a whole. The first relates to communication with, and perceptions of, international stakeholders, especially investors. The second relates to the implementation of more effective and efficient management systems to respond to both BEE and CSR.

Regarding the first reason, it is apparent that international investors are apprehensive about BEE. One of their key concerns is the prospect of value dilution in connection with ownership transfer to HDSAs. This was brutally obvious in the case of the mining charter negotiations and the subsequent road show by government and big business to ameliorate investors’ concerns.

Because of the overwhelming emphasis on the ownership element, the opportunity has been missed to convince international stakeholders that the majority of BEE objectives are closely related to the CSR objectives that many large institutional investors have already committed themselves to.

This need for convergence between national and international debates has been understood by many, but it remains elusive. For instance, the Banking Council’s Cas Coovadia, who played an important role in devising the Finance Sector Charter, agrees that a crucial challenge remains to relate the Charter’s motives and objectives to the international sustainability agenda.

In the finance sector, these international pressures are epitomised by the Equator Principles (a list of social and environmental principles adopted by almost 30 of the world’s largest banks). An improved understanding is necessary of how the Equator Principles relate to the South African context, and BEE in particular.

Emphasising this area of overlap between BEE and the international CSR agenda would also contribute to giving greater weight to the ‘broad-based’ character of BEE and its contribution to poverty alleviation and economic development. It ought to give greater credence to those, like the trade unions, who want BEE to be part of government’s broader development agenda, rather than primarily about the creation of an elite.

Understanding the inter-relationship between most BEE objectives and the international CSR requirements will also allow for more effective and efficient management systems within companies. In most prominent companies active in South Africa, management systems have evolved to respond to increasing requirements and expectations for environmental and social performance enhancement.

Especially in high-impact industries like mining, operational management is given support by specialised environmental or social staff, and internal reporting structures are based on key performance indicators that eventually allow for effective external reporting in accordance with Global Reporting Initiative guidelines.

More recently, however, intense pressure for effective BEE responses have in many instances led to the establishment of separate, more high-level management structures. As far as BEE elements other than ownership are concerned, these new structures have often led to duplication and inefficiencies, or even the eclipsing of existing CSR efforts.

There is thus significant benefit to be derived by companies from a strategic approach that sees BEE as an inherent part of the company’s broader CSR strategy and management. This would allow for the establishment of more efficient and synchronised management and reporting systems. Corporate reports would more likely satisfy the South African government’s demands for BEE-related information, as well as stakeholders’ concerns with broader CSR issues.

To conclude, linking BEE to CSR and sustainable development would benefit South African companies and the South African economy, by improving international investors’ understanding and perception of BEE and by improving management efficiency. It would also enhance BEE’s contribution to poverty alleviation and hence South Africa’s long-term political stability and attractiveness as an investment destination.

African Institute of Corporate Citizenship
www.aiccafrica.org

If you have any queries regarding this newsletter or would like to supply news items or details of events, please contact:
Julie VIVIER: julie@aiccafrica.org

***********************************

BACK TO
CORPORATE SOCIAL
INVESTMENT SEND US
YOUR
COMMENTS BACK TO
MAIN INDEX
FRONT PAGE

***********************************

DISCLAIMER

The
Foundation for the Development of Africa
Accepts no responsibility for incorrect detail listed above!
Kindly notify us of any discrepancies:

CONTACT US

***********************************

"Sustainable Development is the action and/or act of bringing people
and/or processes into position for the effective use in the support and/or delivery
of efforts, conducts and the cause!"

***********************************

TOP

THE FDA SUPPORTS AND ENDORSES:

The Hosting of this Website is Proudly Sponsored by:

Website search technology courtesy:
FreeFind.com