BEE has an international counterpart

By Ralph Hamann - Business Day

 

Black economic empowerment is a dominant theme in South African boardrooms and the business press. In many ways, empowerment 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 empowerment is too inward-looking and focused on the particular nature of SA's challenges. This may alienate foreigners who are participating or interested in our economy and it may lead to duplicated efforts and inefficiency.

We need to link the South African debates on empowerment to the increasingly prominent international pressure for corporate social responsibility and sustainable development.

In SA, empowerment is well understood and is codified in government policy. It requires companies to increase historically disadvantaged South Africans' 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 empowerment centres on the relative importance of the ownership criterion and the concern that empowerment be more "broad-based".

Corporate social responsibility, on the other hand, still evokes confusion. There is the lingering perception that it is primarily about corporate social investment or philanthropic initiatives in education, health, or welfare.

This is despite nearly all prominent companies active in SA defining their social responsibility more broadly.

The se companies' 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 empowerment. 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 empowerment policies represent important concerns related to empowering the disadvantaged.

South African initiatives related to this broader version of corporate social responsibility include the second King report, which explicitly requires companies to report on nonfinancial performance, and the recent launch of the JSE Securities Exchange SA's socially responsible investment index.

Generally, however, the most important pressures for increased corporate social responsibility are at the international level. For instance, the United Nations secretary-general's Global Compact commits participating companies to core labour, environmental, anticorruption and human rights standards. A further example is the Global Reporting Initiative, a guideline for companies' sustainability reports.

Investor pressure for corporate social responsibility is 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 social responsibility principles into their investment decisions.

Considering the significant overlap between empowerment and corporate social responsibility, and considering the growing international interest in corporate responsibility, it is surprising that the South African empowerment debate generally ignores the corporate responsibility agenda.

There are at least two good reasons why linking empowerment to corporate social responsibility and sustainable development is important for companies, as well as for SA's economy. The first relates to communication with, and perceptions of, international stakeholders, especially investors. The second relates to the implementation of more effective management systems to respond to both empowerment and corporate social responsibility.

Regarding the first reason, it is apparent that international investors are apprehensive about black empowerment. One of their key concerns is the prospect of value dilution in connection with ownership transfer to blacks. 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 ownership, the opportunity has been missed to convince international stakeholders that most empowerment objectives are closely related to the corporate responsibility objectives to which many large institutional investors are already committed.

This need for convergence between national and international debates has been understood by many, but remains elusive. The Banking Council's Cas Coovadia, who helped devise 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 ( social and environmental principles adopted by about 30 of the world's largest banks). An improved understanding is necessary of how these principles relate to SA's empowerment context.

Emphasising this overlap between empowerment and the international corporate social responsibility agenda would also contribute to giving greater weight to the "broad-based" character of empowerment and its contribution to poverty alleviation and economic development. It ought to give greater credence to those, like trade unions, that want empowerment to be part of government's broader development agenda, rather than about creating an elite.

Understanding the inter-relationship between most empowerment objectives and the international corporate responsibility requirements would also allow for more effective management systems in companies.

Especially in high-impact industries such as mining, operational management is supported by environmental or social staff, and internal reporting structures are based on key performance indicators that allow for effective external reporting in accordance with the Global Reporting Initiative.

More recently, however, intense pressure for effective empowerment responses have often led to the establishment of separate high-level management structures. As far as empowerment elements other than ownership are concerned, these new structures have led to duplication and inefficiency, or even eclipsed corporate social responsibility efforts.

There is thus significant benefit to be derived by companies from a strategic approach that sees empowerment as an inherent part of broader corporate social responsibility strategy. Corporate reports would be more likely to satisfy government's demands for empowerment -related information, as well as stakeholders' concerns about broader corporate social responsibility.

Linking black economic empowerment to corporate social responsibility and sustainable development would benefit SA's companies and the economy, by improving international investors' understanding and perception of empowerment and by improving management efficiency. It would also enhance empowerment's contribution to poverty alleviation and hence SA's long-term political stability and attractiveness as an investment destination.

Dr Hamann is with the African Institute of Corporate Citizenship

 

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