BEE has an international
By Ralph Hamann -
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
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
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
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
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
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
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
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
Dr Hamann is with the African Institute of Corporate
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