BEE charters and the broad-based BEE codes of good practice might move corporate social investment (CSI) into the boardroom as a serious subject of discussion.
The codes represent a kind of supercharter, with which all charters will have to be “aligned”. Industries and businesses are scored according to a balanced scorecard with seven elements, of which socio-economic development or CSI is one.
Only five out of 100 points are set aside for socio-economic development. At least the CSI component is no longer referred to as the “residual”, meaning what’s left after ownership, management control, preferential procurement, employment equity and enterprise and skills development are dealt with.
It is welcome that CSI gets more board-level attention. Despite the innovation and commitment shown by the companies that have won recognition in the Mail & Guardian Investing in the Future Awards, CSI often seems to be an afterthought.
At worst CSI can be a form of patronage designed to buy political credits or divert attention from questionable business practices.
CSI could be regarded as corporate philanthropy. The way this is viewed in the rest of the world is illustrated by a description in a The Economist survey, published in February last year: “Corporate giving has long had a reputation as the sleaziest corner of philanthropy. Although usually nominally independent of the companies whose names they take, corporate foundations in practice are often treated as a sort of slush fund into which the chief executive can dip to help a pet cause, enhance his status in the community or even cement a business relationship with a donation to a cause close to a business partner’s heart.”
Environmental policy analyst David Fig sees CSI as a distraction from the bigger role business has in society, sometimes referred to as good corporate citizenship or corporate social responsibility.
To the extent that CSI is corporate giving, South Africa differs from developed countries, says Fig. Business has a direct historical responsibility to address the damage caused by apartheid, because of its involvement. Business, he says, has never acknowledged that responsibility, not even at the Truth and Reconciliation Commission.
The counter argument was recently put by Margie Keeton of independent, non-profit management consultancy Tshikululu Social Investments. She says leading companies have gone beyond their conventional roles for more than two decades to help smooth the transition from apartheid to democracy.
“This business story is not a simple morality tale of good versus evil. There was much that business had to answer for in its conduct under apartheid, but it also played a critical part in shaping an emerging engagement across political and racial divisions during the 1970s and 1980s.
“This continued in the 1990s and helped create the space and trust for the fundamental change to take place through constitutional negotiations in a largely peaceful and managed way. Because it was apartheid South Africa with all its attendant conflict, contradictions and coercion, the issues business had to deal with were sharp, immediate and often ugly.”
Perhaps CSI is different from simple corporate giving. The just-published book, Staking Their Claims, which is edited by Fig, notes the local emphasis on what it calls “add-on strategic philanthropy”. It says this might crimp South African companies’ responses to international demands for sustainability to be incorporated into core strategy.
The book concedes that CSI might place South African firms in a better position than their Northern counterparts in appreciating development challenges. “The experience of South African companies with CSI might have benefited them in terms of a more sophisticated understanding of social development issues.”
In any case BEE could well give CSI a boost. For a start, perhaps there are companies that are not yet spending 1% of net profit after tax on CSI. This is the compliance target that achieves the full five points allowed.
Social investment consultant Merle Favis says that generally companies have focused on the other six elements of the scorecard. She believes there is an opportunity to use the CSI covered by five points of the scorecard to make a much bigger impact by integrating it into the empowerment transaction.
“Companies that have undergone a BEE transaction have not fully explored the potential of the CSI component to be integrated with that transaction.” She speaks of the opportunity to unlock resources creatively in new innovations.
An example would be using CSI to invest in employing people with disabilities, thus scoring points on the employment equity part of the scorecard. Even more than this, new ways can be found to move beyond mere compliance.
But, while being quite pragmatic, the codes state that companies will get full points for their contributions to socio-economic development only if at least 75% of the value directly benefits black people. If not, they will get points for only the percentage that directly benefits black people.
The difficulty here is deciding what directly benefits black people. For instance, what if donations are made to a think tank helping to refine human rights, which benefits all South Africans? Will the company have to count only 90% of the contribution, because about 10% of South Africans are white? Or will it have to prove that all the members of the think tank are black? Or is the matter of race in this instance irrelevant?
Companies might want to play it safe and give money to, for example, a programme that benefits black schools rather than an initiative that benefits education generally, though a more general boost to education might be more effective. This kind of distortion of CSI could be an important unintended consequence.
Another question is whether or not the codes and charters can be considered a form of regulation. Corporate giving elsewhere is considered to be voluntary: otherwise it is a tax. Can contributions in money or any other form, the motivation of which is to comply with regulation, actually qualify as CSI?
Fig reckons the contradiction is that if companies are not doing enough to comply with other regulations, such as those relating to the environment, what is the point of putting in place another set of regulations?
These issues will become clearer as companies turn their attention to the socio-economic development part of the scorecard.
Reg Rumney is a judge in the Investing in the Future Awards
A critical look at the codes and CSI
The gazetting of the BEE codes of good practice earlier this year brought to a close a three-year consultative process on the future role of South Africa’s private sector in the country’s transformation process. We at Trialogue have kept a close eye on the process and, though there will inevitably be some scepticism around the ability of the codes to achieve their goals, their finalisation has at the very least eased the burden of uncertainly that has for some years troubled the private sector around its obligations to transformation.
The effect of the codes on CSI is profound and somewhat obscure. At its most obvious, government’s inclusion of CSI, via code 700 on the BEE scorecard, finally secured a “permanent” seat for social development in the boardroom. While still voluntary, this status has the undeniable potential to further the strides towards professionalism and improved performance that has in many respects defined the evolution of CSI practice in the democratic era. It is an evolution that is by no means complete and much still needs to be done to ensure that knowledge is more effectively shared and the opportunities for collaboration are increasingly embraced.
In its gazetted form, however, code 700 produced a number of surprises for the CSI sector. What, for more than two years in draft form, was defined broadly as “non-recoverable solutions to society and communities extraneous to regular business” and applicable to a variety of developmental areas became “non-monetary contributions … with the specific objective of facilitating sustainable access to the economy” in the finalised document. In short socio-economic development, as it is referred to in code 700, should be the desired goal for corporates hoping to get the points on offer.
While socio-economic develoment is not synonymous with CSI as it is defined in code 700, there is substantial overlap between what can be considered socio-economic develoment and CSI activities.
Considerable opportunity exists for corporates to bolster economic activity at the level of poverty alleviation. Yet there is also risk contained in the final definition, especially for welfare-based organisations that do not directly support access to the economy and depend on continuous, “unsustainable” funding — another undesirable characteristic discouraged by the finalised code.
To clarify some of the teething issues related to the gazetted codes, the department of trade and industry released an interpretive guide to the codes in the middle of the year. Unfortunately the document remained silent on a number of significant issues regarding the overlap between socio-economic develoment and CSI. As such, the exact effect of the codes on CSI remains unclear.
At Trialogue we have given this issue considerable attention and our interpretive guidelines to code 700 will appear in the 10th edition of The CSI Handbook, which will be launched at the Making CSI Matters conference in November. — Vanessa Rockey, director of Trialogues, which publishes the annual CSI Handbook