South African firms must adapt to a new role for their corporate social responsibility programmes
Hamann and Paul Kapelus
A Mail & Guardian article by Colleen du Toit (“New directions for donors”, October 12) and the news- paper’s supplement on the 2002 World Summit on Sustainable Development were a treasure trove for those interested in the changing role of business in relation to the challenges posed by sustainable development.
The implied message was that the responsibility of business to pro- actively support sustainable development is increasing and that there are important initiatives meant to demonstrate that business is taking this responsibility seriously.
However, crucial questions remain: why should business take on a developmental role that goes beyond its primary goal of creating profit and returns to shareholders?
How can business best meet the complex challenges posed by the sustainable development agenda? And finally, how do South African circumstances relate to global initiatives on corporate responsibility?
In recent years, however, debates on corporate social responsibility (CSR) have taken on a new sense of urgency in response to the growing global problems of poverty and environmental degradation.
Companies, especially multi- nationals, are increasingly asked to prove they are providing a net benefit to sustainable development by maximising the positive and minimising the negative social and environmental impacts of their activities, while maintaining profits. CSR calls for a company to respond not only to its shareholders, but also to other stakeholders, including employees, customers, affected communities and the general public on issues such as human rights, climate change and employee welfare.
In South Africa, CSR should provide an impetus to enhance existing efforts at enterprise creation, environmental stewardship and civic empowerment.
The evolving CSR agenda is driven by a global shift in the way the role of business is perceived. In the context of globalisation and the challenges of sustainable development, business is increasingly seen as a crucial element in transformation, for the benefit of society in general as well as business itself. This shift is characterised, for instance, by:
* Growing emphasis among United Nations and government organisations on the need for partnerships with business, to achieve common objectives (the UN’s Global Compact is an example).
A number of business associations, such as the World Business Council for Sustainable Development, now argue that CSR represents business’s enlightened self-interest.
* The establishment of many CSR principles and reporting guidelines, such as the global reporting initiative, as well as socially responsible investment indices, including the Dow Jones sustainability index and the FTSE4Good.
* Increasing emphasis on the importance of CSR among employees, consumers, social and environmental activists, as well as investors.
South Africa, in the meantime, has created a homegrown emphasis for CSR. The history of apartheid and, until 1994, the absence of committed state support for social development has meant that many larger South African companies have embraced broader developmental objectives by means of corporate social- investment initiatives.
Examples include the chairmen’s funds of many of the big South African mining companies and the national business initiative. Though the social benefits of such initiatives, as indicated in Du Toit’s article, are important and widespread, CSR goes beyond philanthropy. Com- panies need to acknowledge that CSR is not just about how a percentage of profits are invested in social development, but how the profits are made in the first place. In other words, corporate responsibility and sustainable development need to be made part of core business strategy, with the full backing of the CEO.
But therein lies the rub. Many a businessperson would argue along the lines of Nobel laureate Milton Friedman, “The business of business is business!” He argues that taking on social responsibilities leads to distortions of the market, disrupts the effective and efficient economic activity of firms, and interferes with government fulfilling its responsibilities. In any case, corporate officials are generally not trained or, for that matter, motivated to represent the public interest or to contribute to community development.
There are, however, four essential rebuttals to Friedman’s argument. Firstly, he takes for granted a strong governance situation where issues such as law and order, social justice, and monopolies are well controlled. This is not the usual state of affairs, and companies are increasingly called upon to contribute to providing a safe, fair and efficient operating environment for their business.
Secondly, the evolving sustainable development agenda is characterised by challenges that commonly defy political and administrative jurisdictions, making it difficult to clearly delineate spheres of responsibility between the state and the private sector. The challenge remains to fully incorporate the social and environmental costs of business activity into companies’ and governments’ accounting systems.
Thirdly, a common critique of Friedman, and indeed neoclassical economists in general, is that he separates business from society. This pertains, for instance, to the role of ethics in business. Amartya Sen, also a Nobel laureate, has argued that the conventional view of economic self-interest being the primary or even only motivation for business is out of place. Instead, economic trans- actions themselves rely largely on social norms and values, as evidenced by the high economic costs borne by Mafia-style economies. Ethical considerations, in the form of ethically minded employees or ethical investors, play a large role in changing business activity.
The fourth reason for why Friedman’s view is out of fashion is because big business has itself rejected it albeit to varying degrees. Witness, for instance, the proliferation of business-sponsored CSR initiatives. The underlying incentive for this is the “business case”: CSR is good for profits. This argument was first made about increased efficiency in terms of less energy and material needs because of improved environmental management, but also applies to social performance. As has been demonstrated by local community resistance to large-scale mines or consumer boycotts of sweatshop industries, social issues can have a significant effect on the bottom line.
Let’s consider, then, a company that has committed itself to being socially responsible: how can it best implement the concept? As mentioned, there are many initiatives meant to provide guidance to companies, including local efforts such as the Industry and Environment Forum, and advisory organisations like the African Institute of Corporate Citizenship.
Another set of guidelines is likely to emerge from the second King report on corporate governance.
At a company level, a key starting point is the development of a corporate policy supported by top management, including a set of policies, targets and measurable performance criteria, and clear management and reporting structures. Public reporting, in particular, is emerging as a key tool for companies to explain their policies.
At a recent KPMG seminar on sustainability reporting in Johannesburg, all company representatives maintained that publishing environmental and social reports was a challenging but vital component of their company’s business strategy, significantly contributing to the organisational learning process.
A CSR strategy increasingly talked about is partnership between companies and the government. In her article Du Toit called development partnerships “simultaneously the most promising and the most difficult management structures for donor-funded programmes”.
Research in the mining sector suggests that in certain circumstances the benefits of partnering are worth the added effort.
The key principle underlying these partnerships is “complementary core competencies”. Instead of establishing facilities akin to a development agency, mining companies should concentrate on doing what they do best: providing engineering services and project management skills, for instance. These capabilities can be used to maximum effect, because they complement and are guided by the input and resources of the other partners. So, for instance, the company’s contributions may be explicitly augmented by the government’s provision of a regional planning framework and bulk infrastructure, local communities’ labour and building materials, and NGOs’ expertise and external auditing.
Yet the jury is still out on the applicability of partnerships. One of the most difficult issues is the role of power in the partnering process. Some argue that partnerships cannot succeed without a level playing field created by the state. Others maintain that a balance of power is not necessary, arguing that the partnership need only benefit each partner more than is possible by any other means. Most agree, however, that partnerships cannot succeed if companies misuse their significant advantage in terms of financial and human resources. The most crucial ingredient is trust, and the creation of trust is one of the key challenges, particularly for business.
South African companies will need to ask themselves how the global debates surrounding CSR will affect them, especially in the run-up to the world summit in Johannesburg next year. They will need to partake in these debates, and make inter- national analysts and investors aware of what South African companies are doing to deal with the most pressing local challenges: unemployment, poverty and HIV/Aids. Finally, perhaps the most important lesson is that there is much learning to be done by business, and that companies should confront the CSR challenge in an open and transparent manner.
Ralph Hamann is conducting doctoral research on corporate responsibility in mining and is part of the South African chapter of a UNRISD project on corporate social and environmental responsibility based at Wits University’s Sociology of Work Unit. Paul Kapelus is a founding director of the African Institute of Corporate Citizenship: www. corporatecitizenship-africa.com