Levels of corporate investment in social causes have been ticking up over the years as corporate social investment (CSI) has steadily grown in importance. The pressure is on for companies to be seen to be doing good work for their communities and criticism of the ‘usual BEE suspects” is intense. It is impossible to say whether black-controlled companies are more generous than predominantly white-owned companies, and the debate is still raging over whether they should be. But what is clear is that most large South African companies take their CSI spend very seriously.
CSI initiatives are projects that are in addition to a company’s normal business activities and are not for profit. They aim to uplift and develop communities and are seen as an investment in society. These days, just about every large, established company will have some form of a strategy for CSI, as it is seen as essential for good corporate citizenship. The introduction of the ‘triple bottom line”, the Global Reporting Initiative and the Social Responsibility Index of the JSE all mean that CSI is regarded as more than merely voluntary.
The Mail & Guardian set out to examine whether there was a difference in spending between black-controlled companies and established companies. We used the definition of a black-controlled company as being one that has more than 35% black ownership, as control tends to be vested at this level. In most instances, a 35% stake will be the largest single stake in a company and this shareholding level will be enough to pass resolutions. These tend to be companies which are either relatively new or have undergone profound transformation.
For our established companies, many of which have already concluded BEE deals, we looked at the JSE’s Top 40 listing. There were no clear differences between the spending of black-controlled and established companies; what emerged instead was the level to which BEE scorecards regulate spending. If anything, high-profile companies were likely to be the most generous, perhaps because they are more likely to be in the public eye.
BEE regulations encourage involvement in CSI. The broad-based BEE codes of good practice, gazetted last month, allow five points for contribution to socio-economic development with a target of 1% of net profit after tax. Spending on corporate social investment tends to be influenced by the various industry scorecards, which have differing targets. Most companies will make sure they are in line with their targets, which range from 0,5% of profit after tax to up to 1,5% of profit before tax. Occasionally, companies spend above this industry-mandated target.
The financial services sector charter, which was drawn up before the codes, targets spending of at least 0,5% of net profit after tax. The charter for the information and communication technology (ICT) industry targets 1% of profit before tax to the provision of ICT in education and health and 0,5% of profit before tax towards general CSI which enhances the lives of black people. This is a much heavier burden all round than the provisions of the financial services charter. So Business Connexion and Faritec, for example, both black-controlled companies, comply with the ICT charter provisions, as, presumably, does Telkom. The phone company spent R50,2-million last year, through the Telkom Foundation, though it did not say what percentage of profit before or after tax this represented. The MTN Group, usually considered a black-controlled company, which is also in the Top 40, donates ‘up to” 1% of annual profit after tax.
Both Standard Bank and FirstRand give 1% of their after-tax profit towards CSI — double what is required of them in terms of the scorecard. Sanlam gives 0,5% of its after-tax profit. For the 2005 financial year, Absa gave 0,5% of after-tax income, but previously allocated 2% of its declared dividend. The move aligns its spending with the scorecard requirements. Although Absa’s spending seems comparatively low, it, together with Old Mutual, are widely seen as leaders in staff volunteerism and promoting a ‘caring company” approach.
Although there is no scorecard as yet for industrial diversified companies, Bidvest gave 1,1% of its South African pre-tax profit to CSI activities or 0,8% globally. This amounted to R25,7-million in South Africa and R28,6-million globally.
Of the mining companies, Goldfields commits itself to a formula based on 0,5% of pre-tax profit and R3 for each ounce of gold produced in South Africa. Last year, it spent R7,4-million on CSI in South Africa. African Rainbow Minerals, one of the most prominent black-controlled companies, spent R9-million in the last financial year, but did not say how much of its pre- or post-tax profits this represented. AngloGold Ashanti spent ‘more than R18-million” on CSI, but also did not say what percentage of profit this represented.
JSE-listed Kagiso Media, the owner of several radio stations including Jacaranda 94.2 and East Coast Radio, was founded by the Kagiso Trust, one of the country’s most well-respected development finance organisations. The trust still owns a 48,1% stake in Kagiso Media. Kagiso did not state what percentage of before- or after-tax profit is earmarked for CSI activities, but provided a list of contributions for 2006 totaling some R6,3-million.
Women Investment Portfolio Holdings Limited (Wiphold) founded the Wiphold Investment Trust at the same time as its initial public offering in 1997 to South African women. For every share that the women subscribed for in Wiphold, they were also allocated the same number of units in the trust at no additional cost. This ensures that control of Wiphold remains in the hands of women. Currently, the company is 60% female-owned and 50% black-owned. A trust made up of NGOs holds 17,5% and the Wiphold Investment Trust holds 15%. The investment trust allocates a portion of its earnings to projects benefiting women and children. It disbursed R15-million to this end in 2004, the last year for which figures are available on its website.
The Mvelaphanda Group did not disclose how much it spent on CSI, but said it supported about 40 projects during the year. The Shanduka Group, however, said it spent 1,5% of after-tax profit. This makes it one of the most generous givers of any corporate, excepting those bound by the ICT charter.
What is clear from our survey of selected black-controlled companies and JSE Top 40 companies, is that the form and extent of CSI varies widely. Many companies use corporate foundations or trusts to carry out their work; others boast substantial investment from community organisations, which means (in theory at least) that profits from these companies is directly beneficial at a grassroots level. Some companies have stated their CSI contributions only in monetary terms; others only in percentage terms, and some in a mixture of both. A few companies declined to give even a monetary indication, but provided a list of activities.
The definitions
The financial services charter, for example, sees corporate social investment (CSI) projects as taking place in the spheres of education, skills training, development programmes, environment, job creation, health, arts and culture, and sport. The codes of good practice, however, define ‘socio-economic development contributions” as contributions made with the ‘specific objective of facilitating sustainable access to the economy for — beneficiaries”.
The question is whether education or health CSI projects, for example, would have the ‘specific objective” of facilitiating economic access. This ‘economic access” criteria potentially means that the scope of CSI activities could shift in future as companies strive to claim their full allocation of empowerment points. — Jocelyn Newmarch