Guided by legislation

As part of Trialogue’s research, we sought to assess the effect of BEE codes on corporate social investment (CSI) funding. In part the extent of the influence depends on the level of awareness of BEE codes and their implications for corporates.

Recent primary research with 100 corporates revealed that 58% of these companies knew about the socio-economic development (SED) target in the BEE codes. Among non-profit organisation (NPO) respondents, awareness was somewhat lower, with 71% indicating awareness and 29% either unaware or unsure.

We asked our NPO respondents whether they felt the BEE codes had influenced corporate funding of their projects. The results were mixed, with 29% of respondents indicating their funding had increased, 21% that it had remained constant, 25% pointing to a decrease and 25% were unsure of the effect.

In February 2007 the government gazetted its BEE codes of good practice and associated BEE scorecard—a strategy and measurement tool to promote broad-based transformation in corporate South Africa.

CSI is positioned within the socio-economic development element, which prescribes that companies spend 1% of net profit after tax on SED initiatives.

Although the vision of the transformation agenda may be commendable, BEE codes have inadvertently encouraged companies to adopt a compliance mind-set. In the CSI and SED element of the codes this focus on compliance is accompanied by conflicting legislative requirements and unclear definitions, which are causing the parameters of CSI to become blurred. Although differing and overlapping, there are four primary development frameworks relevant to South African business.

  • Corporate social responsibility—an over-arching values-based framework

  • CSI refers to the growing recognition that businesses have responsibilities beyond their shareholders that extend to their employees, customers, society, government and future generations.

    These responsibilities also extend to the seven facets of the transformation agenda covered in the Department of Trade and Industry’s BEE scorecard, including BEE ownership and management, employment equity, skills development, preferential procurement, enterprise development and socioeconomic development.

    Corporate social investment—a voluntary social development activity
    CSI comprises those voluntary activities through which companies make financial and non-cash contributions to communities, organisations and individual beneficiaries for the purpose of socioeconomic growth and welfare.

    Socioeconomic development—a discretionary transformation framework
    The final version of the BEE codes and scorecard defines SED as “monetary or non-monetary contributions actually initiated or implemented in favour of beneficiaries ... with the specific objective of facilitating sustainable access to the economy for those beneficiaries”.

    Code 700 carries a 5% weighting, for which companies can qualify if their contributions to SED are at least 1% of net profit after tax. Of critical importance is the principle of “line of sight” to black beneficiaries, as rating agencies are required to verify that 75% of beneficiaries are black.

    Local economic development—a mandatory framework
    The Mineral and Petroleum Resources Development Act of 2002 stipulates that mining companies must submit a social and labour plan as a prerequisite for a licence to operate. A core element of each plan is a local economic development (LED) programme. The department has changed the way mining companies approach development in the communities in which they operate. In the past their CSI activities were voluntary, but their LED obligations are now prescribed and the focus is on communities in and around their operations. Although overlap exists, the focus on job creation clearly distinguishes LED from SED and from traditional CSI approaches.