/ 25 February 2009

Taking CSR into account

For the first time, the King report will include corporate social responsibility, writes Ryan Hoffmann

The King III report, due to be released for public comment and peer review on February 25, is expected to make interesting recommendations on corporate social investment.

The first two reports of the King committee on corporate governance, which gives companies guidance on best practice, dealt with how companies are governed and issues around the triple bottom line.

“The third report will be an extension on that, but for the first time it will take corporate social responsibility into account,” says Dr Ivan May, who was invited to sit on the King committee and helped to compile the King III report.

May, a long-time member of the Mail & Guardian Investing in the Future awards judging panel, was the first member of the committee who was not drawn from the financial world.

He says the report does not recommend that contributions to social projects be forced or regulated, but rather encourages all organisations, “from NGOs to your biggest companies”, to buy into the idea of CSI. He was unable to release further details from the report, which is being released at a time when the uncertain global financial climate is set to overhaul the way in which charities and NGOs do business.

This is one offshoot of the worldwide recession for non-profit organisations with benefactors in the United States and Europe.

“It’s very clear the credit crunch has had a knock-on effect on funding for philanthropic projects in the global south,” says May, who is also chairperson of Charities Aid Southern Africa.

“There is simply not the same amount of money from foreign donors to spread around as before, so naturally they are being more selective about how this money is used.”

Many companies and organisations that have strong track records in social spending have taken financial losses in the stock market and want more return for their investments, says May.

“Most businesses realise it benefits them in the long run to support worthy projects, but they also want to be sure that their assistance is not going to waste.”

He says this signals an end to the days of “struggle accounting”, when donors were not overly concerned with exactly how their investments were spent as long as the overall objectives of the project were met. Now they are more selective of the type of projects they’re willing to fund and more involved with how their assistance is put to use.

Sustainability and development are the cornerstones of this new approach. Donors prefer projects that are able to continue with the good work they are doing without the help of foreign investment.

“Unfortunately, there will always be the situation where some sections of society will have to look after those who are more vulnerable, but it should not be a case of simply dishing out money,” he says.

“Those at the receiving end will have to come up with ways of taking that initial investment and developing ways of generating their own income and becoming self-sufficient — the multiplier effect.”

Donors are demanding more accountability from the organisations they help. In response NGOs, charities and other beneficiaries have had to adopt a more professional approach to the way they do business, says May.

“South Africa has many worthy projects that are doing extremely well, particularly in dealing with literacy and HIV/Aids, but it is important that these projects move to a phase of social entrepreneurship rather than relying on handouts.

“There will have to be more governance and tighter control of spending at these organisations, or they will suffer,” says May.

Proposals in the Corporate Law Amendment Bill will see section 21 companies subjected to the same accountability as other businesses. And in terms of the Companies Bill, which will come into effect in 2010, section 21 will be phased out and replaced with non-profit recognition in terms of this law.

Companies will have to adhere to new and more stringent requirements in respect of risk management, financial statements, financial controls and auditors, says May.

The Bill is expected to regulate the way managers conduct their affairs within the companies they have been entrusted to manage and direct.

“Currently there is no set business model for running non-profit organisations and projects aimed at uplifting and assisting communities, which leaves lots of room for ‘slip-shod’ management,” he says.

The key lies in developing a business model that suits the situation in South Africa and, though May says this is a serious challenge, he is adamant it can be done.

He cites the Market Theatre as an example of an organisation that achieved much success after re-evaluating the way it conducted business.

“I was on the theatre’s board from its inception until very recently and it is remarkable just how much its operation has changed over the years. In the early years there was lots of “struggle accounting” going on, but today everything is very much regulated and structured” he says.