CSR Report(Corporate Social Resonsibility)

Section3: Communities and Governments Demands Relating to CSR

In years past, CSI was often viewed as an ad hoc, philanthropic gesture by ‘companies with a conscience’, spent at the whim of the chairperson or other concerned individuals in the organization.

As a result, CSI spend fluctuated from year to year and beneficiary organizations were not necessarily well considered in the context of each company’s operations.

More recently, however, leading companies have realized that it makes sense to approach CSI in a more considered way; one that leverages company resources, targets the company’s own communities, or helps bolster the company’s economic sector.

The pressures to do so have come from within corporate structures and externally. Inside the organization, board and senior management have increasingly begun demanding accountability for CSI spending and demonstrable project outcomes.

Externally, government has placed increasing pressure on companies – in terms of license to operate conditions and other stipulations – to support particular types of causes, often more closely aligned to business operations.

And other stakeholders, including local communities, have become more vocal in their demands for corporate accountability and demonstrable commitment to contributing towards socio-economic progress in the country.

In a South African context, the rationale for proactive transformation of our economy is well understood and widely accepted by mainstream business. Government has played its part by introducing legislation and fostering an environment conducive to changes.

The earlier legislation began by addressing specific issues of transformation such as skills development and employment equity. The legislation is largely enabling rather than prescriptive, requiring companies to formalize their transformation efforts and report publicly to various stakeholders on progress against self-set targets.

A more prescriptive stance was adopted with the Broad Based Black Economic Empowerment Act (BB-BEE) signed into law in January 2004. The Act provides a legislative framework to promote black economic empowerment, issue codes of practice and publish transformation charters for industry sectors.

Business has responded to government attempts to encourage transformation. In the case of the mining and petroleum and liquid fuels industries, sector charters were developed prior to the establishment of the BB-BEE Act, in accordance with existing regulation pertinent to their sectors.

The gazetting of the BB-BEE Act led to the formulation of the Financial Sector Charter and substantial progress towards finalization of charters in a number of other economic sectors. The process of developing these charters involved multi-stakeholder groups, taking into account industry circumstances and achieving critical support of leading corporates in each sector. However, in spite of extensive participation in the charter process, certain practical difficulties emerged. For example:

Targets are not always relevant to every company within the economic sector. Small companies for instance, cannot reasonably be expected to respond to all elements of a charter (such as small enterprise development when the business is itself a small enterprise.)

Suppliers to corporates in different sectors find it difficult to respond to differing charter requirements and fill out different scorecards in each case.

The Economic Sectors requiring Government evaluation were broken into the following categories:

  • Oil and Petroleum
  • Mining/quarrying
  • Financial services
  • Maritime industry
  • Information and communications technology
  • Agriculture, forestry and fishing
  • Building and construction
  • Media and entertainment
  • Pharmaceutical and health
  • Services
  • Logistics
  • Property and real estate
  • Hospitality and tourism

The BB-BEE Act made provision for the issuing of the DTI Codes of Good Practice. This document (which consists of a series of Codes, covering nine key aspects of BEE), aimed to give companies and industry sectors guidance on best-practice relating to BEE legislation.

The DTI codes allocate a 10% weighting to the residual element within the transformation scorecard, and sets the associated target at three percent of pre-tax profit. This fund allocation is to be spent across the following three areas: Industry specific initiatives to facilitate the inclusion of black people in the sector Industry specific initiatives to promote black economic empowerment Corporate social investment initiatives in health, education, poverty alleviation and community development.

According to this weighting, a company could gain the full 10% score by spending the entire 3% of pre-tax profit on CSI, or on any combination of the three areas outlined above.

It is important to note that many existing CSI activities also address the first two of the above areas.

The DTI Codes do not provide clear definitions of what falls into CSI or into the other residual areas, thus is it not always easy to categorize interventions. It is clear, however, that developmental expertise will be highly valued in facilitating all initiatives within the residual element of the Codes – expertise, which it typically found within the CSI department.

It is not only the residual element of the BB-BEE scorecard that might require developmental expertise. Specifically, enterprise development is a complex area that calls for specific knowledge of a small business environment and related developmental requirements.

Typically, the expertise for providing this type of support does not exist within the core divisions of the business, and may therefore need to be drawn from the developmental expertise centre of the business. Once again, this is usually where CSI staff members are located.

There are a number of areas where development of, or support for, small businesses might be pursued. These include:

  • Preferential procurement, where new BEE suppliers are offered business support (e.g. tender procedures, administrative systems) in order that the procurement department can concentrate on the price and quality aspects of the commercial relationship
  • Small enterprise development, which may or may not form part of the company value chain (e.g. agents or distributors)

The inclusion of CSI within the BEE agenda has affirmed the valuable contribution that the private sector makes to development and there is no doubt that it has elevated the overall profile of CSI.

As a result, more companies are likely to get involved in CSI, spending on CSI will be reviewed (and in most cases increased), CSI departments will be restructured, and the focus of CSI activities aligned more strongly to the corporate itself.