The South African Brand of CSR

Government-created structures help "black empowerment" take off.

With its “Project Grow” initiative, the South African paper maker Sappi Manufacturing helps subsistence farmers start self-sustaining tree farms. It provides them with free plant material, technical advice, and interest-free loans — plus it guarantees the farmers a market for their product. Started in 1983 with three farmers, the project now involves more than 9,810 growers, providing 24,000 tons of timber a year to Sappi, a company listed on the Johannesburg Securities Exchange.

That’s one example of a company-sponsored black empowerment project, which ffers a window onto the corporate social responsibility (CSR) ferment in South Africa, where the economy grew 5.1 percent in 2005, business confidence is soaring, and 1,000 jobs a day are being created. The Project Grow initiative is proudly featured in Sappi’s Broad Based Black Economic Empowerment Scorecard — the South African version of a social report, which more companies have issued since 2004. That was the year the Broad Based Black Economic Empowerment Act was enacted by the South African government, requiring all government bodies and agencies to take company activities in black economic empowerment (BEE) into account in making government procurement, licensing, and financing decisions.

“It may be argued that BEE corresponds to a negotiated definition of what CSR means in the South African context,” writes Ralph Hamann, head of research at the Center for Corporate Citizenship at the University of South Africa in a recent paper.

How well companies are doing on BEE can be tracked through ratings given by EmpowerDEX, an independent rating agency created in 2001 by accountants Vuyo Jack and Chia-Chao Wu, which now audits 300 companies a year. “Most businesses have accepted this as part of the norms of doing business,” says Sanjeev Khagram, director of the Center for International Development at the University of Washington.

Sappi Manufacturing, for example, scored a BB rating. The most empowered company
— in a 2005 ranking by Financial Mail — was Telekom, which scored AA. Telekom, a telecommunications company, targets purchases to firms with black equity ownership, encourages overseas suppliers to develop local skills, and has launched programs to assist small and medium-sized black-owned enterprises. Three-fifths of its workforce is black, while top management is 80 percent black.

Also part of the government black empowerment program are “transformation charters,” which set industry-wide BEE standards for, thus far, the mining and finance sectors. Because of its historical importance, the government made mining its first target for broad reform. This included asserting national control over mineral rights, previously in private hands, and negotiating a charter laying out empowerment targets, such as 40 percent of management from “historically disadvantaged South Africans” by 2008, and 26 percent of ownership by 2013. All mining companies operating in South Africa participate, from giants Anglo
American and BHP Billiton to the smaller Xstrata.

A financial charter was voluntarily developed in 2003 by South Africa’s “Big Four” banks — ABSA, First National, Nedcor, and Standard Bank — which had failed to adequately serve the majority of the population. The charter aims to increase banking access for poorer South Africans and promote diversity within management ranks.

Triple bottom line reporting is also being adopted in South Africa, after the 2002 King II Report by the Institute of Directors in Southern Africa recommended it.

The news is not all good out of South Africa,
of course. Some critics argue BEE has only been successful thus far in enriching a small group of black bourgeoisie. But, thanks to government and social pressure, transformation shows no signs of abating. “South African companies, like SAB Miller, the largest alcohol company in the world, or Escom, the state energy company, are among the leaders in a whole range of CSR initiatives, partly because of their context in South Africa,” Khagram says. “That becomes part of their organizational culture and strategy, and they do it anywhere they go in the world.”

David Biello (d_biello@yahoo.com) is a freelance writer in Brooklyn, NY. Published in the Spring 2006 Issue of Business Ethics.