The Role of Business in a Developing and Transforming Society – Triple

Bottom Line in Practice - The South African Experience

Frankfurt03 November 2005

Nqaba Bucwa

Why do corporations exist?

• The answer is - To Create Wealth. Yes this is true

• But there are other questions to follow this one question – these questions are

• How and at what cost do corporations create wealth?

• What values guide the behavior of corporations?

• What? responsibilities do they have?

Why should they act differently?

• Developing countries face unique developmental challenges

• Developing economic infrastructure• Developing social infrastructure – education

and skills levels• Developing governance systems –

democratic structures

South African political context

• 46 years of Apartheid rule – racial policies – white superiority and subjugation of black people

• Reservation of business opportunities, prime land, natural resources, services and education for white people

• Resulted in “a dual economy, one modern and relatively developed. The other characterised by under-development and entrenched crisis of poverty” Thabo Mbeki, 2003.

Transition from apartheid to democracy

• Negotiated settlement – Leading parties on both sides motivated by need to not inflict further damage to the economic infrastructure of the country – apartheid no longer sustainable for business – ANC not wanting to inherit a gutted economy

• Truth and Reconciliation Commission – Business not asked to testify on their role in supporting apartheid

Economic strategy - Growth, Employment and Redistribution (GEAR)• Aim to stimulate economic growth – create

employment – spread economic opportunity and prosperity

• Government role to promote macro economic stability - create a business friendly environment

• National Economic Development and Labour Council (NEDLAC) – Government, business and labour “social contract” forum

• Small and medium enterprise development - Black Economic Empowerment – Employment Equity

The socio-economic environment today

• Characterised by unemployment rate of +- 30% - managing only a 1,9% employment increase in 2nd quarter of 2005

• Accelerated urbanisation process – leading to a housing shortage problem

• Services backlog – electrification, water, health, education

• Economic growth rate of 4% targeting 6%

What is business is doing?

• Since 1994 business has been shedding jobs – government and public works programmes have largely been the employers

• Construction industry increased employment by 12,3% in 2nd quarter 2005 on the back of a low interest rate driven consumer expenditure

• Expectation that business will re-invest in an economy stimulating and growth sustainaining manner.

Changes in South Africa since 1994

King II – corporate governance

• The Transformation Sector Charters/Black Economic Empowerment – to facilitate the participation of black people in the economy

• Employment Equity law – promotes equal opportunity for previously disadvantaged groups

• Dual listings – international reporting requirements – pressure from international shareholders

FRATER ASSET MANAGEMENTIndependent Active Investors

COMPANY Suppliers

Owners

EmployeesSociety

Customers

Environment

Corporate Citizenship

Legislation

Consumer Activism

Trade Protection

Shareholder Value

Accountability to stakeholders

• Providers of capital – shareholders - owners• The environment• The workforce• Surrounding communities• Customers• Suppliers• Government

Black Economic Empowerment (BEE)

• BEE has been identified as the one way in which business can bring previously disadvantaged individuals (PDI) into the economy. Black people sold shares in public companies at a discount, paying with dividends received.

• Codes of Good Practice drawn up to monitor and guide the process

• BEE going beyond ownership level to internal transformation.

Internal transformation

• Employment equity – targets set for employing PDI

• Skills training programmes – career pathing – staff retention strategies and cultural transformation

• Preferential procurement targets – develop small to medium black owned businesses

• Corporate social investment- particular focus on areas that the company has influence

Disclosure and Transparency

• A move from a “ leave me alone I know what I am doing” to a “just trust me I know what I am doing” and to a “tell me what you need” culture is developing

• Recent high profile corporate failures have increased the interest of shareholders on risk factors

• Clear targets have been set – requirement for measurable reporting and open communication.

Concluding remarks

• While there is still a long way towards total buy in South African companies know how close they got to an economic meltdown in late 1980s

• They understand that wealth creation is linked to social stability and non-racial prosperity

• Recognise that there are socio-political priorities that they have to embrace

• They recognise that there are expectations on them to act as good citizens