Business and Corporate Social Responsibility

Originally published in 'Professional Management Review' magazine (PMR) Volume 15 Issue 11 2004

John Capel, Director BeFSA CSR

Our transition to democracy and the reintegration of the South African economy into the world economy could not have come at a more difficult time.

South Africa is undergoing rapid economic, political and social transformation. Not only does the country urgently have to address the problem of social inequality, it also has to compete against moving targets in terms of changes in the international market and increased levels of competition in the local economy.

South African big business is divided as to how these twin problems of competitiveness and social inequality can be addressed.

Generally, in business and academic circles it is accepted that there are two routes towards increasing competitive ability. The first one, which some businesses in South Africa argue for, is the cost based route. It demands more labour flexibility and the development of a two-tier labour market, in terms of wages and job-security as witnessed by the trend towards temporary and contract work and out-sourcing. The cost based route encourages companies to take other cost saving measures, sometimes resulting in damage to peoples' health and the environment.

The second trend is the value-based route towards increased competitiveness. This demands investment in people, or 'human capital investment'.

It requires investment in skills and cooperative relations with trade unions and community bodies. It needs a long-term vision and strategy.

For organisations to maintain viability and to add value, the broader social and environmental context in which they operate needs to also be sustained. Business will not survive in a growing sea of poverty, and in an environment that is neglected.

The open systems approach to doing business recognises that business operates in a context that includes economics, politics, demography, ecology, culture and political economy.

The open systems approach links an analysis of the organisation's position in the environment to specified organisational goals, aims and objectives. The whole system of the organisation has to be realigned if change in the environment necessitates it, including poverty, unemployment and ecology issues.

The community, rather than the company, is the starting point of economic life. This calls for a new model of doing business.

The value-added route will lead to towards a fundamental change in relations, both with workers and the wider community, and is likely to lead towards mutual benefits, for the firm, the employees and the community – whereas the cost-based route is likely to lead to a downward spiral in wages, working conditions and labour standards, perpetuating inequalities and adversarial relations.

The King II report on corporate governance states, 'Business decision-making must be linked to ethical values, compliance with legal requirements, and respect for people, communities and the environment... (evidenced by)... a comprehensive set of policies, practices and programmes that are integrated throughout the business operations and decision making processes that are supported and rewarded by top management'.

'An approach to business management must be developed, that recognises that financial performance depends on identifying and understanding non-financial value drivers'. Through social investment, improved community relations could result in a better profile for the corporation. Another example would be investment in education, whereby better educational levels in the community could expand the corporation's potential base for skilled employees, resulting in a more productive workforce.

Economic activity that does not take into account economic, social and environmental consequences is detrimental to the continued sustainability of communities, business and the planet earth.

Corporate governance policies must balance conflicting interests of managers, employees, shareholders and communities, and be based on ethical values, justice and transparency.