How you make your profit as important as using it for good
July 22, 2010
By Jane Boxall and Michael Morgan
There is still a tendency for companies to focus mainly on giving money to social and environmental causes but not necessarily on how they are making it in the first place.
This is according to professor Ralph Hamann, an associate professor and research director at UCT's Graduate School of Business (GSB), who gave a talk at a conference in April. The conference, titled "Building a Better Life for All: The Crucial Role of Good Governance for a Sustainable African Future", took place at the Cape Town International Convention Centre and was hosted by the GSB Centre for Corporate Governance.
"South Africans need to change their mindset when it comes to philanthropy and incorporating social, labour and human rights issues into business.
"Proactive strategies should be put in place to ensure that a company, both as a whole and through each department and individual working there, is truly contributing towards responsible practices," Hamann said.
"Essentially, companies should consider their entire value chain and how at each stage they can embody good governance and corporate citizenship."
Hamann, who directs and teaches MBA courses on research methodology and sustainable enterprise at UCT's GSB, and teaches on a variety of other courses including the GSB Executive MBA, has conducted research on strategic change in organisations and governance systems in response to complex socio-ecological problems. He has been at the forefront on sustainability issues in South Africa.
"Sustainability is the primary moral and economic imperative of the 21st century and it is one of the most important sources of both opportunities and risks for businesses. Nature, society and businesses are interconnected in complex ways that need to be understood by decision-makers," Hamann comments.
Five years ago, at the first Southern African Corporate Citizenship Symposium, he made a strong case in his introduction that South African companies needed to take steps to go beyond just giving through corporate social responsibility (CSR) projects.
"Many chief executives are still prone to pointing to their charitable foundations or similar departments when asked about corporate citizenship. A lack of integration into core business is apparent in the manner in which companies call themselves good corporate citizens, with reference to their education and health programmes, whilst at the same time continuing to neglect some of the negative consequences of their core business activities. It is also evident in the fact that, in most cases, company boards and leading managers have little interest in or incentives for thinking about CSR," he said.
"Even if corporate management is committed to responsible business practice, a variety of important questions remain as to how it can be ensured. Especially in large firms, the implementation of corporate policies at operational level remains elusive, particularly considering the complex nature of many social challenges. Integration of corporate citizenship into core business requires that managers focused on production acquire not just new knowledge or skills, but also values.
"The real test is how short-term trade-offs between profits and CSR objectives are dealt with by these managers at the coalface of the business. In the end, this also relies on the commitment of the board and top management, and on the rules and incentives they put in place."
Five years on, has much changed in South Africa? Hamann believes progress has been made, but that there is still some way to go in this country and he will continue motivating more comprehensive and sincere versions of CSR.
"There is a business case for integrating CSR challenges and opportunities into core business decision-making. If done correctly, this deeper level of sustainability thinking can also really inspire and drive a company, and become a valuable part of its brand."
He argues that there is no reason why any business, regardless of size, cannot be aware on a more strategic level as opposed to restricting activities to a CSR department. "The key is to better understand and respond to the interface between the business as a whole and its social and environmental context. Sometimes it requires a mindshift to identify what the really material issues are," he says.
Once such a strategic approach has been adopted, the next frontier is to integrate sustainability into the broader value chain in which the company is embedded.
"The challenge here is to innovate collaboratively with other roleplayers in pursuit of common interests, even competitors. Ray Noorda, the chief executive and chairman of Novell between 1982 and 1994, summed it up well by reflecting that as a company you need to compete and co-operate at the same time," says Hamann.
But can this be done effectively?
The chairman and founder of the Sekunjalo Group, Iqbal Survé, who also presented at the Building a Better Life for All conference, has proven it is possible, having managed to establish this interface with success.
A UCT GSB Executive MBA graduate in 2002/03, Survé is also chairman of the UCT GSB board of advisors and a governor of the UCT Foundation. He says Sekunjalo has been successful as it has "the DNA for a new kind of business".
To ensure that the group is fully effective in being sustainable in all areas, he has developed the "Seven P" philosophy that he feels any company could incorporate into the way they operate: Purpose-driven, People-centred, Profitable, Partnership, Pro-poor, Pro-development and Planet.
Sekunjalo also proves that being more strategically structured around sustainability and social or environmental issues need not be a strain on companies, but can be a strategic advantage.
This is borne out by the fact that the Sekunjalo Group has won numerous awards in recognition of its approach. In May this year, for example, it was rated as South Africa's most empowered company in the Financial Mail's 2010 Top Empowerment Companies survey. Sekunjalo claimed 100 percent scores in employment equity, enterprise development and socioeconomic development.
"With the right strategy and integrity in place, it is possible to build your brand and make your business more attractive to potential investors," said Hamann.
Jane Boxall and Michael Morgan write for the UCT Graduate School of Business.
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