In 1994, South Africa’s President Nelson Mandela stated, “There are many ways in which the special skills and know-how of the business community can help government to achieve its development objectives.” His words were part of an effort by the new government to create public-private partnerships to address the nation’s developmental challenges. Corporations responded with what is now referred to as corporate social investment (CSI), defined as “non-recoverable contributions to society that are extraneous to regular business activities.”
|GIM South Africa 2007 at Feedback Research and Analytics |
In this context is presented a study of CSI in the South African mining industry, which is considered to have the country’s most advanced CSI programs. A brief history of CSI in Africa is followed by analyses of three mining companies’ CSI efforts: Anglo American PLC, AngloGold Ashanti, and Harmony Gold Mining Company. The case focuses on the three CSI areas considered weakest in the industry and compares perspectives of mining industry leaders and experts to demonstrate that the industry’s CSI practices, while of value overall and recently improved, could be enhanced in several ways. The case study also has implications for the evolution of CSI globally—and for the broader umbrella of corporate social responsibility (CSR). The History of South Africa’s CSI and Mining Industry
The creation of South Africa’s Urban Foundation in 1976, following the Soweto uprising, marks the commencement of corporate involvement in community development there. The Urban Foundation enabled firms to invest in infrastructure for towns in need, paving the way for future development efforts including 1989’s Consultative Business Movement, which supported a peaceful end to apartheid.
As South African firms sought post-apartheid reintegration with global markets, their higher level of scrutiny and need to comply with global reporting standards increased pressure on them to act socially responsible. Domestically, the Johannesburg Stock Exchange created a Socially Responsible Investment Index in 2003, highlighting this trend. In 2004 the Broad Based Black Economic Empowerment Act (BEE) set targets for corporate social empowerment efforts in areas including ownership, management, and employment. Driven in part by these developments, estimated CSI spending in South Africa was R2.88 billion ($451 million) in 2006, with nearly 50 percent of funds going toward education and health initiatives.
Mining has been an industry of focus for development support in South Africa because of its geographic expansiveness and potentially negative social and environmental effects, including its history of such impacts (e.g., monopolizing hiring at the twentieth century’s start to ensure that real wages for black miners did not rise for two generations). Ralph Hamann, senior researcher at University of Capetown, argues that despite early efforts to involve mining in CSI, the industry participated more fully only after the BEE Scorecard emerged. Subsequently, mining firms were mandated to comply with BEE requirements to renew their licenses, submitting a Social and Labor plan as evidence of their efforts. CSI in South African Mining Today
Three mining companies, each with CSI departments at distinct stages of maturity, were analyzed: Anglo American PLC (best in class); AngloGold Ashanti (mature); Harmony PLC (maturing). The three firms were examined based on the areas of least-developed CSI noted in a 2006 survey of CSI executives: project selection, monitoring/evaluation processes, and external collaboration. Anglo American
Founded in 1917, Anglo American is now an eight-division public holding company. The firm reported a record $9.8 billion operating profit in 2006. According to Anglo American’s CSI report, the company’s development activities range widely; the focus here is on three: the Chairman’s Fund, the Socio-Economic Assessment Toolbox (SEAT), and Anglo Zimele. The Chairman’s Fund
. According to its website, the Chairman’s Fund’s mission is to be “the leading corporate donor in South Africa,” with a top priority of education. The selection of funding recipients is largely handled by TSI, an independent non-profit consulting firm that works closely with NGOs nationwide. “[T]he Chairman’s Fund is responsive,” says its Executive Director. “The initiative comes from the communities.” Anglo American subsidiaries apportion approximately R30 million ($4.7 million) to the fund annually, and the board of trustees meets quarterly to approve project funding. Project selection is “a combination of experience and judgment,” according to the website.
A fund manager noted that while measuring social impact is an important task carried out by TSI officers, a lack of resources and effective measurement criteria hampers this effort. For example, for a Rural Schools Programme project, Fund materials note that the Fund “will endeavor to revisit the schools . . . over the next three years” to measure impact. Other funded educational projects appear to have clearer measurement criteria (e.g., children’s test scores). Socio-Economic Assessment Toolbox (SEAT)
. SEAT was developed to help Anglo American contribute to the “economic, social and education[al] well-being of the communities” by providing a framework for Anglo managers to promote training programs, community partnerships, and small business development, among others. Managers are also expected to share best practices for development at annual CSI forums.
Key points in the SEAT process include profiling specific Anglo operations and communities and developing management responses to key issues, along with reporting the results of the assessment. Thus each SEAT report evaluates its program’s effectiveness on measures including Total Indirect Employment, CSI Employment, and Total Employment Added. Note, however, that Anglo American has not yet made implementation of SEAT obligatory. Anglo Zimele
. Established eighteen years ago as the “enterprise and development initiative of Anglo American,” Anglo Zimele aims to help black businesses enter South Africa’s mainstream economy and create sustainable, viable entrepreneurial businesses. Zimele invests directly in black empowerment firms and encourages Anglo American to procure from them, as part of a venture philanthropy model similar to those of the United States.
According to Zimele information, “prospective investments are evaluated on a commercially viable and sustainable basis,” followed by lengthy due diligence. Measurement of impact is highly tangible for Zimele, given that the organization makes growth and other forecasts that can be compared easily to actual performance. Anglo Gold Ashanti
Johannesburg-headquartered AngloGold has operations across ten countries. The company incorporates CSI efforts into all aspects of its business (total CSI expenditure of $7.7 million in 2006), but generally “focuses its support on operational areas around existing mines and areas where it draws its employee base.” As AngloGold’s CEO suggests, “[T]he most appreciative audience for the company’s CSI is the local community.”
The AngloGold Ashanti Fund and Trust (“Gold Fund”) is the main pipeline for the firm’s CSI initiatives. The Gold Fund supports non-profits driving job creation, health, and education. AngloGold selects projects based on applications and local community recommendations. As the firm’s Manager of Community Relations notes, “We can’t just sit and wait for applicants . . . Therefore we have set up ‘area committees’ at the mines.” These committees make smaller funding decisions and present larger requests to corporate. The Gold Fund monitors initiatives annually through field visits, local government meetings, and audits/reports, relying on local community members for informal reports of impact and on Pricewaterhouse Coopers for audits. One monitoring challenge is a lack of baseline measures. Harmony
Harmony, the world’s fifth largest gold mining company, operates twenty-four individual mines across three countries, guided by “Harmony Way,” its corporate philosophy. Harmony aligns CSI activities with its key business strategy, with most projects related to local economic development (LED) in regard to education, infrastructure, socio-economic development, sports, culture, and disease prevention. The firm spent R8.4 million ($1.3 million) on CSI in 2006.
Harmony selects CSI projects through its Corporate Affairs department and Econo-Mine, an independent consultancy. Projects are evaluated on criteria including impact, budget, and sustainability. The firm also partners with peers including AngloGold to discuss community needs and initiatives. An internal Harmony committee (made up of executives including the CEO) meets monthly to ensure that “the money it puts into projects goes to the right projects and people,” communicating its evaluations to the Board. An overarching Sustainable Development Committee assesses the firm’s level of social responsibility, and Harmony’s CSI publication highlights projects large and small (e.g., $2,000 donated to build a school fence). Asking the CSI Experts
Interviews were conducted with Terrence Beney and Mokhethi Moshoeshoe, partners with CSI consultancy Feedback Research & Analytics, and the University of Cape Town’s Ralph Hamann. These experts agreed that while South African mining firms have put key CSI organizations into place, they need stronger human resources to drive these groups and their output (i.e., they are currently staffed mostly with social workers). They propose solutions in several areas.
CSI departments still lack effective criteria, especially those aligned with their core business, to disburse funds. An example of an initiative aligned with the core business is HIV/AIDS-related development work, because the disease may be related to mining firms’ practices (e.g., offering no healthcare services to and failing to address prostitution in mining settlements) and diminishes the miner workforce. But mining companies too often miss other community needs, and should collaborate with local governments to identify these better.
Monitoring of CSI initiatives remains woefully inadequate, with failure to address what is measured, how it is measured, and how much is spent on measurement, and disproportionate emphasis on inputs (e.g., number of grants written) versus outputs, compounded by a lack of baseline measures. The adoption of international standards and the use of third-party assessors are just two potential routes to improvement.
Collaboration, which could enhance all CSI-related areas (e.g., funding, accountability, and efficiency), is deficient within the mining industry, with no formal mechanism through which to share experiences and best practices. Collective resources can go a long way. Recommendations
To move up a “CSI Learning Curve” (developed for this analysis), firms can take steps in several areas. Project selection should clearly be aligned with core businesses (such that CSI ultimately returns dividends to the business) and driven by desired outcomes, rather than the need to contribute funds. Experienced third-party organizations (e.g., TSI) can help distribute CSI funds, especially for mining companies less advanced in this area. SASIX, the South African Social Investment Exchange, was launched in 2006 to address the donor-recipient gap by providing an “online registry of South African non-profit organizations” and relevant metrics for the grant-seeking groups (e.g., past performance).
More monitoring and evaluation tools are also available now, as well. These include a CSI assessment framework developed by Trialogue that considers both project- and firm-level impact, along with tools created by several international bodies.
Trialogue has also developed collaboration tools for the sharing of best practices among firms, but an increased motivation to use such processes is paramount—many firms engage in internal sharing, but inter-company sharing will best move firms up the CSI learning curve. For example, if more firms adopted a program such as Anglo American’s SEAT, they could work more closely with local communities to identify and address the areas of largest need.
It is clear that South African mining companies have come a long way along the CSI learning curve since Nelson Mandela’s post-apartheid government called for greater CSI. But it’s just as clear that they can get much farther by incorporating more best practices into their evolving development mentalities, organizations, and toolkits.