SAICA Thought Leadership Paper Publication B-BBEE: insightful corporate reporting
South Africa has not yet realised the badly needed growth for effective transformation to take place, stating that sustainable and economic transformation can only be attained if Broad-Based Black Economic Empowerment (B-BBEE) receives widespread support from all sectors of business. B-BBEE remains a vital transformation policy that has to succeed to enable South Africa to grow into a more equal and sustainable society. It is therefore imperative for businesses to rethink fundamentally how they use scarce resources for long term and sustainable economic growth. They have to recognise that their future human capital needs will have to come from the broader population.
Although more organisations are grasping the significance of B-BBEE strategies for long-term success, for the most part their B-BBEE reporting to stakeholders does not capture its true value. SAICA identified the need to develop a thought leadership paper , titled ‘Insightful Corporate Reporting on B-BBEE’ because economic inequalities must be reduced to sustain a stable country.
The paper’s primary purpose is to encourage organisations to recognise the importance of embracing B-BBEE strategies for value-creation and long-term sustainability, supported by meaningful and transparent reporting to stakeholders on the success of these strategies. A secondary objective is to encourage organisations to adopt reporting practices that are consistent and comparable so that users of information can make meaningful assessments and comparisons.
All of this can be achieved through recommending an approach that offers practical advice on how B-BBEE strategy can be formulated, implemented and reported thereon, as proposed by the International Integrated Reporting Framework (International <IR> Framework). This International <IR > Framework will help organisations concisely show how they create value in more than just the financial sense. Using the value-creation, capitals and business model concepts in the International <IR > Framework, organisations can better understand and clearly report on the impacts – positive and negative – that B-BBEE has on the outcomes to themselves, stakeholders and broader society.
B-BBEE information should be integrated into the relevant capitals of the organisation’s integrated report, with much of it naturally falling into the human, and social and relationship capital categories. They can show how B-BBEE investment in human, and social and relationship capitals may initially lessen their financial capital, but can be turned around to grow other capitals, including financial, and help create a more prosperous and sustainable society in which to do business.
When all stakeholders pull in the same direction, transformation goals become achievable.
These can be owned or direct inputs, but also inputs owned by other organisations or the community.
Monetary inputs or a pool of funds available to the organisation from:
• Equity, either as investments or profits
These inputs should be linked to the various capitals, for example:
Buildings, equipment and infrastructure available to the organisation
Competent people, their capabilities, experience and motivation, including their ability to lead, manage and collaborate
SOCIAL AND RELATIONSHIP CAPITAL
Relationships with customers, suppliers, communities, networks and other stakeholders, and the ability to enhance individual and collective well-being
Use of minerals, land or water and other natural resources
Demonstrating how the organisation converts inputs to outputs and how B-BBEE initiatives can contribute to value-creation, innovation and adaptability.
Amended B-BBEE Codes of Good Practice
Most organisations would want to contribute positively, but at times trade-offs have to be made between capitals and considered in terms of longer term relationships with stakeholders. For example, a project can build financial capital by creating jobs, but the resulting expanded carbon footprint would diminish natural capital.
May decrease in the short term as it costs the organisation to contribute in government’s B-BBEE strategy (outputs). However, it may increase dramatically in the short term by securing tenders and contracts (short-term outcome). In the long term, financial capital will increase because B-BBEE creates a sustainable and equal society. It increases economic participation, wealth, skills, thereby growing the economy and making South Africa a very attractive place to invest in (long-term, sustainable outcomes).
Employment of more black people, specifically in management positions, and spending money on Skills Development are two outputs which increases human capital. The outcomes of these are that those affected households may have a better quality of living and well being; they can provide an education for their children for a sustainable future; impact their communities with their skills and wealth; and eventually the organisation benefits from a stable and wealthy society.
SOCIAL AND RELATIONSHIP CAPITAL
Socio-Economic Development spend and Enterprise and Supplier Development contributions (including procurement spend) are all examples of tangible outputs which improves social and relationship capital. It also results in outcomes like:
• An improved B-BBEE score
• It enhances relationships with regulators, customers, employees and communities
• Valuable intangibles such as brand awareness and reputation.
SAICA B-BBEE Thought Leadership Paper Insightful Corporate Reporting 2014 [Adapted]
Author: Yusuf Dukander CA(SA) is Project Director: Standards at SAICA