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CORPORATE SOCIAL RESPONSIBILITY AND ITS IMPLICATIONS FOR GOVERNANCE: THE CASE OF MINING IN SOUTH AFRICA Paper submitted to the oikos PhD summer academy, St Gallen, Switzerland 28 July to 1 August 2003 1

Ralph Hamann School of Environmental Sciences, University of East Anglia, UK [email protected]

ABSTRACT This paper investigates corporate social responsibility (CSR) and its implications for governance by means of a case study of mining, with an analysis of global debates, national discourse and policy, and local manifestations. It includes company-level analysis within a political economy framework, investigating CSR in terms of the discourse, practices, and social relations that define it. The World Summit on Sustainable Development is used to illustrate two opposing views of CSR, and a synthesis model is suggested, emphasising the role of government in CSR. At the national level, the dominant South African interpretation of CSR as strategic philanthropy is described, with a few, foreign-listed companies dominating the national discourse, and widespread concerns that CSR is primarily about ‘greenwash.’ Currently, companies’ market-based incentives for CSR are overlain by the South African government’s imperative of black economic empowerment, meant to redress the economic exclusion of blacks during apartheid. The new South African mining dispensation illustrates that government intervention and negotiated policy-making are crucial elements of CSR. Finally, case studies of six companies active in the Rustenburg area underscore the impression that traditional interpretations of CSR have not significantly dealt with the social impacts of business practice. The new mining dispensation, complemented by local pressures and international market incentives, is bringing about the most significant changes yet in company management structures. Companies are still faced with important challenges in integrating CSR into core business strategy. They will also need to support capacity building in local government in order to address community concerns and improve local development planning. The conclusions highlight the need to define CSR broadly, with an important role for government.

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This paper provides an overview of my PhD research conducted through the University of East Anglia (UEA), and enabled by the Ernest Oppenheimer Memorial Trust and the Harry Crossley Foundation. The research has been guided and supported by my supervisors, Tim O’Riordan and Simon Gerrard (UEA), and David Fig (University of the Witwatersrand). I am also grateful to Nicola Acutt, Andries Bezuidenhout, Paul Kapelus, and Sanjeev Khagram for their help and guidance, including their contribution to joint papers, as well as many other friends and colleagues here in Johannesburg. Finally, I am grateful for the generosity shown by interviewees and others involved in CSR and mining in South Africa.

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INTRODUCTION

Corporate social responsibility is meant to link the market economy to sustainable development. Its proponents argue that it is in business’s enlightened self-interest to prevent and mitigate its negative impacts and to contribute to social development (WBCSD, 2000; Holliday et al., 2002). It is argued that various business stakeholders, such as local communities surrounding operations, customers, insurers, and investors, provide crucial incentives – beyond government regulation – for companies to act responsibly (Clarkson, 1995; Marsden, 2000; Waddock et al., 2002).

Linked to this view are new conceptions of governance that generally see a diminished role for government, described in the literature in terms of ‘new‘ (Rhodes, 1995; Moon, 2002), ‘multi-layered’ (Scholte, 2001), or ‘network’ (Ruggie, 2002) governance. Crudely put, government’s regulatory responsibilities are diminished because business is ostensibly facing powerful incentives for voluntary self-regulation, which may be more efficient and innovative than regulatory compliance. Direct regulation is also becoming less popular due to governments’ incentive, especially in emerging economies such as South Africa, to provide a favourable environment for foreign investment (Carmody, 2002; Moser, 2001; Scholte, 2001). In addition, government’s role as primary social service provider may be questioned because business has more resources and capacities (Marsden, 2000), and it may be able to provide social goods and services with greater proficiency. Partnerships between business and its stakeholders are seen as a potential mechanism to identify regulatory and developmental objectives, establish standards, assign responsibilities, and monitor compliance (Business Partners for Development, 2002; Holliday et al., 2002). As noted by Utting (2000: 6): The confrontational politics of earlier decades, which had pitted a pro-regulation and redistributive lobby against TNCs [transnational corporations], lost momentum as governments, business and multilateral organisations alike, as well as an increasing number of NGOs, embraced ideas of ‘partnership’ and ‘co-regulation’ in which different actors or stakeholders would work together to find ways of minimising the environmental and social costs of economic growth and modernisation.

By means of a case study of the mining sector, with an analysis of the global debates, national discourse and policy, and local manifestations, this paper seeks to test these

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views on the changing role of business in governance. In broad brushstrokes, it will seek to answer the following questions: 1) How is CSR defined by different stakeholders, and how does this relate to different perspectives on the role of business in sustainable development? 2) How ‘real’ is CSR? How does CSR practice relate to its rhetoric? How significant are the incentives and pressures for CSR, companies’ responses to them, and the resulting social outcomes? 3) What are the implications for governance, and the role of government in particular?

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THEORY AND METHOD

Studies on CSR can tentatively be divided into two dominant perspectives. The first considers it from a company perspective, with an emphasis on the precise definition of the term (Carroll, 1999) and the measurement or comparison of companies’ context or drivers, management responses, and outcomes (often in terms of the financial outcomes for the company) (Maignan and Ferrell, 2001; Moser, 2001; Zahra and LaTour, 1987). The second perspective considers CSR primarily in terms of the wider institutional and governance dynamics that influence an economy or sector (Scholte, 2001; Ruggie, 2002).

There are, of course, important theoretical approaches that seek to link these perspectives. One potential reason for the growing popularity of the stakeholder model of the firm (Clarkson, 1995; Waddock et al., 2002) is that it can link the company dimension with the broader, institutional framework. In most cases, however, it does this with a focus on the company as primary unit of analysis. A further significant effort has been the use of institutional theory (Powell and DiMaggio, 1991; Hoffman and Ventresca, 2002); yet this still emphasises the company as primary unit of analysis, with little mention of the role of power within broader political dynamics.

This research has hence studied company-level dynamics – characterised in terms of the strategic and managerial responses to internal and external motivating factors (Pettigrew, 1987; Moser, 2001) – within a broader study of the political economy of CSR, based on a relational social ontology: ‘Society does not consist of individuals; it expresses the sum of connections and relationships in which individuals find themselves’ (Marx, quoted in Wacquant, 1992: 16). The research object is not CSR

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per se, but rather the discourse, actions, and relations between social agents that give rise to, and are themselves defined by the definition, contestation, and manifestation of CSR.

These social relations may be assessed in terms of what Bourdieu and others have called a ‘field’: ‘In analytic terms, a field may be defined as a network, or a configuration, of objective relations between positions [of social agents]’ (Bourdieu and Wacquant, 1992: 97; see also Hoffman and Ventresca, 2002). A field is determined by its constituent actors – for instance, mining companies and their stakeholders – and their relations and communication channels, and the concepts and policy issues – for instance, definitions of CSR – around which these actors manoeuvre. Institutions engage with the field in cognitive, normative, and regulative dimensions, creating dynamic actor-networks that define current problems and propose potential solutions, and also block or limit the consideration of other options (Hoffman and Ventresca, 2002; Parkin, 1995).

Power is hence exerted not primarily by overt coercion, but more commonly by influencing or even determining the discourse, or the ‘public transcript’ (Bryant, 1997: 12; see also Flyvbjerg, 1998; Lukes, 1984). Hence: A critical view of CSR emphasises the need to consider underlying motivations for business to embrace and perpetuate the CSR concept. These may relate to accommodation – the implementation of cosmetic changes to business practice in order to preclude bigger changes – and legitimisation – the influence by business over popular and policy-related discourse in order to define what questions may be asked and what answers are feasible. (Hamann and Acutt, 2003: 255; added emphasis)

This critical view of the potential role of business does not prevent a transparent and collaborative research approach to studying organisational change in companies. The concept of ‘critical collaboration,’ which has been proposed as a suitable approach for civil society organisations (Covey and Brown, 2001), can also be applied to research on business.

The political economy of CSR and its impact on organisational change is hence defined, first, by the narratives surrounding the role of business in development. Second, by the bargaining and negotiation processes engaged in by different social groups in defining this role (these can be interpreted in terms of power, rights, and interests (Lytle et al., 1999)). And third, by the outcome of these policy- and decision4

making processes, as manifested in policy documents and in actions taken. The strategies and structures implemented by corporations in terms of organisational change – and these may relate to CSR either implicitly or explicitly – are both a response to the political economy dynamics, and an active contributor.

In order to approach this nexus between political economy and organisational change, the analysis has concentrated on the following ‘critical empirical sites’ (Hoffman and Ventresca, 2002: 6): 1) At the international level: the narratives and outcomes of the World Summit on Sustainable Development, held in Johannesburg, September and October 2002. 2) At the national level: South African history, discourse, and recent policy developments. 3) At the company level: internal company responses to various CSR related incentives and pressures, within an historical framework. 4) At the local level: company and stakeholder relations and interactions surrounding specific CSR related issues or events in the Rustenburg region in the North West Province. The primary data sources were interviews,2 group discussions (some of which were convened and facilitated by the researcher), participant observation at meetings or other events, direct observation, and document analysis (including a media review). In methodological terms, this research is thus based primarily on qualitative, idiographic case studies, with an emphasis on inductive reasoning. The validity of general conclusions rests on the internal consistency between explanatory relationships, contextual parameters, and data generated from multiple data sources (Mason, 1996; Denzin and Lincoln, 1994).

However, a deeper interpretation of validity can be based on subverting the method / theory distinction, which, like other antinomies such as objective / subjective or qualitative / quantitative, can convincingly be attributed to the social organisation of the social sciences, rather than being necessary distinctions (Bourdieu, 1992). Validity is hence supported by the realisation that every methodological decision (such as choosing an interviewee) is also a theoretical decision, and vice versa: ‘The most 2

About 70 interviews were held with representatives from mining companies, business associations, government, unions, civil society groups, consulting firms, and academia. Due to

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“empirical” technical choices cannot be disentangled from the most “theoretical” choices in the construction of the object’ (op cit.: 225). Hence the primary test of validity lies in the consistency between theoretical constructs (including research questions and conclusions) and the data, provided the reliability of the data can be convincingly defended.

In this research, data reliability was supported by the following measures: •

Triangulation and data testing: As much as possible, data on the same topic was collected from different sources, as well as different types of sources. The sampling strategy was based on getting ‘different sides of the story,’ and, where possible, interviewees’ perceptions were tested by means of quasi-objective indicators.

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Research ethics, interviewee feedback, and social capital: Ongoing research relationships based on repeated interactions were developed with a number of interviewees. These interactions were guided by my research policy, and they allowed for both the checking of information and access to more detailed information. Of particular significance in this respect was the feedback workshop with interviewees in the local study area. Repeated interactions also made it possible to gauge interviewees’ consistency.

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THE INTERNATIONAL DEBATES: RESPONSIBILITY VS ACCOUNTABILITY?3

The role of business in sustainable development was a crucial and controversial theme during the World Summit on Sustainable Development, held in Johannesburg from 26 August to 4 September 2002. Simply speaking, there were two camps: ‘corporate responsibility’ was claimed by the sizeable business lobby at the summit as being the main pathway by which business would voluntarily, and by means of partnerships, contribute to implementing sustainable development. ‘Corporate accountability’, on the other hand, was the rallying cry of most NGOs and community groups assembled in Johannesburg, who saw (big) business as the main constraint to sustainable development, and who demanded strict regulation of corporate behaviour by national governments, as well as an international corporate accountability convention. The business lobby’s references to CSR or related concepts were decried by the corporate

space constraints and the ongoing nature of this research, interviewees will not generally be referenced in this paper. 3 This section is based on Hamann et al. (2003).

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accountability proponents as ‘greenwash,’ which was widely seen to be at work during the WSSD itself, with Naomi Klein (2002) wondering, ‘whether the summit can even save itself’ (see Figure 1). (For a similar characterisation of these two perspectives, see Bruno and Karliner, 2002: 19, 63-64.)

Figure 1: The ‘Trojan Horse of corporate responsibility’ – a popular cartoon during the WSSD. The man with the pipe represents President Mbeki, the host of the summit. (Source: Shapiro, 2002: 147; with permission.)

During the summit, these opposing views of business in sustainable development were polarised, with each perspective being pronounced and defended in separate workshops, demonstrations, or side-events, and little critical engagement or interaction occurred between the perspectives. Hence, while Anglo American’s CEO could comfortably proclaim, ‘Johannesburg, built on the gold industry, is a shining example of sustainable development!’ during a business event (Tony Trahar, book launch, Sandton, 31 August 2002), the view prevalent amongst corporate accountability events was, ‘Johannesburg is perhaps the world’s most unsustainable city’ (Bond, 2001: xvi).

To counteract the polarisation between ‘responsibility’ and ‘accountability’, it may be helpful to develop a synthesis model of corporate citizenship, as a step towards finding a common language between the different stakeholder groups. This is based on the assumption that key features of both approaches are not exclusive of each other and that strengths of both can be combined in such a synthesis. Figure 2 schematically illustrates the development of such a model, based on a revised set of roles and responsibilities for the different sectors.

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‘Responsibility’: • Business is seen as a voluntary, active agent for sustainable development. • National government is seen as provider of a limited regulatory framework (and potential partner in delivery). • NGOs / civil society groups are seen as potential partners, but some are seen as irresponsible and unaccountable meddlers.

‘Accountability’: • Big business is seen as a key cause of environmental and social deterioration, and it should be subject to strict government control. • Government should act, at national and international level, as an active enforcer of strict rules and standards, taking business to account. • NGOs / civil society groups are seen as active watchdogs of both business and government.

Synthesis model of corporate citizenship: • Business is seen as both a voluntary, active agent for sustainable development, and a source of social and environmental problems; hence the need for improved measures, including government regulation, for accountability, transparency, and liability. • Strengthened efforts are made by government to implement existing agreements (e.g. OECD Guidelines on Multinationals, ILO Tripartite Agreement), increased commitment to the establishment of UN standards for human rights responsibilities, active government support for home-country liability for activities conducted overseas, and increased international commitment to governance capacity building, especially in developing countries. • NGOs / civil society groups are seen as active watchdogs of both business and government, with the ability to engage in ‘critical collaboration’, but with an increasing requirement to demonstrate accountability to stakeholder constituencies. • Greater emphasis is placed on tri-sector negotiation and implementation structures – at international, national, and local level – with in-built power-sharing and stakeholder accountability mechanisms (e.g. consensus decisions, demonstrated stakeholder feedback).

Figure 3: Characterising different approaches to corporate citizenship and a possible synthesis approach, with emphasis on international governance (source: Hamann et al., 2003: 42)

The primary implication for business of this synthesis model of corporate citizenship is that government regulation can be seen as an important contributor towards business concerns for sustainable development. Well-targeted regulations should not only satisfy some of the concerns of the corporate accountability lobby, but also ‘provide a more structured and universal approach to corporate responsibility’ (Hilton, 2002).

The outcomes of the WSSD, in terms of the Johannesburg Plan of Implementation and the political declaration (United Nations, 2002), did show that some elements of such a hybrid model of corporate citizenship are emerging. Much depends, however, on the implementation efforts currently underway in the UN system and in the various partnerships showcased during the summit.

In the mining sector, aspects of the synthesis view of corporate citizenship can also be found in the report of the Mining, Minerals, and Sustainable Development project (MMSD, 2002), which was initiated by the Global Mining Initiative (a consortium of

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large companies). The report emphasises the coordinated role that needs to be played by all role players; that is, increased CSR needs to go hand in hand with greater commitment from government, labour, NGOs, and others. For instance: Win-win solutions are not always possible; voluntary approaches alone are insufficient where there is a compelling priority but little or no business case to justify the additional expenditures needed to meet it. There are then two options: collective action on a voluntary basis that is enforced internally by a group, or governmental intervention or regulation to achieve the same result. Unless the law is clear and enforced, some enterprises will resist change. In addition, if civil society groups put pressure only on a large few companies (sic) and fail to recognise progress, the rest will ride free. Marketbased incentives on sustainable development criteria are difficult, though probably not impossible, to design. (MMSD, 2002: xxiii)

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NATIONAL HISTORY, DISCOURSE, AND POLICY4

4.1 Lessons from South African history

In South Africa, there are important historical lessons regarding these issues. They suggest that, though CSR as a concept has been prevalent only in recent times, similar business incentives and initiatives have existed, but that they have been characterised by contrasting interpretations and contradictory relationships with the wider impacts of business. Most significantly, any efforts by mining companies to act in the public interest need to be seen in the context of busioness’s implication in the racist and, after 1948, apartheid policies of the colonial state (TRC, 2003; MMSDsa, 2002; Crush et al., 1991; Wolpe, 1972; Yudelman, 1984). With particular reference to the mining sector, the final Truth and Reconciliation Commission (TCR) report argues, ‘the blueprint for ‘grand apartheid’ was provided by the mines and was not an Afrikaner state innovation’ (TRC, 2003: 150).

Against this backdrop, some mining companies engaged in philanthropic or development related activities, including also political engagement against the worst elements of the apartheid regime. So, for instance, in 1976, following the Soweto uprising, a number of corporations, led by Anglo American (South Africa’s largest

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This section is based on the author’s contribution to, inter alia, a project coordinated by the United Nations Research Institute for Social Development. Co-contributors to this project in South Africa are Andries Bezuidenhout, David Fig, and Rahmat Omar.

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mining company) and Rembrandt (an alcohol and tobacco company), set up the Urban Foundation, which would provide private sector support to critical urban development issues. Contemporaneous media reports identified its motivation as ‘preserving an economy endangered by African revolt against conditions in the townships’ (quoted in Pallister et al., 1987: 69). Efforts at ameliorating social conditions were hence seen as part of ‘the dilemma that all South African businessmen face: the repression which has offered today’s riches is also the force which is jeopardising its profit-making abilities and ultimately its survival in private hands’ (Pallister et al., 1987: 52-53). Hence, in terms of some interpretations, accommodation and legitimisation have long been important motivations for business’s social efforts. 4.2 The evolution of CSR in the national discourse

The evolutionary uptake of CSR related narratives and practices by mining companies at a corporate level can be described in terms of the following three moments: 1) Historically, CSR was identified in terms of corporate social investment. In addition to initiatives such as the Urban Foundation mentioned above, corporate social investment was epitomised by Anglo American’s Chairman’s Fund, which has been making corporate donations – the largest in South Africa – at a national level since the early 1970s. Though these development contributions have generally been welcomed, they do not deal with social impacts of core business, as argued by one mining company employee: By CSR, people think of philanthropy, of giving money to causes. It’s not about how you make that money in the first place. Mining companies view this social investment, the giving part, as a means of achieving their social licence to operate. They do not accept, at least not in South Africa, that part of their social responsibility is to make that money in a good, responsible way.

2) The first significant impulse to integrate social and environmental concerns into core business decision-making was the safety, health, and environmental (SHE) movement. This came primarily in the form of legislation in the early and mid-1990s, and it was strengthened by the risk management requirements in overseas securities exchanges (see below). This movement also brought about in the late 1990s, in a few companies, the first public reports on safety, health, and environmental issues, and early attempts at international certification in the form of ISO14001.

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3) The current moment relates to integrating social concerns into core business planning and decision-making. This is illustrated also in the growing prevalence of ‘sustainability’ or ‘triple-bottom line’ reports.

At a national level, sectors and companies can be compared with respect to their national CSR profile, determined by their prominence in interviewees’ perceptions and private sector reporting awards and indices (Bezuidenhout et al., forthcoming). This shows that the mining sector is particularly prominent, probably because of its historical and economic importance in the country and its significant social and environmental impacts. Mining, by virtue of its operations’ long-term commitment to specific sites and regions, is also seen to have a particular preference for long-term strategies.

The mining companies that are especially prominent in terms of their CSR profile are the largest companies, those that moved their primary listings overseas in the late 1990s in order to gain improved access to capital markets (Carmody, 2002), such as Anglo American and BHPBilliton. This move to foreign capital markets, most commonly London, brought about significant new incentives for CSR, due to comprehensive listing requirements (such as the Turnbull corporate governance requirements in London) and increased scrutiny of companies’ social and environmental performance. One interviewee explained: Once we were listed in London, the whole world was watching. The rules changed. It’s mainly because of London City analysts: they have an enormous amount of power. You need to be perceived to be the more secure investment, and good CSR and all those things give the impression that you are a more secure investment in a risky environment, and your price will go up.

In South Africa, too, CSR has recently become prominent in the national corporate governance code (King Commission on Corporate Governance, 2002), and the local securities exchange is currently implementing a social responsibility index modelled on the FTSE4Good (FTSE/JSE, 2002).

At a national level, the CSR discourse is hence dominated by a relatively small number of large companies that are prominent in the national media, and which publish elaborate social and environmental reports. Even these companies, however, frequently acknowledge that there is an implementation gap between their policies and

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activities at the operational level. For business, this gap is interpreted in technical terms: for instance, the challenge is framed in terms of organisational restructuring or human resource development (e.g. Anglo Platinum, 2001: 54-55), and these technical challenges will be dealt with in due course.

On the other hand, critical perspectives held primarily by NGOs, and in some instances by representatives of unions and government, interpret the implementation gap in terms of underlying business motivations. Companies’ social and environmental reports are seen primarily as greenwash. Even business representatives have voiced these critical views: What are we talking about: intellectual discourse and nice little glossies, or are we talking reality on the ground? The discourse, the glossies, the statements, the public speeches – great! You’ll see South African business being amongst the more progressive, definitely amongst the developing countries, if not the world. But the reality isn’t there. [Companies have] developed a clear and I would argue conscious – in the case of many companies – split between what you do and what you say.

One aim of field research on CSR must hence be the comparison of corporate rhetoric with operational practice. 4.3 South Africa’s new mining dispensation

South Africa’s new mining dispensation, and the process leading up to it, has important lessons regarding CSR and governance. At the outset, though, the following reasons must be given for why the role of government is crucial in any consideration of CSR in South Africa, even CSR is defined narrowly in terms of voluntary initiatives by business: 1) There is a significant implementation gap between state policy and implementation. Hence, the extent to which companies actually adhere to regulations has much to do with voluntary initiative. 2) Since 1994, the government has been at pains to involve ‘social partners’ in the process of policy- and decision-making, and business’s involvement in these processes has been voluntary. 3) Government’s role in the economy goes beyond regulation or licensing; it also involves, for instance, tax incentives and the use of state procurement policies – the divide between regulation and business voluntarism is hence blurred.

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The primary incentive in the state’s intervention in the market has been black economic empowerment (BEE), which is meant to redress the effects of apartheid and to ‘facilitate the meaningful participation of black people in the economy’ (BEECom, 2001: 6). In the last few years, there has been an ongoing national debate about the respective roles of direct state intervention (by way of employment quotas, for instance) and business voluntarism in reaching BEE objectives. A further key point of contention has been on the relative importance of facilitating black ownership of listed companies, on the one hand, and ‘broad-based empowerment’ that includes issues like rural development, on the other. The more a broad-based interpretation is adopted, the closer BEE will be aligned with expectations pertaining to CSR.

The mining sector has been the setting for most of the pioneering and controversial decisions with regard to BEE and the relative roles of government and business in it. Following a drawn-out policy making process, a draft bill was published in 2000, which sought to implement state sovereignty over all mineral resources, requiring existing rights holders to re-apply for exploration or mining rights, and ‘when considering the granting of a prospecting or mining right, preference must be given to historically disadvantaged persons.’ After the bill passed into law in mid-2002, its implementation was to be codified in an ‘empowerment charter’ for the industry, subject to a negotiated drafting process with the participation of labour and representatives of established and emerging (that is, black) mining companies. When a government proposal for a compulsory ten-year target of 51% black ownership was leaked, the markets reacted with a drastic sell-off of shares (approximately eight percent of South African listed companies’ market capitalisation was lost within two days). This demonstrated the crucial role and power of foreign investors in the management of the national economy, as it prompted the immediate retraction of the proposals and a renewed commitment amongst all role players to finding compromises.

The final outcome was a charter that emphasised broad-based empowerment, with companies being able to offset some of their requirements for equity transfer to blacks (26% within ten years) with other requirements, such as employment equity, increased beneficiation, and social development initiatives in mining or labour sending communities. These requirements are codified in a ‘balanced scorecard,’ which is contained in Appendix 1. In theory, at least, the definition of BEE in the final outcome is closer to companies’ market-based CSR incentives.

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Why is this pertinent to CSR and governance? It illustrates the potential convergence between companies’ business case for CSR and the state’s and others’ development objectives. This convergence was facilitated by the negotiated policy-making process. As argued by the minister, when asked whether the mining companies are dominating policy development: We call the shots together; rather than ‘exercising power over’ it’s ‘power with’ – it is an inclusive approach to governance. Companies must comply with the charter, so it must work for them. (Mlambo-Ngcuka, 2003)

Following the publication of the final, negotiated outcome, mining companies accompanied government representatives on an international road show, trying to convince international investors that these social commitments by industry were in the long-term interests of investor returns. The implication is that government can harness these business incentives for influencing industry (for an international discussion of this issue, see Aaronson and Reeves, 2002). It also means that CSR can and should support long-term policy horizons for government.

Notwithstanding the negotiated approach, however, the new mining dispensation illustrates how the South African government has adopted an interventionist role in bringing about BEE in the sector, and this includes important elements of CSR. With respect to negotiation and new governance, it shows the importance of a credible bargaining ‘stick,’ which, in this case, was the licensing requirement for all current and future mining activity. With respect to CSR, the new scorecard’s significance in influencing companies’ behaviour will need to be tested at the local level, comparing it also to other, voluntary incentives for CSR.

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THE LOCAL DIMENSION: COMPANIES’ RESPONSES AND CHALLENGES5

This section considers four platinum and two chrome companies and their efforts at dealing with social issues around their operations in the Rustenburg region (about

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This section is based on ongoing fieldwork and on material that has been submitted as a paper for the South African Chamber of Mines Conference on Sustainable Development, 2003, and a case study of CSR in mining, with Andries Bezuidenhout, for the United Nations Research Institute for Social Development. Interviewees’ names are not given, as they have not been given an opportunity to inspect quotations.

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120km north-west of Johannesburg).6 While the text deals with the companies in a general sense, more specific information regarding the companies is contained in Table 1.

5.1 The evolution and impact of CSR at the local level

Historical and social context Platinum group metals have been mined in the vicinity of Rustenburg for about 75 years, and there has been a recent upsurge in mining activity in connection with the high demand for these metals. In line with dominant historical practices in the sector, mining companies in the region employed migrant labour (from areas such as the Eastern Cape, Lesotho, and Mozambique), housed workers in single-sex hostels, and relied on the apartheid state or the Bophuthatswana government to prevent informal settlements or community or labour protest. So, for instance, in the late 1980s, Impala Platinum reportedly employed over 40 000 employees in the area, most of which were migrant workers housed in large single-sex hostels. The large mines were hence like industrial islands in what was still a predominantly agricultural area.

The landscape became much more industrialised and populated during the late 1990s. This was due to the rapid expansion of the platinum mines, as well as increased immigration and establishment of informal settlements, which were less rigorously prevented than during the apartheid years. These informal settlements are especially prominent next to mine hostels, and they commonly do not have formal recognition from the landowners and do not receive basic municipal services. Most interviewees noted that these informal settlements are a key source of the social challenges faced in the Rustenburg area, including HIV/Aids and other diseases, substance abuse, and crime.

The evolution and impact of corporate social investment Historically, companies’ social responsibility was commonly understood in terms of ad hoc donations or corporate social investment (CSI) around the mines (see section 4.2 above), motivated by a sense that it was ‘the right thing to do.’ With the political changes in 1994, there was also the growing political imperative to be seen to contribute to social development around the mines, as well as the incentive to mitigate increasing local resentment regarding pollution and the growth of informal settlements. 6

The study area is defined more or less by the Rustenburg Local Municipality, in which most of

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During the 1990s, in the larger companies, the system of ad hoc community contributions was transformed into a formal corporate budget for CSI (e.g. 1% of pretax profit) with a dedicated managerial structure (generally comprising a corporate and a regional manager). The main focus of companies’ CSI activities has generally been on education and health, with a more recent emphasis on HIV/Aids, housing, employment creation, and small business development. In line with this broadening of the CSI ambit, Anglo Platinum has recently established a more elaborate management structure called the ‘Socio-Economic Development’ department.

It is not easy to rigorously assess the impact or sustainability of companies’ CSI activities in the area, as there is little structured information available about these efforts and there are important differences in companies’ budgeting systems. A rough estimate of companies’ CSI related expenditures in the Rustenburg region, based on interviewee’s comments, would be about R40 million. Given that the local municipality has an annual budget for capital projects of about R30 million (Rustenburg Local Municipality, 2002: 135), the mining companies’ CSI budgets represent a significant contribution at the local level.

However, the overall impact of companies’ CSI efforts, according to most interviewees, remains patchy, especially considering the growing need for social and infrastructure development in the area. Interviewees commonly raised the following concerns: •

CSI initiatives are often seen as being primarily about propaganda, which also prevents a more coordinated approach to development in the region;

•

Companies tend not to provide CSI benefits to informal settlements around the mines, because of the uncertain legal status of these settlements;

•

Crucially, CSI is not seen to tackle the root causes of the social problems in the area, many of which relate to the business practices of the mines themselves, including, for instance, employee housing policies. Hence the benefits gained through CSI activities were considered insufficient in the face of negative impacts of the mines, such as the impacts of growing informal settlements.

Many of these concerns are based on verifiable characteristics of current CSI efforts; that is, they focus primarily on areas around the mines, with little coordination between

the mining activity occurs.

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companies; they tend to neglect informal settlements; and CSI managers commonly have little influence on core business decision-making on a regular basis.

The environment, health, and safety dimension While CSI was predominantly an ‘on-the-side’ activity by mining companies throughout the 1990s, some CSR related issues became significant at an operational level through legislative environmental requirements after 1994. Prior to project initiation or expansion, companies were required to conduct an environmental assessment. These processes (depending also on the initiative of the particular consultant) were often the first opportunities for formal communication between companies and surrounding communities. The resulting environmental management programmes contained some mention of social issues, but these requirements have not been enforceable. After 1994, increased regulatory pressure also became prominent in the field of occupational health and safety.

Safety, health, and environmental issues have also become more prominent due to international pressure on mining companies, particularly those with a listing in London (see section 4.2 above). Many operations are currently implementing ISO 14001 management systems (see below). As a result, safety, health and environment issues became embedded in operational management, while in many instances CSI and the management of social issues continue to exist as an ‘add-on’ organisational function, with an emphasis on corporate philanthropy, rather than the internalisation of social costs into business operations. CSR and informal settlements: the role of employment policies As noted above, informal settlements are particularly prominent around the mine hostels and are an important source of a variety of inter-related social problems (see Figure 3). Though most interviewees agree that it is primarily government’s responsibility to facilitate the development of formal housing and settlements, it is also generally accepted that mining companies share some of this responsibility. This is especially because of the mines’ long-term reliance and facilitation of the migrant labour system and the maintenance of single-sex hostels, notwithstanding widespread concerns that this was contributing to both social problems around the mines and safety problems within the mines.

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Figure 3: Informal settlement next to one of Anglo Platinum’s mine shafts

Amongst all major companies, there is now an emphasis on employing local labour, due to pressure from local communities, tribal authorities, and government. This incentive is particularly prevalent in the new mines: in the Bafokeng Rasimone Platinum Mine, for instance, apparently 99% of the workers are from the local area. In that case, a key incentive for local labour sourcing was the lease agreement between the company and the tribal landowners. In the older, more established mines, a large proportion of workers are still migrant labour, as a result of the mines’ historical reliance on this source.

Furthermore, all major companies surveyed in this research are now seeking to phase out or diminish reliance on single-sex hostels, for a variety of reasons: •

The single-sex hostels were seen as a breeding ground for labour unrest and dissent;

•

They were considered an impediment to increased worker productivity;

•

Phasing out single-sex hostels would decrease the prevalence of HIV/Aids in and around operations;

•

Single-sex hostels are stigmatised, and government and organised labour have long argued for their abolishment (this is particularly acute in the DME scorecard – see Appendix 1).

The phasing out of single-sex hostels may be seen as an exemplary case in which business case motives have complemented stakeholder pressure to drive socially beneficial decisions in core business. It is thus tempting to compare companies with

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respect to the extent to which they have committed themselves to phasing out singlesex hostels, and it is indicative that most established companies still have between one third and one half of their workforce living in these hostels. However, the phasing out of single-sex hostels is a complex issue, where much depends on the historical and operational circumstances of each mine. Also, much depends on the new employee housing policies, which can further aggravate social problems around the mines. For instance, some mines’ provision of a housing allowance has been criticised as being a further contributor to the growth of informal settlements, as employees are tempted to save money by living in an informal, temporary dwelling. More recently, many companies have undertaken to facilitate the provision of housing to employees, making use of their abilities to access finance, obtain regulatory approvals, and establish joint ventures for this purpose.

Though it may seem obvious to consider mining companies’ employee housing policies as a crucial element of CSR, particularly in the wake of apartheid, it has not been prominent in the local discourse. During the regional studies for the MMSD, for instance, mining companies successfully kept the issue of single-sex hostels off the agenda (for the outcome of these studies, see MMSDsa, 2002). This is a clear indication of accommodation and legitimation at work! 5.2 The current shift: new incentives and pressures

The local research identified an emerging set of incentives and pressures on companies to integrate social development issues more significantly into core business decisions. To various degrees, companies are responding to these drivers (see Table 1).

Increased local pressures There is an increasing realisation amongst local mine management that the social problems in settlements surrounding the mines, especially the informal settlements, can have significant impacts on productivity. Crime, alcohol abuse, and sickness diminish the productivity of workers that live in these settlements, and these factors impede the attainment of lower fatality and injury rates.

Sound community relations have become an integral part of effective risk management. Many interviewees noted that community members and local government representatives are now more aware of their recently acquired social and political

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rights, and they are more adamant in making use of these in their interactions with the mining companies. This local activism is also significant because recent experiences have shown that community unrest can impede or even obstruct production, through protest marches or even invasions of mining areas. In the study area, the Luka community is opposing current plans for a new open cast mine and has presented the proponent, Impala Platinum, with a controversial memorandum of demands (Luka Community, 2003; Impala Platinum Limited, 2003). The challenges faced by mining companies in engaging local communities are considered below.

New legislation: the mining scorecard The second important development regarding CSR drivers is the DME scorecard, which was described above in connection with South Africa’s new mining dispensation and is provided as Appendix 1. The scorecard’s status as a permitting requirement means that it is a very direct and powerful pressure on company management. All interviewees stressed the scorecard’s importance in giving direction and added momentum to mining companies’ CSR efforts.

Most significantly, the scorecard is taking social issues much higher into business strategy and decision-making than previously the case. Anglo Platinum and Xstrata, for instance, have created new posts at board level for an Executive Director of Transformation. The scorecard is also an important incentive to integrate the management and reporting systems that deal with social issues around the mines.

International incentives and the role of public reporting Though international investors’ and consumers’ concerns, and corporate responses to them, have been apparent for a few years already (see section 4.2), these drivers have only recently become prominent at the local level, particularly as they pertain to social issues. The most significant international incentive in this respect is the Global Reporting Initiative (GRI).7 Only BHPBilliton, which is the parent company of Samancor, reports in accordance with GRI guidelines at present, and all the big platinum companies are intending to comply with the guidelines in future. Significantly, some of the companies’ reports illustrate how the reporting process itself is helping companies manage social issues through the development, measurement, and

7

See www.globalreporting.com. This is excepting the ISO14001 management standards: most mining operations have recently or are currently implementing ISO14001. However, the social implications of these systems are limited. Interestingly, only the chrome companies’ representatives identified consumers as important drivers in this respect.

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reporting of key performance indicators (KPIs), though some companies’ reports are much more developed in this regard than others’ (see Table 1).

5.3 Key challenges faced by companies

In responding to the new incentives described above, companies face the following key challenges at the operational level.

Integrating CSR into core business and demonstrating commitment Identifying and prioritising the various CSR related issues into an integrated strategy, which has the commitment of executive management, is an important prerequisite for an effective response (Warhurst and Mitchell, 2000; Waddock et al., 2002). In the past, most mining companies in the Rustenburg region considered social issues around the mine in an ad hoc and disconnected manner, and though there were frequent informal interactions between the relevant CSI, environment, and human resource functions, there was no strategic, proactive planning and oversight between them. Crucially, social issues were rarely of any significance in core business planning or decisionmaking; that is, they were generally of little concern to higher levels of the company hierarchy.

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Table 1: An overview of companies and operations surveyed in the Rustenburg area (please note high degrees of uncertainty wrt figures cited) Company (corporate information and operations in study area) Anglo Platinum Listed in Johannesburg and London; 67% owned by Anglo American; two main operations in study area: RPM Rustenburg Section (~15 000 employees) and Bafokeng-Rasimone mine (~3 300 employees); estimated 9000 contractors in Western Limb.

Aquarius Platinum Listed in Australia and London; 2 mines in study area; business model based on contracting, with only 16 out of 1350 workers in one mine fulltime employed.

Impala Platinum Registered and listed in Johannesburg; operations in study area: Impala mine with 24 000 workers.

Lonmin Platinum Registered and listed in London; three main mines in study area, with about 20 000 workers and 5000 contractors.

Samancor Chrome 60% owned by BHPBilliton and 40% by Anglo American; there are four mines in the study area as part of Western Chrome Mines – a separate operational division – with about 1300 workers.

Xstrata Chrome Based in Switzerland, listed since 2002 in London; it owns three mines and three smelters in the study area, with 3900 workers and 120 contractors.

Public reporting on CSR issues

Organisational strategy and structure regarding CSR

Current efforts in CSR related issues

For 2002, for the first time, a separate ‘Sustainable Development Report’ was published; there is no external review; GRI accordance is envisaged in future. Historically, there was brief mention of social issues in annual reports and, since 1997, committed sections for environmental issues.

Board level: a SHE Committee, and as of late a Committee and Executive Director for Transformation. Social issues managed by the recently established ‘Socio-Economic Development’ department, with corporate and regional managers and various support staff. The SED budget for the Western Limb (including Union and Amandelbult Sections) is about R20 million (these mines’ operating profit is about R8 billion; i.e. a factor of 400). There are no corporate strategies or structures with focus on sustainable development; environmental issues are managed in terms of EMPRs; there are reportedly some CSI activities, but with no formal budget or strategic direction. At board level, there is SHE Committee. Social issues dealt with by Impala Community Development Trust. Its budget is 2% of after-tax profit. Around the Rustenburg operation, social issues managed through one of three committees set up in terms of the lease agreement with the Bafokeng tribal authority. The CSI budget is reportedly about R5 million in the area (out of a regional operating profit of about R3 billion, i.e. a factor of 600). At board level, there is a SHE Committee and a new committee for transformation. At operational level, a recent post was created for General Manager: Corporate Accountability. The corporate (not regional) CSI budget is about 30 million (out of operating profit of about R3.3 billion, i.e. a factor of about 110 – beware, however, of comparing corporate budgets with regional ones). CSR strategy and structure is supported by BHPBilliton’s 21 (now 15) key management standards for health, safety, environment, and community (HSEC), with line management reporting on these standards, supported by an HSEC Coordinator. CSI initiatives are only now being formalised in terms of a 1% pre-tax profits budget, with R 130 000 having been spent in 2002. At board level, there is a SHE Committee, and a new Committee and Executive Director for Transformation. A policy on transformation, which will include CSI efforts, is currently being developed. CSI has traditionally been the responsibility of the group HR manager for the alloys division, with a budget of about 6 million (about 1% of pre-tax profit).

Housing: A group housing policy was formulated in 2002, to support employee house ownership and to phase out single-sex hostels; construction of about 700 houses is currently being facilitated in the study area. HIV/Aids: Group strategy was developed in 1998, including voluntary testing and awareness raising; ART to be provided. Local community relations: Formal meetings held half-yearly; regular interactions via environmental and social managers. Housing: housing is responsibility of contractors; reportedly some support for informal settlements. HIV/Aids: No policy at present. Local stakeholder relations: No indication of formal attempts at communication with local stakeholders. Housing: Policy is to phase out single-sex hostels; provision of housing allowance (requires proof of bona fide lodging). HIV/Aids: Voluntary testing and awareness programmes are coordinated by a management-labour agreement; ART is provided via internal medical aid scheme. Local community relations: Until recently, all communication was via the Bafokeng tribal authority, with current efforts at establishing more direct communication structures. Housing: The company has facilitated the construction of over 1000 houses that are now occupied. HIV/Aids: Awareness and voluntary testing programmes are coordinated in conjunction with labour. Local community relations: Monthly, formal meetings are held between mine managers and tribal authority and local government; more direct communication structures are being set up. Housing: Single-sex hostels are reportedly being phased out by end 2004. HIV/Aids: Awareness and testing programmes are coordinated by a steering committee that includes labour; treatment is supported via private medical aid schemes. Local community relations: A community engagement strategy is currently being developed; current interactions are informal and ad hoc. Housing: There are no hostels, as most employees are locals; employee home ownership is facilitated by using provident funds as loan guarantee. HIV/Aids: Employees are required to be members of private medical schemes. Local community relations: No formal stakeholder engagement process, other than informal interactions with community groups.

No public reports on social or environmental issues; no annual report available on the internet.

An environment, health, safety, and community (ESH&C) review was published for 2001, and a full ESH&C report for 2002; there is no external review; GRI accordance is aimed for in 2007.

The first safety, health, and environment report was published in 2000; for 2002, a ‘Corporate Accountability’ report was published, following GRI guidelines; full GRI accordance is planned for in the near future; includes external review. Since recently, Western Chrome Mines publishes its own report – the most localised in the study area – as part of the BHPBilliton reporting structure; the corporate report is in accordance with the GRI guidelines and is independently verified. There are published business principles and a very rudimentary ‘Safety, health, environment, and community review’. A sustainability report is envisaged in future.

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The new incentives and pressures described above are changing this to some extent. New management structures, such as Anglo Platinum’s ‘Socio-Economic Development’ department and Lonmin’s General Manager for Corporate Accountability, are meant to provide a more integrated response to CSR drivers. The challenge for these structures is: •

To establish an integrated CSR strategy that involves core business planning and decision-making, and which includes reporting requirements for line management that are tied to personal incentive schemes, as is currently the case with production and safety objectives.8

•

To develop an effective stakeholder engagement process based on the internal CSR strategy. This process should counteract one of the most common concerns amongst local interviewees in government and civil society: that there is a significant gap between the image that companies seek to develop, and their actual social performance. The measurement, mitigation, and monitoring of social impacts around mining operations should be done in conjunction with local stakeholders. However, such a process requires mining companies’ support for improved local governance, which is considered below.

A key concern amongst both local and national stakeholders is that while companies may be making progress in dealing with social issues, they are increasingly making use of contractors, and these contractors are not faced with the same incentives or pressures to act responsibly with respect to their workers, the environment, or surrounding communities. In recent years the use of contractors has increased dramatically amongst companies surveyed in this research, with Anglo Platinum, for instance, increasing its component of contract workers from 10 000 to 20 000 within one year.

There are a wide variety of contractors, with the large ones generally being seen as more responsible than the small, ’fly-by-night’ companies, which are reportedly prone to exploiting workers in terms of pay, as well as safety, health, and environmental concerns.9 But even the large contracting companies do not face the same pressures and incentives as the mining companies, also due to the short-term nature of their project contracts with the mining companies. For instance, there is generally no 8

None of the companies surveyed yet include social criteria in line management performance assessments.

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commitment to employ local labour or ensure adequate housing for employees. Considering the large numbers of contract workers involved, the various CSR policies and practices of the mining companies risk being undermined by the practices of the contracting companies.

Improving local governance Historically, mining companies in the Rustenburg region have not regularly interacted with local communities. They have commonly relied on the tribal authority – in the study area, this is primarily the Royal Bafokeng Administration – as the representative of local communities, which was problematic also because of the large numbers of residents, particularly in the informal settlements, who are not members of the local tribe. Furthermore, due to historical circumstances and mining companies’ neglect in communicating directly with local communities, the local communities have not been able to establish representative institutions. The result is that now that mining companies are beginning to establish formal community engagement programmes, these are constrained by local power struggles. Sometimes these local power struggles overlap with the tensions between local government and the tribal authority.

It is hence in mining companies’ own interest to recognise and support legitimate community representation structures. Yet this in itself can be a complex and conflictprone undertaking, as the company’s recognition of local leaders may disrupt sensitive balances of power in the local community.

The second reason for why mining companies need to support the establishment of more effective and responsive local government is because the current dearth of effective cross-sector communication and the absence of an overarching development plan for the region are constraining their efforts to deal with social issues around the mines. Such coordination requires improved leadership and convening capacity from local government. Yet local government is still undergoing significant changes, and is still trying to build the necessary capacity. Hence, in their own interests, mining companies need to support local government in terms of capacity building and improved development planning.

9

This could not be independently verified in this research, but nearly all interviewees stressed

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6

CONCLUSIONS

The conclusions of this research are summarised in the following points: •

CSR is a phenomenon that goes beyond voluntary business initiatives and market drivers, and it is subject to significantly diverging perceptions of the role of business in sustainable development. Voluntary initiatives and the business case for CSR need to be seen in the context of business’s broader impacts on society, including its influence on discourse and state policymaking. This underscores the need for a research approach that includes a company-level analysis of organisational change within a political economy framework.

•

In South Africa, the business perspective of CSR, which has emphasised ad hoc donations and strategic philanthropy, has not had a significant impact on the social consequences of mining. In the context of business’s implication in apartheid, and particularly mining’s significant social and environmental impacts, CSR has thus played an important role in accommodating external expectations and legitimising the role of business, in order to pre-empt the need for more substantial changes to business strategy and practice.

•

This implies that government has a crucial role to play in raising social standards in business practice. The research suggests that legislative pressures are a primary cause for significant changes in companies’ strategies and management structures, though they may be complemented by market-driven incentives. This is particularly because of the South African government’s current emphasis on broadening access to the economy. State intervention and business voluntarism are intricately linked in this process, and CSR is hence defined by both.

•

The research suggests that it is in business’s interest to help build an effective government that increases and guides the social responsibility of companies, facilitated by new governance tools such as multi-stakeholder negotiation. At the national level, this is premised on the need for long-term social stability and investor confidence. At the local level, it is based on the need for effective and fair community engagement and improved local development planning. The frontier of CSR is in collective and negotiated support for stronger government.

the point.

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APPENDIX 1: Scorecard for the broad based socio-economic empowerment charter for the South African mining industry (source: http://www.dme.gov.za/minerals/pdf/scorecard.pdf) Human Resource Development • Has the company offered every employee the opportunity to be functionally literate and numerate by the year 2005 and are employees being trained? • Has the company implemented career paths for HDSA [historically disadvantaged South African] employees including skills development plans? • Has the company developed systems through which empowerment groups can be mentored? Employment Equity • Has the company published its employment equity plan [in accordance with the Employment Equity Act] and reported on its annual progress in meeting that plan? • Has the company established a plan to achieve a target for HDSA participation in management of 40% within five years and is implementing the plan? • Has the company identified a talent pool and is it fast tracking it? • Has the company established a plan to achieve the target for women participation in mining of 10% within the five years and is implementing the plan? Migrant Labour • Has the company subscribed to government and industry agreements to ensure non-discrimination against foreign migrant labour? Mine community and rural development. • Has the company co-operated in the formulation of integrated development plans [as required in local government and planning legislation] and is the company co-operating with government in the implementation of these plans for communities where mining takes place and for major labour sending areas? Has there been effort on the side of the company to engage the local mine community and major labour sending area communities? (Companies will be required to cite a pattern of consultation, indicate money expenditures and show a plan). Housing and Living Conditions • For company provided housing has the mine, in consultation with stakeholders established measures for improving the standard of housing, including the upgrading of the hostels, conversion of hostels to family units and promoted home ownership options for mine employees? Companies will be required to indicate what they have done to improve housing and show a plan to progress the issue over time and is implementing the plan? • For company provided nutrition has the mine established measures for improving the nutrition of mine employees? Companies will be required to indicate what they have done to improve nutrition and show a plan to progress the issue over time and is implementing the plan? Procurement • Has the mining company given HDSA’s preferred supplier status? • Has the mining company identified current level of procurement from HDSA companies in terms of capital goods, consumables and services? • Has the mining company indicated a commitment to a progression of procurement from HDSA companies over a 3 – 5 year time frame in terms of capital goods, consumables and services and to what extent has the commitment been implemented? Ownership & Joint Ventures • Has the mining company achieved HDSA participation in terms of ownership for equity or attributable units of production of 15 percent in HDSA hands within 5-years and 26 percent in 10-years? Beneficiation • Has the mining company identified its current level of beneficiation? • Has the mining company established its base line level of beneficiation and indicated the extent that this will have to be grown in order to qualify for an offset [of equity transfer requirements]? Reporting • Has the company reported on an annual basis its progress towards achieving its commitments in its annual report?

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