Hi All

It’s funny how stimuli sometimes seem to conspire to coalesce one’s thinking. My last blog post was on employee debt and this evening, while doing some late night browsing I came across this article speaking of how debt collectors unscrupulously exploit employer and employee ignorance to impose illegitimate garnishee orders on employees. I was reminded of a telephone discussion I had with a client who, in preparation for presenting the business case for sustainability had sought our advice. It struck me that this was a classic case.

Simply put, employees under the considerable strain of over indebtedness can end up, among other things, resigning to cash in their pensions, missing days at work to try to sort out their affairs, becoming ill as a result of stress or simply unproductive at work as a result of the strain. In addition, those desperate may resort to fraud and other forms of theft. Informing managers and employees of consumer rights regarding debt, as set out in the National Credit Act, and creating a referral service for employees to see debt counsellors seems a humane thing to do and an important part of employee well-being. Surely one’s needy employees should be amongst the first on the recipient list for CSI?

Another question to ponder is, what is the business case for sustainability reporting? Is it an expensive glossy document which companies have to be seen to be producing but which nobody reads or is there something more to it? There certainly should be. King III requires integrated reporting. My interpretation of this is that companies ought to start making audited sustainability indicators part of their annual reports. But why and what should they report on? Savvy investors already know most of the big ticket industry risks that companies face. Labour brokers are under threat with the proposed banning of labour broking. The medical schemes have a potential threat from the advent of the intended national health insurance. The government is intending to play in the savings space, possibly threatening life companies. We all know about employee debt, we all know about climate change, we all know about transformation. So what do we want from a sustainability report? A set of good news articles with lots of colour photos of white CEO’s shaking hands with black people in the name of political correctness? No, what we need to see is confident assurance that companies have recognised the threats they face and speak with confidence and authority on how they are addressing these. No generic paragraphs on risk management but reports on engagements with key stakeholders, implementation of control measures, transparent disclosure on the sustainability of the core products and services not only of the company in question, but of its suppliers and customers.

King III requires that sustainability be integral to strategy. Sustainability is really about ensuring that we, or the company, are still going tomorrow. The issues I have mentioned above, therefore need to be incorporated into strategic thinking. There is nothing new about this, the good, old fashioned SWOT analysis, is exactly about this, done properly, but now it is time to report on these issues. We are living in a time of global turmoil. Technology and the information age are moving a rate that leaves the mind boggling. The world economy is highly unstable, global warming looms like a wolf in the shadows. Sustainability reporting needs to move the threats out of the darkness and bring them to the forefront of planning. Investors, employees, customers, suppliers and the government, now more than ever, need to see that enterprises are taking these matters seriously and have plans to deal with them. That is where stakeholder confidence comes from. Nothing like investor confidence to push up a share price. Nothing like a rising share price to put your share options in the money. Oh, and if such transparent reporting is not good for your share price? Well then, you have some work to do.

Until next time

Paul Ellis-Smith

Hi All

I have been spending the week doing a course and becoming familiar with the National Credit Act. It struck me again, as it has in the past, the effect it can have on a company when there is a high level of financial strain among its workforce. There are significant risks relating to fraud, stock shrinkage, resignations as employees leave to cash in their pensions. There can be higher absenteeism and, of course, lower productivity due to stressed and unhappy employees.

What is a responsible employer to do? Well a quick way to assess the extent of the problem is to see to what extent the salaries of employees are subject to emolument attachment or garnishee orders. Low income employees are likely to have been significantly effected by increasing costs of living and the anticipated increases to electricity prices with their knock on inflationary effect will continue to cause employees stress. One solution would be around consumer education. Low earning employees should be availed the opportunity to attend personal financial management courses which give them a good understanding of credit and debt as well as the content of their payslip and their salary deductions. They should be taught the nuts and bolts of credit transactions and their consumer rights as well as the various saving options and how they work.

Debt counselling is a new profession, which has come into being under the National Credit Act and is gaining acceptance and momentum. It may be prudent that companies develop a relationship with a debt counsellor to which it can refer employees, or even have one set up shop in house if there is sufficient need to justify such a step.

I anticipate that over the next couple of years, employee responsibility with regard to providing (non financial) support to over indebted employees is going to become a significant area of social responsibility and a great opportunity for for the social bottom line as the sustainability risks around over-indebted employees manifests.

It will be interesting to see how this plays out.

Until next time

Kind regards

Paul Ellis-Smith

Hi everyone and welcome to my blog. Here, you will find thoughts and opinions on sustainability, training, product news and whatever else seems apposite at the time.

The big recent event in the sustainability world in South Africa is the release of King III, the timing of which seems appropriate against the backdrop of business failures resulting from the global economic meltdown. In essence, the poor risk management leading to the subprime crises is really just an excellent example of poor corporate governance. It begs the question – what does sustainability really mean?

In this country, sustainability reporting tends to focus a great deal on transformation, the long term success of which is, needless to say, vital for the economic and social future of our country, however, companies seem to shy away from a risk based approach to sustainability, asking and answering fundamental questions around the sustainable future of the business – just for example, does it rely on non-renewable resources? Does it rely on the availability of water? And, for that matter, do its suppliers and customers? What economic or regulatory risks does it face? It would be interesting to follow the effect of the intended National Health Insurance on the Medical Aid Business.

Back to King III, I have summarised, very briefly, for this blog, King III’s chapter on Integrated Sustainability reporting.

King III Principles for Sustainability Reporting

King III contains a short chapter on Integrated Sustainability Reporting. The principles it expound are:

1. Effective communication with stakeholders is essential.
2. Sustainability reporting should be focused on substance over form and should transparently disclose information that is material, relevant, accessible, understandable and comparable with past performance of the company.
3. Sustainability reporting and disclosure should be formalised as part of the Company’s reporting process.
4. Effective reporting should take place at least once a year.
5. Sustainability reporting and disclosure should have independent assurance.

Sustainability management

King III makes the point that sustainability needs to be integral to the management of the company, is central to corporate governance and is therefore a process to be embedded formally in the company. King III’s recognition that governance, sustainability and performance have become inseparable results in the phrase “integrated performance and reporting” being a theme throughout the King III report. Sustainability reporting needs to be a formalised process and not an event in which information is collated and reported on at the end of a financial year. Accordingly, sustainability indicators will need to be regarded as key performance measures to be integrated into strategic planning.

A full discussion paper on the effects of King III on Sustainability Reporting is available, for free, on request. Click here to request it.

Kind regards

Paul Ellis-Smith

Hi All

I have had, fairly recently, a chat with a senior member of COSATU in the Western Cape, whose identity I will not reveal as this was not in a public forum. He spoke of the need for greater government involvement in business. It begs the question, what is the government’s role in promoting sustainability and how should the private sector be partnering with government?

Certainly, government has a role in enforcing good corporate citizenship. It does so, primarily, vicariously through the requirements for adherence to the King Code on Corporate Governance as a JSE listing requirement. Legislation such as the National Environmental Management Act of 1998 go some way to enforcing minimum behavioural standards for the Environmental Bottom Line and a plethora of labour legislation and regulations force standards with regard to the Social Bottom line. As a colleague of mine once remarked though, government creates legislation in accordance with its own priorities and not the priorities of business. Interrogating that, one begins to wonder where the divergence lies. Is what is good for business not good for government? Surely, the fostering of a healthy business environment is a sine qua non for the effective governance of the country? It stands to reason that no social welfare can take place if no wealth is being generated. Zimbabwe stands grim as the best example of what happens to a country when a government ignores the need to allow the economy to thrive by systematically plundering it and wrecking its infrastructure.

Under Trevor Manual’s prudent hand, the South African Economy has, for many years, defied the pessimists and continued to thrive. Sound fiscal and monetary policy have been the driving forces behind our stability and prosperity as a nation. A black middle class has emerged and become established who want, as their white counterparts do, good education for their children, a safe area to live, free of crime and a strong economy that allows solid growth of the shares held in their pension funds. So what prevents the trickle down that capitalism is meant to bring?

A person may have a job and be able to send his/her child to school, but what is the quality of the education that this child will receive? Will the child be in an environment surrounded by gangsterism and drugs? Are the schools safe havens of learning? Usually not. With a health care system and education system in disarray, the chances of self improvement, or the improvement of the future possibilities of one’s children are in serious jeopardy.

So where do the obligations of government and business lie? Well, the first obligation of business is simply to stay in business and to generate sound returns to its shareholders. The first role of government is surely the welfare of the citizens of the country. Government has the obligation to ensure that our safety, education and health needs are provided for. The private sector provides the tax revenue for doing so. Finally, then, government needs to ensure that this revenue base does not stop growing. So that, instead of trying to reallocate the portions of the pie, more pie is baked. Correspondingly, business needs to partner government to assist in education and social welfare, bringing its skills and targeted CSI spending to social projects which will uplift the next generation of employees and customers. The priorities of government and business are not mutually exclusive and do coincide. But it will take some maturity to bring about the necessary collaboration. Business has been cowed and seems to have lost its voice.

In September 2004, Thabo Mbeki blasted Tony Trahar, CEO of Anglo American for his reference to “political risk” in South Africa. In fact, open dialogue on such matters might have allayed some of the fears. The irony is that Afro-pessimism, which has lead to flight of capital from Sout Africa may well have cost those involved dearly as the sub-prime crises ripped through the USA and the UK, leaving South Africa, relatively far less affected. It’s time for the private sector to find it’s voice and offer solutions and assistance but also to play a meaningful role in dialogue and debate - after all, this is a democracy. The sustainability of our economy demands it.

Kind regards

Paul Ellis-Smith