The Steinhoff Saga Management review - University of Stellenbosch Business School

January – June 2019

South Africa and the UN Global Compact: Do our reports and progress match?

By Prof Daniel Malan and Prof Marius Ungerer

  • June 2019
  • Tags Insights, Leadership
18 minutes to read

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Why this study was undertaken

To gain an understanding of the role of the United Nations (UN) Global Compact, and how the South African signatories to this initiative are performing, the authors of the journal article titled Communicating progress on meeting the United Nations Global Compact goals: An analysis of the South African experience started off by looking at the changing role of business in society. They also discussed concepts such as the purpose of business, Creating Shared Value (as a proposed way to reinvent capitalism) and Optimised Collective Value (as a proposed way to shift the emphasis away from narrow corporate self-interest).

Next, the authors scrutinised the South African companies’ annual progress reports to the Global Compact to determine how they are actually performing in terms of human rights, labour standards, environmental standards and anti-corruption measures. In essence, this is what they found:

About the UN’s Global Compact

In the year 2000, the United Nations launched its Global Compact initiative in New York to enhance cooperation between the business community and the UN, and to facilitate a communal understanding of the principles and values required to support human rights, labour standards and environmental standards. Later, anti-corruption measures were also added.

The establishment of the Global Compact speaks to the changing role of business in society.

The establishment of the Global Compact speaks to the changing role of business in society. First, there was philanthropy which evolved into traditional corporate social responsibility (CSR) and then into CSR based on enlightened self-interest or strategic corporate responsibility (CR).

The UN Global Compact is the world’s largest voluntary corporate citizenship initiative. At the time of writing, there were some 9 000 business and 3 000 non-business signatories. It serves as a forum where corporate citizenship can be investigated, as there is growing consensus that multinational corporations have a moral obligation as corporate citizens to do more than make a profit.

The work of the Global Compact is based on 10 principles derived from the Universal Declaration of Human Rights, the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development, and the United Nations Convention against Corruption.

These principles are also aligned with the Sustainable Development Goals (SDGs), as expressed by the Global Compact: “We are a voluntary initiative based on CEO commitments to implement universal sustainability principles and to take steps to support UN goals.”

Once a year, signatories to the Global Compact have to submit a progress report. The Communication on Progress (COP) report is one of the most important tools for signatories to provide feedback on how they have supported the 10 principles. Although the COP system is there to provide some consistency and accountability, the UN Global Compact does not want to be viewed as a compliance-based initiative. Instead, it is about “learning, dialogue and partnerships” and also about collaboration, transparency and public accountability.

About the purpose of business

The founding of the Global Compact is an outcome of years of debates and studies about corporate responsibility and the purpose of business. In the full journal article, the authors describe how the role of corporates have changed over the years.

Those corporates who have adopted traditional CSR approaches usually prefer a percentage of profits to be spent on worthy causes, often to offset the way in which the profits were made. They sometimes cynically refer to this spending as guilt money. Those corporates who choose the enlightened self-interest approach take both risks and opportunities into account, and are therefore strongly focused on stakeholder engagement. However, the latter approach is mostly opportunistic, and, if the business case is not strong enough, corporations might quickly lose interest and step away from what could be regarded as values-driven behaviour.

First, there was philanthropy which evolved into traditional corporate social responsibility and then into CSR based on enlightened self-interest or strategic corporate responsibility.

Strategic CR is based on a deeper reflection on the purpose of business and the way in which corporations form an integral part of society. Driven by a clear understanding of the nature of the business, interventions are designed and contributions are made in such a way that the corporation uses its strengths to contribute to societal needs and thrive at the same time. Strategic CR (sometimes explained as a shift from focusing on how profits are spent to how profits are made) is based on the real capabilities and specific expertise of the corporation and can achieve integration on two fronts. Firstly, so-called CSR activities are no longer peripheral, but are integrated into the core activities of the corporation. Secondly, the business case and moral case are not presented as part of an either/or choice. Instead, there is a clear acknowledgement that core values are not negotiable. In other words, the moral case trumps the business case. This is also the preferred approach in this article.

One of the reasons for this shift in focus is that corporations are increasingly confronted with challenges once thought to belong in the domain of governments. Examples include climate change and increasing inequality between rich and poor, as well as political conflict and human rights abuses, especially in developing countries.

Corporations have to confront these challenges with commitment and innovation. If they can do so successfully, it will be in their own interest and also in the interest of the planet.

Hence, the focus of corporate responsibility (CR) shifted from an internal corporate perspective to a broader systemic perspective, reflecting the view that the responsibility of corporations cannot be addressed in isolation. In terms of purpose, Porter and Kramer (2011) presented their concept of Creating Shared Value (CSV) as a way to reinvent capitalism.

Donaldson and Walsh (2015), on the other hand, argued that what counts as value for a single firm is not the same as value for business in general, and proposed a world of Optimised Collective Value (OCV) – “a world where collective value is optimised, where the dignity of every business participant is recognized and honored”.

Strategic CR is based on a deeper reflection on the purpose of business and the way in which corporations form an integral part of society.

Taking a look at the South African signatories

At the time of writing, South Africa had 19 signatories to the UN Global Compact: Altron, AngloGold, Ashanti, Barloworld, Coca-Cola Sabco, Deloitte, Edcon, Eskom, Exxaro, FirstRand, Gold Fields, Impala Platinum, Mondi, Nedbank, Pick n Pay, Richards Bay Coal Terminal, Sanlam, Sappi, Sasol and Unilever.

The authors assessed their COP reports submitted to the UN Global Compact based on the following:

  • Did they emphasise the business case or the moral case for corporate responsibility?
  • Did they emphasise the global or the local context?
  • Did they emphasise the performance or conformance aspects of governance?
  • Did they treat their Communication on Progress reports as a public relations exercise or a compliance exercise?
  • Did they demonstrate a clear commitment to the principles of the UN Global Compact?

Narrative analysis was used to analyse both the CEO statements and COP reports. In all cases a four-point Likert scale was applied.

What did the study find?

As expected, it was difficult to measure the qualitative value of certain statements. Companies tend to use different strategies to address different areas. For environment, many companies had a business-centred strategy, given that improvements in energy efficiency have financial benefits. For human rights, such as the prohibition of child labour, it was more likely that companies would approach these issues from a moral perspective.

In general, corporations tended to focus on universal values and commitments with less emphasis on local flexibility. However, companies strongly emphasised compliance with local legislation. This was understandable in the South African context where there are specific commitments to labour laws and black economic empowerment obligations. South Africa has a historical legacy of poverty and inequality, distrust of corporations, and accusations of “green-washing”. This, combined with South African peculiarities and complexities, show how difficult it is for a global standard to add value at the local level.

Strategic CR – sometimes explained as a shift from focusing on how profits are spent to how profits are made – is based on the real capabilities of the corporation …

The UN Global Compact distinguishes between three different levels of signatories: learner, active and advanced. The differentiation programme is based on self-assessment in terms of the levels of disclosure as well as the implementation of the 10 principles. In total, 68% of the South African corporations indicated that they were at the active level. The active level is reserved for participants that fulfil all the minimum COP requirements, including addressing all four areas under investigation and communicating directly with stakeholders. In addition, 21% of the assessed corporations indicated that they were at the advanced level, which is reserved for the top-performing corporations.

These “advanced” corporations declared that they had adopted, and reported on, best practices in sustainability governance and management, with specific reference to some of the UN Global Compact initiatives. The corporations which indicated that they had reached this level were Unilever, Sasol, Mondi and Eskom. In terms of organisation type, publicly listed companies dominated the South African sample (63%), followed by private companies (26%), one subsidiary (Unilever) and one state-owned company (Eskom). Large corporations dominated the sample, with 74% having more than 10 000 employees, and 63% having had a turnover of more than $5 billion in the last financial year.

The vast majority of companies used the business case to motivate their support for corporate responsibility. The one exception to this was Exxaro, which strongly emphasised the moral case. Exxaro explained its support for the UN Global Compact as a “logical progression in our ongoing commitment to sustainability, given our shared goals and focus on universal values”.

The governance focus of the COPs was analysed to assess the relative importance attached to the two main components of governance as explained in the classical definition of governance: the system by which corporations are directed (performance) and controlled (conformance). Globally, there has been a shift from conformance to performance, with the United States still a notable exception owing to its strong culture of legal regulation.

It is significant to note the good performance of Eskom – one of South Africa’s most controversial corporations.

With the inclusive, stakeholder-based approach of the South African King Reports, which also emphasise a balanced approach to governance, it was expected that performance would be the main emphasis. Here, 21% of the companies focused exclusively on performance while 53% emphasised performance and 26% emphasised conformance.

The assessment also revealed that 21% of the companies treated the COP as mainly a public relations exercise while 74% saw it as mainly a UN Global Compact compliance exercise. Only 5% showed clear commitment to the UN Global Compact, serving as an example of best practice.

The Eskom case

It is significant to note the good performance of Eskom – one of South Africa’s most controversial corporations. As the national electricity utility, the corporation has been under scrutiny for underperformance over the past few years. The fact that Eskom’s electricity generation is still largely dependent on high-polluting coal power stations does not improve its image from an environmental perspective. The reason for Eskom’s good performance in this assessment can therefore be found either in the positive view that the corporation made honest disclosures and a sincere attempt to improve performance, or in the cynical view that the corporation may be guilty of blue-washing.

The critical question is: To what extent were the disclosures accurate and made in good faith? In his introduction to the COP, then CEO of Eskom Brian Dames stated: “We are confident that we are setting the utility up for success; that our organisation is becoming financially sustainable” (Eskom, 2012). In the same document, the chairman of Eskom, Zola Tsotsi, stated: “At a time when global economic uncertainty is forcing many companies to curtail operations and limit growth, Eskom is hard at work on one of the largest capital expansion programmes in South Africa’s history” (Eskom, 2012). Yet, barely a year later Eskom had to accept a R250 billion bailout package from the South African government, the CEO resigned (for “personal reasons”), the promised capital expansion was far behind schedule, and the pressure on the national electricity grid was such that frequent countrywide rolling blackouts were required. More recently, Eskom was implicated in a report on state capture issued by the South African Public Protector.

The COP … does provide useful insight into the activities of Global Compact signatories, and is probably the most important way in which external stakeholders can assess the performance of a participating corporation.

The purpose of the article was neither to provide a detailed case study of Eskom, nor to assess whether the corporation deserved its good performance in terms of the assessment or whether the advanced status according to the UN Global Compact differentiation programme is justified. However, it does underscore the fact that publicly available reports remain just that – publicly available reports. (Note by authors: Since the publication of the article it has become abundantly clear that the situation at Eskom was far worse at the time of writing, and therefore supports the position that a healthy dose of skepticism is not wasted when reading public reports.)

Closing remarks

The purpose of business is and will remain a matter of dispute. Debates will continue within both academic and practitioner environments, and in the long term will be influenced more by a systemic focus than an organisational behaviour focus.

The main empirical findings presented in this article are that almost all South African signatories to the United Nations Global Compact emphasised the business case in their Communication on Progress reports and that the majority of corporations also focused on the global picture rather than on local complexities. Although not part of the research performed here, it would be fair to state that it is very likely that the majority of these corporations (if not all of them) will be familiar with Creating Shared Value (CSV), but not with Optimised Collective Value (OCV), and – if given an immediate choice – would prefer the first to the second.

It is proposed that more corporate support for CR based on a normative foundation (prescribing what ought to be done) should be encouraged, and that the concept of Optimised Collective Value is an appropriate way to achieve this.

The COP remains a subjective account, even if verified externally. However, it does provide useful insight into the activities of Global Compact signatories, and is probably the most important way in which external stakeholders can assess the performance of a participating corporation. It also provides a glimpse into how corporates view corporate responsibility and the philosophies underpinning them.

  • Find the original journal article here: Malan, D., & Ungerer, M. (2018). Communicating progress on meeting the United Nations Global Compact goals: An analysis of the South African experience. African Journal of Business Ethics, 11(2), 1
  • Prof Daniel Malan teaches Business Ethics and Corporate Governance at the University of Stellenbosch Business School. He is the Director of USB’s Centre for Corporate Governance in Africa.
  • Prof Marius Ungerer lectures in Organisational Strategy, Leadership and Strategic Management at the University of Stellenbosch Business School.
  • Porter, M. & Kramer, M. (2011). Creating shared value. Harvard Business Review (HBR Reprint R1101C): 1‑
  • Donaldson, T. & Walsh, J. (2015). Toward a theory of business. Research in Organizational Behavior, 35, 181‑
  • (2012). Advanced Communication on Progress 2012. Eskom, Johannesburg.

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