University of Pretoria’s study finds that company reporting on ethics and governance practices is still minimal
Posted on 24 March 2009
A follow-up study conducted by the University of Pretoria’s Centre for Business and Professional Ethics (CBPE) found that companies still provide minimal information in reporting on their ethics and governance practices. In the previous study conducted in 2007, “Ethics Reporting Practices of JSE listed companies”, it was indicated that there is substantial room for improvement.
The aim of the recent study is to provide a general overview of the gradually changing landscape of ethics reporting in South Africa.
The CBPE developed a comprehensive set of criteria on ethics and governance reporting, based on international and local best practices. Best practice was established by identifying the areas of consensus that emerged from three reporting models, namely the Global Reporting Initiative’s G3 guidelines (GRI), the JSE listing requirements and specifically the more detailed criteria that apply to reporting on codes of conduct within the JSE SRI Index requirements. This provided 10 central reporting criteria, of which some have sub-sections, resulting in a total of 22 items. The CBPE believes this set of criteria presents a decent core of best practice standards for governance and ethics reporting.
“Where the 2007 Report only surveyed companies listed on the JSE SRI Index, this study compared a randomly selected sample of JSE SRI listed companies with non-JSE SRI listed companies in the context of industry sectors,” said Ms Hanrie Greebe - Manager: Centre for Business and Professional Ethics.
The study found that the reporting trend is to cover only the most basic levels of corporate governance requirements and regulatory compliance. Companies appear to closely follow the JSE listing requirements, comply with legal requirements and endorse international standards. The mentality however seems to be one of minimalist compliance. As soon as one delves deeper into the actual content of codes, or the existence of support structures such as whistle-blowing lines, compliance dwindles.
According to Ms Greebe, it is clear that although companies accept the need to have a code, very few codes contain the content required to give employees guidance on some of the most pressing ethical issues that they face in the South African context.
“The lack of guidelines on how to deal with conflict of interest, anti-competitive practices, and giving/receiving of gifts is of huge concern in a country where these problems have been the cause of many ethical failures in the past,” she said.
In general, it is clear that companies who claim to be socially responsible, comply more fully with all of the governance and ethics requirements.
“The problem is that in some cases (such as basic governance requirements and endorsements of global initiatives), they perform only marginally better than non-SRI listed companies - or may even do worse - especially in certain industries. Our sample of SRI listed companies in the Pharmaceutical and Medical industry for instance met fewer criteria overall than non-SRI index companies,” said Ms Greebe.
The study found that in certain areas, SRI companies perform significantly better than non-SRI companies. In the Energy and Gas industry for instance, SRI companies meet more than double of the ethics and governance criteria than non-SRI companies. The content of SRI companies’ codes is vastly better than non-SRI companies and the level of their stakeholder engagement is at least three times as high as that of non-SRI companies.
Ms Greebe indicated that it seems obvious that there should be a relationship between a company’s status as socially responsible and the level of its stakeholder engagement. The question then is why do only a third of SRI companies reflect on their stakeholder issues - surely all socially responsible companies should do so?
Most companies seem to do the bare minimum to satisfy compliance requirements and hence fail to inform their stakeholders on the most relevant issues in terms of ethics and governance. There is subsequently a great need for more proactive and values-driven reporting that shows a true commitment to stakeholder engagement.
Guidelines on many important ethical issues, such as conflict of interest, gifts, bribery, and anti-trust remain lacking within companies. These are pressing issues in the South African context and should be addressed.
According to the report, the implementation of certain important elements of proper ethics management, such as access to whistle-blowing structures, are long overdue. Codes of ethics should also be made fully accessible to stakeholders in order to enhance corporate accountability.
Endorsement of the global ethics initiatives may play an important part in building investment trust. At the moment, the larger majority of South African companies endorse international ethics initiatives, but it remains unclear whether the endorsement of these initiatives goes beyond lip-service.
A further research challenge is to determine real performance against the statements reflected in reports. This will entail a more qualitative analysis, and will require consulting additional sources outside the company report. A limitation of the present study is that it focused only on ethics and governance criteria. Future studies will provide a more comprehensive evaluation of the content of sustainability reports by including an analysis of economic, social and environmental performance indicators in partnership with other experts at the University of Pretoria.