CSI and the NGO Sector in Modern Times

Tuesday, 15 January, 2008 - 16:11

The ‘Gift’ of DemocracySouth Africa’s inaugural democratic elections held in 1994 in a single moment realised the end of decades of political oppression and the start of much-anticipated change.

The ‘Gift’ of Democracy

South Africa’s inaugural democratic elections held in 1994 in a single moment realised the end of decades of political oppression and the start of much-anticipated change. While challenging and traumatic at times, change in South Africa was viewed as overwhelmingly positive for all, but particularly for those who had suffered under the apartheid regime.

During the pre-democratic period, a vast number of South Africans relied on the support of a committed yet under-resourced band of non-governmental organisations (NGOs) for much of their basic developmental needs. Funded largely by foreign governments and operating without the recognition and support of the government of the time, the NGO sector matured within an operating environment in which it was perceived as the only legitimate presence able to meet these needs. While funding was inherently difficult to obtain within an oppressive political system, what funding was directed at development work in South Africa was channelled directly to the NGO sector.

The arrival of democracy, paradoxically, posed a significant threat to the survival of many organisations working within the development sector. Instated as the governing force charged with the re-development of South Africa, the new government was bestowed with the legitimacy once afforded the NGO sector. While this process was inevitable, necessary and realised a new bond between the sector and government, the loss of funding also marginalised many development organisations. What is more, some of the most skilled individuals working in the NGO sector took up posts in government, leaving the sector with a skills crisis it has never fully recovered from. Unable to respond quickly enough to the demands of dealing with a large bureaucratic middleman with its own developmental objectives, many players in the NGO sector did not survive the new transition period towards a strategic realignment with government priorities and, crucially, alternative funding streams.

The Development of Modern CSI
While the origins of corporate grantmaking in development work in South Africa predates the country’s first democratic elections by more than two decades, the practice of corporate social investment (CSI), as it is now commonly known, has changed considerably since those early days. In part due to the implications of being involved in work that was effectively contrary to government policy, corporate involvement in the development field rarely extended beyond an act of financing and distant monitoring. This gave rise to a predominantly charitable and welfare-based approach to CSI, catering for a multitude of worthy causes. While good work was undoubtedly achieved, the impact of corporate giving was diluted by a lack of strategic input and direction.

Government’s post-1994 call for private-sector assistance in its development objectives to some extent provided the funding solution that the NGO sector required to survive. However, it also established an operating dynamic between grantmaker and beneficiary that was different to what NGOs had experienced prior to that. As profit-making entities, corporates immediately brought a heightened sense of professionalism and accountability to development funding. For development organisations, which at the best of times struggle to do the vital work for which they are set up, it often meant complying with rigorous procedures for which many neither had the skills nor the capacity. What is more, corporates grasping the value of social upliftment beyond the photo opportunities and facile marketing stunts demanded participation in how and where their funds were spent.

In the Heart of Regulation
While a sense of enlightened self-interest undoubtedly played a crucial role in business’ increasingly ‘hands-on’ approach to CSI, government policy was also taking up the reigns in directing the level of corporate participation in the nation’s socio-economic transformation. Over the last 13 years government has put in place numerous vehicles to drive this process, but none has been more important than its policy of black economic empowerment (BEE).

The broad-based BEE Act was enabling rather than prescriptive and government spent a number of years to produce an accompanying set of codes outlining business’ responsibilities towards empowerment. During this development phase, business responded to the absence of prescription by creating a number of industry charters in partnership with government. While these will now need to be brought in line with the finalised BEE Codes, they provided frameworks within which certain industry sectors were able to approach empowerment. While only two sector charters were gazetted prior to the finalisation of the Codes, all included social upliftment as a core component in that process.

The Arrival of the BEE Codes
Finalised and gazetted at the beginning of 2007, the ‘updated’ Codes contained a number of surprises for CSI practitioners that may have a considerable impact on CSI practice and therefore the development organisations that derive funding from corporates.

Firstly, the reconfigured Code 700 – the residual element of the Codes that comments on business obligations to social upliftment – “seeks to encourage initiatives that enhance the ability of black people who remain non-participants in the economic mainstream to be included in participating in the economy in a sustainable manner”. Secondly, whereas previously the Codes allocated ten points on the BEE scorecard to Code 700, in future companies will only gain five points for compliance with the Code.

What Does It All Mean?
The latter change may indeed have a considerable impact on the volume of CSI activity and therefore on the NGO sector as a whole. By removing five points from Code 700, government has effectively downgraded the value of CSI within the empowerment mix. Additionally, the Codes’ definition of socio-economic development stipulates that corporate interventions in this area must pursue an objective of facilitating sustainable access to the economy and that it should avoid scenarios of perpetual ‘handouts’.

While not a direct threat to the NGO sector as a whole, if interpreted literally the new economic focus could prompt disinvestment in a variety of welfare-based initiatives that not only depend on this type of funding, but are not aiming to facilitate access to the economy. However confusion still exists around the interpretation of Code 700 and it would be imprudent of corporates to take a literal view of the Code at this time. Despite this, it would appear that NGOs facilitating economic development to previously disadvantaged individuals are well-placed to gain from the gazetted Codes.

Ultimately, the precise impact of the Codes on CSI practice and the NGO sector is currently uncertain. However, in research done by Trialogue for the CSI Handbook, CSI managers indicated that the development of the Codes had benefited CSI practice in a number of areas. A majority of CSI mangers in our research sample indicated that the presence of the Codes had assisted in formalising a company approach and clear strategy towards CSI. Of particular interest to NGOs, nearly half of CSI managers indicated that the Codes had realised increased expenditure for CSI initiatives.

A similar proportion indicated that Codes had prompted greater management participation in CSI. This is clearly significant for the NGO sector. While it confirms the high level of strategic interest of the private sector in development work today, it also highlights that management is aware of the risk that companies are exposed to in taking a more active role in the process. Where this is the case, corporates will understandably aim to limit this risk. This either means taking complete ownership of the process, which remains unlikely as development work will never be a core competency of business, or forming close partnerships with a select few while seeking out programmes that are closely linked to operations.

How to Win Funding and Influence Companies
Much like the period immediately after our first democratic elections, NGOs again find themselves in need of adapting to a changing landscape resulting from the finalisation of the Codes and a number of other factors. What makes the influence of, in particular, the Codes even more challenging is that the boundaries of the playing field have yet to be firmly established.

The continued pursuit of professionalism that has been an integral part of the NGO sector’s response to the post-1994 funding and operating environment must continue. Part of this is a realisation that, unlike in the past, corporates are unlikely to provide funding merely on the basis of the perceived worthiness of the cause. Ultimately NGOs must become smarter seekers, focusing not only on what they are aiming to achieve but from which industry sectors and specific companies funding is most likely to come. As pointed out earlier, CSI managers indicated that the Codes have led to an increase in funding, and this should encourage NGO towards improved strategies of acquiring funding.

As CSI becomes more strategically focussed in line with operations, so too must the NGO sector’s approach to seeking funding. There is little point in allocating considerable resources to applying for funding through every possible route and then merely hoping for the best. Also, the sector should also be driven by a desire to form sustainable partnerships with corporates. This does not merely mean gaining funding over a long period of time, but includes an understanding of what it means to be in a partnership and that the benefit should flow in both directions.

Finally, the Codes are likely to realise an increase in economic upliftment initiatives, and this represents a real opportunity for a number of players in the sector. But rather than viewing this as singularly encouraging in terms of impact of the Codes on funding, this shift should reinforce the need for the sector to remain agile enough to continually adapt to change in this incredibly dynamic operating environment. While it is difficult to say exactly how the field will change over the next few years, NGOs must continually re-evaluate how and where they fit in the CSI ‘marketplace’. In understanding the value they bring to the development sector and to corporates aiming to invest in the field, NGOs stand a far better chance achieving success in their work and in acquiring funding in this changing landscape. With a decade of experience in covering the CSI landscape, the CSI Handbook is a sound reference tool that NGOs can use to keep abreast of the changes in the field and how to respond to it in an informed manner.

For more information about the CSI Handbook, click here.

- This article written by Trialogue In-House Writer, Philip Brink, appeares in Prodder - NGOs and Development in South Africa 2008.  

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