Reference no: EM133282485

Section A: Read the extract below and answer 2 of the question that follow [50 Marks] Unethical businesses will face people's protest

William Gumede 9 Sep 2020

It is likely that companies will see increasing "public" protests against them, similar to the "service delivery" protests against government corruption, mismanagement and poor public services, unless they exercise greater democratic corporate citizenship. Rising private sector corruption, price-fixing and defective products have increased societal distrust in corporates. Corporate corruption - as seen at Steinhoff, one of South Africa's largest companies, which announced in December 2017 that it had committed "accounting irregularities" - are, for many citizens, not isolated incidents, but reflect a culture of systemic corruption in the private sector. The roll call of corruption in the private sector almost mimics that in the public sector. In 2017, three South African banks were implicated among 17 banking groups of collusion to fix the price of the rand, after an investigation by the Competition Commission since 2015.

In November 2017, the department of water affairs and sanitation revealed that 36 mines operate without water licences, in violation of the National Water Act. They use water and waste and pollute without being monitored by the department. In five case studies on mines ranging from platinum to coal by the Centre for Applied Legal Studies (at the University of the Witwatersrand in 2018 found that very little of the social and labour plans mining companies signed up to were implemented. The study found that mining companies have spectacularly failed to build houses, provide childcare and bursaries as well as training. In most cases the companies also did not tell employees and local residents about their promised social and labour plan commitments.

Residents have chased mining companies away from setting up operations even if such investments would create jobs, business opportunities and infrastructure locally. Yet, local and foreign company executives are often perplexed about why they are rejected by local residents or why they are criticised when they supposedly create jobs and bring new investments and opportunities. For example, people increasingly fear mining companies will destroy the environment, strike black economic empowerment deals with dodgy traditional leaders and politically connected cadres, who would be expected by the companies to shield them from citizens' pressure when they damage the environment, fail to adhere to mining licence conditions of providing social housing and supplier opportunities for local small business. The residents surrounding Lonmin have, since 2016, embarked on protests against the company's alleged failure to build promised low-cost housing, which forms part of the company's obligations under its mining operating licence condition.

Legal action by citizens against errant companies are also on the increase. Last year law firms launched class action lawsuits totalling R400-million against Tiger Brands over the deadly listeriosis outbreak of 2017, in which 200 people died. Aaron Motsoaledi, the health minister at the time, said in 2018 that the outbreak of listeriosis had been traced to an Enterprise Foods facility in Polokwane. Many black South Africans were, in the past, critical of businesses for their active collaboration with apartheid practices such as racial divisions of labour in the workplace, which deprived generations of black people of opportunities, skills and benefits. Others have been critical of business based purely on ideological reasons, arguing wrongly that only the state can deliver on inclusive development.

Companies - especially mining companies or those that produce goods intended mainly for black people, but now increasingly other companies - are being asked to fulfil a "social licence" to operate. Such a licence is seen as "having the approval, the broad acceptance of society, to conduct its activities". Corruption, ethical breaches and behaviour inconsistent with declared organisational values undermine the companies' credibility and erodes trust, public approval and, ultimately, social commitments.

Corporate democratic citizenship means companies that behave - pursue growth and profit and work with the external environment, stakeholders and society - according to the values of South Africa's democratic Constitution. The traditional corporate social responsibility programmes won't do anymore. Neither will token black economic empowerment, affirmative action and taking customers for granted. Democratic corporate citizenship is not only reflected in the way a company works with its external environment, but also its internal corporate culture. It means within the company it must strive for gender equality, non-racialism, diversity and ethical decision-making. They should behave ethically, be socially responsible and safeguard the natural environment. Democratic corporate citizenship is crucial for a company if it is to secure the "social licence" to operate from society.

Question 2

With examples from the extract, explain whether the ethical challenges are the results of internal or external corporate governance limitations.

Introduction

Identification of appropriate examples from the case study.

Distinction between internal and external corporate governance.

Assessment of whether the issue is failure of internal or external corporate governance.

Conclusion