South African Breweries: going global, being accountable

December 01, 1999

For South African Breweries, the London Stock Exchange listing was a critical part of its international expansion plans, now the era of apartheid is thankfully over and South Africa has rejoined the league of nations. If raising new capital and diversifying the shareholder base were the primary intentions, then the move also has the side effect of giving European businesses a new benchmark for performance in community relations and wider corporate citizenship – one forged in the unique first world/third world environment that is South Africa.

In fact the move to London is more a rejoining, as SAB began corporate life with a London listing in 1898, having been founded in Johannesburg three years earlier to quench the thirst of the early gold prospectors. Delisting occurred in 1950 after the National Party’s election victory among white voters and the country started its descent into international isolation.

During that period, the company came to dominate the domestic beer market (still accounting for 98% of consumption) and diversified into a series of unrelated businesses. Now the group strategy is to focus on beer and to grow internationally: in the six months to September 1999, beer sales outside South Africa exceeded domestic for the first time. By volume, SAB currently ranks fourth in the world, after Anheuser-Busch, Heineken and Miller.

South African Breweries still derives nearly half its operating profits from the beer division in South Africa (47%), a quarter (24%) from the international division, 15% from other beverages mainly Coca-Cola and Schweppes products in South Africa and the balance from interests in hotels and gaming (Southern Sun has 75 hotels and operates under Inter-Continental and Holiday Inn brands in southern Africa).

After the end of sanctions, international expansion began in Hungary in 1993, with recent investments concentrated in sub-Saharan Africa (including Ghana, Kenya, Tanzania, Zambia and Malawi), Central Europe (including Poland, Czech Republic, Romania and Russia) and China. Of SAB’s total 49,000 employees, some 13,000 are now outside South Africa. SAB International has operations in 19 countries, with opportunities for growth at a time when the international industry is starting to restructure around a few major companies.

With the advent of majority rule in South Africa, business is expected to play a major role in redressing the huge economic inequalities which persist. For example, SAB’s gaming business is being developed, following legalisation in 1996, in partnership with ’empowerment’ consortia, aiming for economic benefit to disadvantaged communities. Nearly 80% of the employees are black, Asian or coloured, and nearly half were previously unemployed. A dedicated casino training school is providing the skills and development needed.

The beer division has a major ‘commercial equity’ programme to route purchasing through black-led businesses and almost 30% of beer deliveries are made by ‘owner-drivers’, former employees now independently contracted, as part of moves to spread enterprise. Total SAB group investment in employee skills is considerable, with some 35,000 staff of the 49,000 world-wide attending education and training courses, at a cost of $17m.

These are mainstream business activities, while on the community side SAB is a major supporter of the newly created Business Trust, which aims to stimulate job creation and human capacity building. The company’s contribution is $2 million pa committed for five years.

Community investment

Indeed for SAB, active social partnerships are seen as helping to build relationships based on trust and mutual advantage, so reinforcing the ‘licence to trade’ both informally with the community and practically through government regulation and taxation. Corporate social investment (CSI) totalled $13 million across the group, equivalent to 2.2% of pre-tax profits.

Education is the focus, totalling $6 million, of which the flagship activity is Project Noah, an entrepreneurship initiative launched in 1997 with the Food and Allied Workers’ Union. Over two thirds of the beer company’s employees made redundant during 1998/99 started new businesses with support from the project. A new micro business enterprise centre in the Eastern Cape, opened in 1998 by the then deputy president, Thabo Mbeki, and supported by the company, has so far trained some 340 people.

Another education project is Kick Start, which was launched in 1996 and provides capital for young black South Africans to start their own businesses. The Women in Rural Areas project helps a severely disenfranchised group in society. Started in 1996, over 1,200 women have completed programmes of personal empowerment, with skills for income-generating projects.

Another focus of CSI is crime prevention, a major issue of concern in South Africa. SAB chairman, Meyer Khan, was seconded for two years to help reorganise the South African Police Service as its chief executive.

Health support is geared towards counselling on preventative and promotional activities. One example is the Township AIDS Project, targeting schools in and around Soweto with education and awareness programmes.

In contrast to the long-established South African programmes, elsewhere the company is still establishing itself, for example, only having recently assumed responsibility for previously state-owned breweries in East Africa. Community involvement tends to follow rather than lead international expansion and then is directly linked to operations – thus in Kenya, the design of a new brewery included extra infrastructure investment to help the local community with roads, telephones and sewerage treatment. In Uganda, Nile Breweries refurbished a community sports centre and added a public library. Tanzania Breweries opens its clinic free of charge to pupils at a nearby special needs school. Meanwhile in Hungary, Dreher Breweries sponsors the Junior Chamber’s ‘outstanding young person’ award, honouring ten individuals each year who have accomplished environmental achievements.

Management organisation

Each division is responsible for its own community involvement programmes, within the group policy of being “actively involved in partnerships which bring measurable benefits to people in communities where we operate, while also helping to achieve long-term business goals”. In the largest division, Beer South Africa, responsibility rests with Vincent Maphai, corporate affairs director. A team of 6 staff manage community social investment programmes worth Rand 27.7m ($4.7m).

At corporate centre, a small Group Accountability Department is headed by Alison Ramsden, formerly the CSI manager, and is tasked with implementing the group’s commitment to ethical, social, economic and environmental accountability. So far two corporate citizenship reviews have been prepared and published, covering 1998 and 1999, including – but going much wider than – community investment: the first highlighted examples of responsible business practices from the main operating divisions for each stakeholder, while the second (published in November) has added key statements of corporate policy.

For the 2000 year, a formal system of monitoring and measuring social, economic and environmental performance against the key policies is being put in place, under the direction of a Corporate Accountability Committee. This is chaired by the chief executive, Graham Mackay, with other senior executive members including a non-executive director, Sir Robert Fellowes.

One innovative element of the accountability process is SAB’s annual calculation of how the cash value added from operations is distributed among stakeholders. The chart shows that after payments to suppliers, employees and governments are the main beneficiaries of the business.

Any alcoholic beverages company has to be concerned about the abuse of its products, and SAB is no exception. The company runs its own campaigns and also works with governments. In South Africa, it spends about $700,000 a year on anti-drink drive advertising and has also funded government campaigns in all nine provinces. In Poland, SAB has joined forces with Heineken to establish an industry association promoting responsible use of alcohol, each company contributing $500,000. Activities include a voluntary code of conduct for beer marketing.

Future developments

With SAB still at an early stage in its international growth, the future is hard to predict. Certainly community contributions at more than 2% of pre-tax profits are high by international standards: biased towards spending in South Africa where expectations are high, the percentage will inevitably drop as international earnings grow.

The challenge is to use the considerable expertise and experience in the home country and apply it to effective local programmes in the diverse cultures and communities where the company will increasingly operate. As globalisation gathers pace, this issue of balancing ‘home’ and abroad is one many other companies face as well.

Wider than community investment, SAB has made a commitment to full-scale and rigorous accountability monitoring, measuring and reporting: on this issue, many are looking at the options, some are facing up to the challenges but few have yet achieved comprehensive results. If SAB proves successful, it will have much to teach others.

On both community investment and wider accountability, South African Breweries has the opportunity to establish a reputation as a global business demonstrably taking its responsibilities seriously — and with it help to restore the standing of South Africa’s business community in the post-apartheid era.

Corporate Citizenship Briefing, issue no: 49 – December, 1999