Abstract
This study investigates the extent to which South African listed corporations voluntarily disclose information on black economic empowerment (BEE) in their annual and sustainability reports using a sample of 75 listed corporations from 2003 to 2009. BEE is a form of socio-economic affirmative action championed by the African National Congress (ANC)-led government to address historical imbalances in business participation and ownership in South Africa. We find that block ownership and institutional ownership are negatively associated with the extent of BEE disclosures, whereas government ownership, board diversity (age, education, ethnicity, nationality and occupation), board size and non-executive directors are positively related to the extent of BEE disclosures. By contrast, dual board leadership structure and gender diversity are not significantly associated with BEE disclosures. Our results are robust when controlling for firm-level characteristics, fixed-effects and alternative disclosure proxies. Our results are largely consistent with the predictions of agency, legitimacy, resource dependence and stakeholder theories.
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Notes
In the context of the BEE, ‘Black’ is a generic term that refers to all non-whites or Africans, Asians and those of mixed race (Tangri and Southall 2008, p. 699).
Whilst we acknowledge that BEE is a distinct form of CSR to SA, we suggest that our findings have some relevance beyond SA’s shores. This is because the BEE concept is akin to other economic and social affirmative actions, where companies are expected (or required) to participate in initiatives aimed at redressing inequalities between different ethnic, religious or social class groupings. These operate in a number of developing countries, such as Malaysia where the dominant population of Malay origin (referred to as Bumiputras) have been offered business concessions (Haniffa and Cooke 2005). Educational and employment quotas are applied in India to alleviate discrimination on the basis of caste and religious affiliations. Different variants of affirmative policies are also used to address racial, ethnic minority and/or gender inequalities in Australia, Brazil, Canada, Mozambique, New Zealand, Norway and US, amongst others. A major difference is that the BEE is more holistic and clearly defined by the State, thereby making it easier to assess the degree of corporate response from publicly available data.
Between 1995 and 2005, over 1,364 empowerment deals were concluded, totalling over $40 billion, majority of whom was led by a small group of black elite, including Danisa Boloyi, Saki Macozoma, Cyril Ramaphosa, Patrice Motsepe and Tokyo Sexwale, all of whom are closely connected to the ANC (Russell 2007, p. 1; Tangri and Southall 2008, p. 709).
We are, however, conscious of incompatibility problems that may arise when different theories are combined (Reverte 2009). Therefore, and as a multi-theoretical framework is expected to focus on common key concepts (Branco and Rodrigues 2008; Chen and Roberts 2010), AT, RDT, LT and ST were selected on the basis of the commonality of their core concepts. Also, and given the diverse nature of the BEE disclosures, covering economic, employee/human rights, affirmative action and social issues, we deemed it appropriate to adopt a multi-theoretical framework, whereby some theories may be more applicable in explaining certain BEE disclosures than others.
We exclude financials/utilities because: (i) they are heavily regulated, which affects their CG and performance differently. For example, SA 1973 Companies and 1990 Bank Acts set different CG rules for financials; (ii) they have unique capital structure (highly geared), which impacts on their CG and performance differently; and (iii) their exclusion can facilitate comparisons with prior studies (Brammer and Pavelin 2008; Reverte 2009), who also exclude such firms.
Although we acknowledge that BEE disclosures in annual reports (ARs) may be a mere “window dressing” by managers, we focus on them for a number of reasons. First, the local CG code requires firms to make annual disclosures in their ARs. This makes them widely available and as such, facilitates systematic data collection. Second, the statutory nature of ARs renders them as one of the most important and credible medium for CSR disclosures (Unerman 2000). Third, prior evidence suggests that AR disclosures are positively associated with the amount of disclosure provided through other media (Ntim et al. 2012a, 2012b). Fourth, and consistent with prior evidence (De Villiers and Van Staden 2006), we also examine ARs, which can facilitate comparisons to be drawn with their results. Finally, we acknowledge that corporate disclosures in annual/sustainability reports, including BEE ones are not directly verifiable (Hackston and Milne 1996), and thus, BEE disclosures may be a mere reflection of a broader ‘public relations’ exercise/’impression management’ and corporate communications strategy (Merkl-Davies and Brennan 2011), instead of reflecting actual BEE activities.
We measure the extent of BEE disclosures by word count. Even though the limitations of word count as a unit of CSR disclosure measurement have been well articulated elsewhere (Unerman 2000), we adopt it for a number of reasons. First, the study focuses on the nature and extent of BEE disclosures and as words are the smallest unit of measurement, they are robust both in terms of quality and quantity of disclosure (Campbell et al. 2006). Second, words can be counted with high degree of accuracy (Deegan and Gordon 1996), which improves reliability (Unerman 2000). Third, prior studies suggest that using other units of measurement, such as quality indices, sentences and number of pages tend to lead to similar results (Islam and Deegan 2008). However, and as a robustness check, as well as following suggestions of prior literature (Unerman 2000), we also measure the extent and nature of BEE disclosures by number of pages.
As in the case of many disclosure studies that examine the influence of board characteristics and ownership, our modelling assumes association instead of causality between the variables, and therefore, our theoretically led expectation is that board/ownership mechanisms influence the extent of BEE activities and disclosures. However, we acknowledge that it is possible for the BEE disclosures to also influence some of the selected ownership and board variables, such as government ownership and board size. However, and given that the results based on our fixed-effects model (i.e., presented in the robustness analyses section)—which takes into account potential endogeneity problems, including simultaneity, are largely similar to the main OLS results, our findings do not appear to have been seriously affected by this issue.
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Acknowledgments
The authors gratefully acknowledge the insightful and timely suggestions by the Editor, Professor Thomas Clarke and four anonymous reviewers. Useful comments received at presentations at the Welsh Accounting and Finance Workshop (Gregynog, 2011) and African Accounting and Finance Association Conference (Accra, 2011) on the previous versions of this paper are gratefully acknowledged. We would also like to thank Malgorzata Kordek for her assistance in the data collection. Finally, Collins Ntim acknowledges financial support from the Aberystwyth School of Management and Business and Aberystwyth University research funds.
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Ntim, C.G., Soobaroyen, T. Black Economic Empowerment Disclosures by South African Listed Corporations: The Influence of Ownership and Board Characteristics. J Bus Ethics 116, 121–138 (2013). https://doi.org/10.1007/s10551-012-1446-8
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DOI: https://doi.org/10.1007/s10551-012-1446-8