The Need for NGO Support in the Wake of Economic Downturn

Friday, 21 February, 2020 - 15:16

Throughout modern history and around the globe, Non-Governmental Organizations (NGOs), and Civil-Society Organizations (CSOs) have played an essential role in solving humanity’s toughest problems. Supported by a vast web of foundations, public funding, and private donors, these organizations take on challenges from extreme poverty to infectious disease to educational inequity. However, as a sector, there is a problem in the way we fund these entities. Funding sources national, state and local governments; multilateral and bilateral institutions; private foundations and individuals are part of a complex system with inconsistent practices.
 
NGOs “strive to deliver strong results but often at great institutional and personal cost.” This manifests in various ways:  

  • Financial weakness in the social sector: Gaps between funding and the cost of delivering the work hollows out organisations by persistently draining resources and placing organisations at risk of financial collapse. 
  • Poor investment in capacity: NGOs often put off improving infrastructure, investing in new technology and staffing. Reducing back-office expenditures often compromises an organisation’s ability to meet their goals and objectives by reducing productivity and efficiency. 
  • Under-reporting of indirect costs: NGOs are reluctant to communicate openly with funders about the true cost for fear of losing a grant.
  • Poor knowledge: Under-reporting also results in poor knowledge of actual indirect costs which can impact on strategic decision making within NGOs.  
  • Increased costs: Many NGOs experience an increase in indirect costs as a result as they often spend more on reporting and accounting to comply with funder requirements. 
  • Pressure to raise rare unrestricted funding: This puts greater pressure on organisations to raise unrestricted funding to fill any shortfalls, which in turn costs the NGO more.

What can be done to resolve these challenges? 
 
Researchers in the theme “NGO Funding” suggest that the best place to start is with extensive stakeholder engagement across the sector “so that funders better understand what it takes to deliver impact and so that NGOs can begin to report more accurately. This in turn will require investment in training of both NGOs and funders to start moving towards methods for reporting that encourage more equitable funding of costs.”
 
In South Africa, Corporate Social Responsibility (CSR) is not only a frequent topic for conversation and debate, but also a tangible effort by many companies. The social picture of the country after the Apartheid era was one of marked inequalities in terms of education, infrastructure, economic power, and basic services access. The democratic regimes that have governed the country since 1994 have made important efforts in combating those social imbalances through different social programs and various public initiatives, but also through the impulse given to the private sector. Although the South African Companies Act 61 of 1973 does not oblige companies to engage in CSR projects, the country’s Policy Document and the King II and King III reports explicitly address the need and relevance for corporations to acknowledge all stakeholders and to adopt a “triple-bottom line” approach. In particular, the King reports constitute accepted guides of best practices in corporate governance in South Africa, focusing on social, environmental and economic concerns. The King reports’ clauses are not mandatory, but they take a “comply/apply or explain” approach that somewhat forces corporations to apply CSR programs or justify why they have not adopted them.
 
According to research, not all CSR efforts in South Africa result from voluntary or indirect business decisions; some of them are the product of corporate compliance with the Black Economic Empowerment (BEE) legislation. The BEE Act forces South African-based companies to consider all stakeholders when performing their internal and external operations in an effort to eradicate social and economic inequalities inherited from the Apartheid days and to help previously discriminated groups to actively participate in the country’s economy. Companies that refrain from complying with the BEE scorecard can obtain negative ratings, therefore complicating their ability to operate in the country. Corporations should not only see BEE as a way of ensuring black participation (ownership, management and development) in the national economy, but also as a mechanism to empower rural and local individuals/communities and to support protected groups as part of their social responsibility exclusively intended to address racial imbalances; it also tries to strengthen the socio-economic spectrum of the country over the basis of equality and fairness.
 
The King Reports – the “Codex” of South African CSR;
 
South Africa’s corporate governance guidelines and standards are contained and institutionalized in the well-known King Reports. Although they do not constitute official legal documents; they are regarded as state-of-the-art guidelines regarding good corporate governance and its adoption is highly popular / recommended in the country’s business sphere.

  • In 1994, the King Committee on Corporate Governance issued the first report, King Report 1994 or King I, aimed to promote corporate governance and adequate standards for board of directors of listed companies, financial institutions and some public enterprises. While encouraging good governance practices, the report also emphasized the need for corporations to be socially responsible in the areas and communities in which they operate.
  • In 2002, the King II report on Corporate Governance was published. More or less at the same time, the Johannesburg Stock Exchange requested listed companies to comply with the King report or otherwise justify why they were not adhering to the norm. The second document clearly established and explained the seven good corporate governance elements that any corporation adopting the report should pay attention to: discipline, transparency, fairness, social responsibility, independence, accountability and responsibility. 
  • The third revised issue of South Africa’s Code of and Report on Governance Principles or King III report was made effective in March 2010. With respect to the previous versions, the new report focuses on sustainability and risk issues, while continuing to highlight the importance for companies to respond to all stakeholders. The topics covered in the report are: ethical leadership and corporate citizenship, boards and directors, audit committees, the governance of risk, the governance of information technology, compliance with laws, rules, codes and standards, internal audit, governing stakeholder relationships and integrated reporting and disclosure. 

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