This is the stark reality facing South Africa, a country of many contradictions – incredible wealth and abysmal poverty – where modern city skyscrapers stand alongside shanty towns, and where global giants like Anglo American, De Beers and Old Mutual have their roots.
But business leaders are not burying their heads in the sand. And accountants are at the forefront of a growing movement to get the country’s leading corporates to recognise, report and become aware of the cost and impact of the disease, which has reached a near-epidemic scale.
Accountants lead the fight
Heading the battle is the South African Institute of Chartered Accountants which is preparing a draft set of guidelines to be presented to the Johannesburg Stock Exchange for what might one day be incorporated into the market’s listings requirements.
Thingle Pather, a chartered accountant and project director at SAICA, is leading the HIV Working Group tasked with putting together the first of what will be a historic draft. Press reports in South Africa have suggested AIDS reporting could become a listings requirement as early as next year.
But this appears to be jumping the gun, as Pather explains: ‘Right now where I see the guidelines heading is more of an awareness campaign. Companies are looking at managing the risk associated with AIDS.
‘In the future we could attribute rand amounts to the impact of AIDS.
But we are not there yet.’
Pather is working with the Global Reporting Initiative, an organisation that issues guidelines on non-financial reporting, and the South African Actuarial Society putting together a document which will push for voluntary disclosure of information about the prevalence of HIV/AIDS and the estimated financial impact.
One of the problems with reporting the prevalence of AIDS is that it gives only a snapshot in time of the situation in a company and does not show the level of sickness and absenteeism of infected staff, nor does it show which critical posts are affected, or what future levels might be.
Furthermore, determining the actual cost, in monetary terms, is complicated and in this regard the Actuarial Society is discussing guidelines to ensure comparability as far as possible.
The draft document, when it is completed, is likely to call on companies to reveal to the extent to which they have implemented a sensible and effective HIV/AIDS risk management strategy in eight areas of risk including operational, absenteeism, cost of employment, and target market risk.
Responsibility for reporting this information will rest squarely on the shoulders of the board of directors. And it is they who will have to decide to what extent shareholders should be informed.
Pather is scheduled to complete the draft by the end of the year. Once that is completed, she will put together a sub-committee of SAICA members, including auditors and other interested parties, who will deliberate over its contents.
Thereafter the guidelines will be open to public comment for a period of three months, and will then be presented to the Johannesburg Stock Exchange, which must decide whether to include them in the listings requirements, and whether they should be voluntary or mandatory.
At the JSE, Nicky Newton-King, director of new listings, is quick to point out that there are no plans as yet to make AIDS disclosure a mandatory requirement.
‘There is a whole lot of misunderstanding as to what is actually happening,’ she says.
According to Newton-King, companies listed on the JSE already have to explain the extent to which they are dealing with the issue of AIDS and other associated health risks, in compliance with the King Code on corporate governance.
The King Code calls on companies to disclose the steps they are taking to reduce workplace accidents, fatalities, occupational health and safety incidents, including the ‘nature and extent of plans, policies and strategies which manage the potential impact of HIV/AIDS in the company’s activities’.
New listings’ requirements that come out next year will say the same thing – that companies do not have to comply 100% with the King Code, but must explain the extent to which they are complying in the form of a narrative in their annual reports. Rather than pushing for mandatory reporting, Newton-King says ‘companies need to understand the impact of HIV/AIDS on themselves and on their marketplace’.
But, she counters: ‘That is a very different thing to saying you must account for it or quantify it or report it in a particular way. We are far away from making that determination. HIV/AIDS is a very important social issue and it needs to be dealt with in a responsible manner. It is something that needs to be very carefully thought about.’
In favour of openness and transparency
Despite her caution, Newton-King says the JSE is still in favour of companies being as open and transparent as possible. But she warns that companies need to bear in mind, when making disclosures, the consequences of their openness.
An important development in this regard is a new index being set up by the JSE in conjunction with its index provider FTSE, called the Socially Responsible Investment Index.
Companies that wish to be a part of this will need to demonstrate environmental sustainability and good human rights practices. In terms of stakeholder relationships, they will also have to understand the impact of HIV/AIDS.
But even this index will not require companies to put a financial figure to infection rates.
While the issue of reporting is under debate, big business is already seizing the initiative.
Anglo American, the world’s biggest gold producer, will provide all HIV-positive employees with anti-retroviral therapy, and the company has committed itself to working with the government, local authorities and international donors to extend the provision of AIDS drugs to a broader community.
Similar initiatives have also been adopted by its subsidiary Anglo Gold, diamond miner De Beers and insurance giant Old Mutual, as well as a number of major local players in South Africa.
In terms of costs, this is still something of an unknown factor. In a recent teleconference, Anglo American CEO Tony Trahar said it was too early to make accurate predictions. Instead he outlined his company’s approach. ‘It is far too early to predict the costs in any sort of reliable fashion but I think that it is the policy issue here that is important,’ he said.
Support of the ICAEW
In the UK, the work of South Africa’s accounting body has the support of the ICAEW, although it favours disclosing such information in the operational and financial review, not in the actual accounts.
UK-based charity, the National AIDS Trust, says it encourages companies to realise the true impact of the HIV epidemic and says the disclosure of associated risks and costs is a ‘positive move’.
What is clear is that AIDS will indeed add significant costs to doing business in South Africa. Professor Allan Whiteside, director of the Health Economics & HIV/AIDS Research Division at Natal University, says the disease is adding an 8% tax to the cost of doing business, hitting such things as benefits and productivity levels.
Whiteside is in favour of the ‘new openness’ with regard to HIV/AIDS.
But he believes it should be mandatory.
‘Companies cannot possibly know the prevalence of HIV/AIDS. Rather they should be reporting about their exposure and costs and what they are doing about it.
‘We are working on two curves, the HIV curve and the AIDS curve. The HIV curve is growing, the AIDS curve is still to come,’ he adds ominously.
It is this chilling warning that emphasises the importance of the work SAICA, the JSE and companies like Anglo American are doing, work that will be key to ensuring a healthy workforce and profitable and productive companies.
Most importantly it will keep investment flowing into this key region of the continent, which many consider Africa’s shining hope.
For more on the UK, visit www.nat.org.uk
Go to www.saica.co.za for institute details
COMPANIES TACKLING THE AIDS THREAT:
The FTSE-100 gold producer is pushing for its operating companies to provide ant-retroviral drug therapy to all HIV positive employees who are not covered for treatment through a medical aid scheme. Although the pace of the project will vary at company level, an agreement on a pilot project was signed in July 2002. In addition, Anglo American says that it will also continue to promote substantial education and prevention programmes to ensure that the majority of its HIV negative employees remain so.
The diamond company, which is FTSE-listed, says provision of AIDS drugs is integral to its ‘holistic approach to employee health and wellness’.
The company is in consultation with the government and trade unions, but hopes to begin rollout of its drug treatment programme in January 2003. The programme will include all permanent employees and their spouses or life partners. The company also encourages employees to know their HIV status, and provides all staff with free testing and voluntary counselling.
Debswana Diamond Company
The Botswana-based diamond mining company is carrying out pioneering work on tackling the disease, paying for 90% of the cost of all employee’s anti-retroviral drug therapy, as well as educating and counselling employees and their families. Furthermore, the company has taken the radical step of requiring all companies wishing to do business with it to actively support its policies and efforts as well as have a workplace policy and programme of its own on HIV/AIDS.
The FTSE-listed financial services giant will offer what it calls ‘life-prolonging anti-AIDS drugs to all HIV positive workers. The company, South Africa’s biggest insurance firm, will expand its medical aid scheme to the 600 members of staff believed to be infected with the HIV virus. The company will not detail costs of the programme, although it has admitted it will run to ‘millions’.
The EC has been instructed to draft a European Union (EU) directive authorising an EU financial transaction tax, which would apply to ten of the EU’s 28 member states
Accountancy watchdog the FRC has dropped its investigation into the former chief financial officer of Tesco, nearly two years after the supermarket was engulfed in an accounting scandal
Colin imagines how Apple's logo might change in the wake of the EC's ruling over its Irish tax arrangements
Charles Tilley's departure from CIMA leaves the accounting world quieter, but his institute with an exciting foundation