Framework for Stakeholders’ Relations

in the Extractive Sector in Selected Mines in Cape Town

Jimmy Makoni¹, Darlington Peter Onojaefe²

Abstract: The extractive sector in South Africa has been through different stages of transformation exacerbated by slow economic growth, labour unrest, and policy uncertainty recently. It can be assumed that stakeholder relationship management framework can be a tool to engage, network and partner with different stakeholders with common developmental interests that seek to mitigate the transformational impact of the recently experienced policy uncertainty, slow growth and labour unrest. Within the framework of stakeholder relations, the extractive sector would benefit from the identification and management of partners’ interest with a relationship strategy that recognises group dynamics and prevailing social, economic and environmental context consistent with a transforming society that promotes good labour practices for sustained economic growth. Objective: This paper presents a framework to promote harmonisation of stakeholders’ interest within the extractive sector in Cape Town. The harmonised interest would enhance the understanding of group dynamic within the context of differences in stakeholders’ needs - as the nexus between stakeholders’ relations, sustained economic growth, social cohesion and environmental protection. This understanding provides the base to develop and present framework that offers a new approach to relationship management. Prior Work: Previous studies identified significant divergence between mining activities, stakeholders’ relations, and societal interest. Other studies identified benefits of stakeholders in different categories. Approach: Despite the differences of interest, perceived evidence of lack of stakeholder relations effectiveness were collected from 16 employees selected using purposive sampling from eight participating companies in Cape Town. A sequential mixed methods approach was adopted. This approach entailed collecting qualitative data using in-depth interviews on the 16 employees and quantitative data from 384 respondents using online LimeSurvey. Results: The paper findings revealed mixed and varied respondents’ perceptions of stakeholder’s relations activities but less effective to harmonise stakeholders’ interest. Implications: This research provides insights to understanding stakeholder relationship management from a three-dimensional perspective, namely: context, group dynamics, and implementation. Value: The value of this study was twofold: (1) determining the level of engagement needed for stakeholder relations to be effective and (2) presentation of stakeholders’ relation framework to support and promote extractive sector sustainability.

Keywords: Corporate Community Engagement; Extractive Sector; Context; Group Dynamics; Implementation Strategy

JEL Classification: M15

1. Introduction

The relationship between companies, government, communities and society has been determined by companies’ activities in the concept of operating within the context of community. The relationship between various stakeholders within a community is important specifically for companies in the extractive sector for community development and companies’ success. However, the task of stakeholder relations is contrived by competing interest of stakeholders requires a relationship management framework to ensure sustainable community development and companies success. In South Africa, companies in the extractive sector faces intense pressure to transform since the dawn of democracy in 1994 (Sisk, 2017). This paper examines stakeholder relation within the context of a new framework and a transforming community that is exacerbated by slow economic growth, labour unrest and policy uncertainty. The need to engage, network and partner with different stakeholders is both important for relationship management and the harmonisation of competing interest (Sørensen, 2017). Both relationship management and competing interest harmonisation provides context and content of the relationship with stakeholders that seek community development and business success – in the interest of economic growth and job creation. Based on this examination, this paper presents a framework to promote stakeholders’ relation and by extension create context and content for stakeholders’ relationship management. It is hoped that the context and content would enhanced understanding of group dynamics to a consideration of harmonised stakeholders’ interest. This framework offers a new approach to manage relationship with different benefits and divergent expectations.

Previous studies identified significant divergence between mining activities, stakeholders’ relations, and societal interest. Other studies identified benefits of stakeholders in different categories. Yet others argue that the use of stakeholder relations in the extractive sector is contrived by ineffective stakeholder relationship management (Alonso, 2014). At the heart of ineffective stakeholders’ relations, the need to understand common and different developmental interests in community and other projects provides the based for a new relationship management framework contemplated in this paper. While the extractive sector remains attractive for economic growth opportunities, the concern for ineffective relationship with stakeholders attract the interest of mining communities, policy makers and academic and necessitate the need for a framework based on a three-dimensional perspective, namely: context, group dynamics, and implementation (Pigato & Tang, 2015; Tiller, 2017, 108).

2. Literature Review

The invasive nature of mineral and energy extraction has the capacity to impact surrounding communities, especially where there are environmental and social sensitivities. As a result, the mining industry has been under increasing pressure to take the management of relationship with stakeholders seriously. Over time, the role of stakeholders relations has evolved. Since the 1970s corporations have been implored to consider the relationship management with a view to develop an improvement framework to mitigate the impact of their actions on the interest of stakeholders as well their freedoms as individuals members of communities in which they operate. Currently there is significant variation in opinion of community members that undermine good relationship between stakeholders and community development (McLennan, Becken, & Moyle, 2017). The differences in the views in some instances overshadow the importance of relationship management and community development project. Hence, the framework makes no assumptions about specific effects, but potential its potential for improved stakeholder relations and community development.

There have been several important developments that support the need for a new a framework for stakeholders’ relations. First, government is requirement for community development programme for extractive companies job creation, community development and initiatives for economic empowerment of local business community (Hopkins, 2016). This is, however, contrary to the case of South Africa, where government is accused of being overly involved in community development project with the launch of new Mining Charter (Mathende & Nhapi, 2017, Mathews, C., 2017). Secondly, companies are increasingly being proactive in their relations with both the government and communities through the development of a company transformation and BBBEE policy (Epstein, 2018). Third, stakeholder relations strategies used by major extractive companies are increasingly focussing on reputation building and having core values that emphasise the brand rather than the profit motive (Mazutis & Slawinski, 2015). Fourth, communities have progressively become cognisant of their rights and have also become more powerful and vocal (Grant, 2016). And fifth, is that pressure has been mounting on businesses to adopt sustainable development methods with focus on the management of stakeholders’ relations (Charles, Schmidheiny, & Watts, 2017).

Three stakeholders’ relations sub-theories in companies were reviewed, namely (a) the stakeholder relations pyramid theory (Carroll, 1979, 1991) which provided four layers of responsibility in fulfilling the mandate of a business’s existence, namely “economic, legal, ethical, and discretionary” (Carroll & Buchholtz, 2015); (b) companies social performance theory (Wood, 1991) which modified Carroll (1979)’s CSP model by making it go beyond merely identifying the different responsibility layers, proposing social responsibility that is linked to responsiveness processes and performance outcomes as they relate to the firm and its relationship with community (Bansal & Song, 2017); and (c) Freeman (1983)’s stakeholder theory which defines a stakeholder as going beyond ‘relate with each other’ and extends to ‘create value together’ (Andriof et al., 2017). Freeman (1983) stressed the importance of various stakeholders, both contractual (i.e. companies) and non-contractual (i.e. communities) (Harrison, Freeman & Abreu, 2015), acknowledging that each stakeholder has the potential to make decisions that could affect the other stakeholders positively or negatively (Cooper, 2017).

The stakeholder relationship management (SRM) framework offered in this paper is structured around four closely connected variables comprising context, group dynamics and implementation strategy as the independent variables, and outcomes as the dependent variable (see Figure 1 below).

Figure 1. Stakeholder Relationship Management Framework

Source: Authors’ own construct

Context - Frynas and Stephens (2015) describe context as the conditions that form the setting. In this study, context is a set of circumstances influencing the economic, social, and environmental setting, as informed by the triple bottom line principles. The focus for assessing economic context is on sustainability. Decisions must be geared towards achieving long-term economic success rather than short-term windfall gains (Carroll & Buchholtz, 2015). In this paper we support the notion that communities must continue to enjoy the benefits of SRM long after the company has stopped its operations. Similarly, social context requires that companies maintain healthy relationships with other stakeholders (Bendell, 2017) as well as embracing environmental wellness.

Group dynamics - a system of analysing interrelationships and behaviours “occurring within a social group (intragroup dynamics), or between social groups (intergroup dynamics)” (Forsyth, 2018). Understanding group dynamics of a community is a process that requires knowledge of the “community’s social and economic history, culture and collective character, current composition, community assets, and the physical, biological and functional attributes of the natural ecosystem(s) in which its members interact” (Thibaut, 2017) to be able to proactively manage potential problems and expectations.

Implementation strategy- is critical to a company's success because it addresses the ‘who, where, when, and how’ of reaching the desired goals and objectives (Grant, 2016). Further, it defines the specific means or methods for adopting and sustaining SRM interventions (Bryson, 2018). The focus should be on factors internal and external to the organization (Warner & Sullivan, 2017). This paper argues that the success of an engagement initiative depends on how well the organisation strives to involve other concerned stakeholders and aligns its goals and objectives to those of the community.

Outcomes – it is common knowledge that the value of a SRM framework is in its ability to articulate the intent for engaging and the benefit of such engagement.

3. Methodology

The exploratory sequential mixed method approach adopted allowed the researchers to merge qualitative and quantitative data to comprehensively analyse the research problem (Venkatesh, Brown, & Sullivan, 2016). The data collected from the in-depth interviews together with intensive literature reviewed informed the content of the designed questionnaire for quantitative data collection, through an online survey. By adopting qualitative methodology, the researchers were able to fine-tune the pre-conceived notions of relationships, particularly from extractive companies’ perceptions; and then extrapolating the thought process by analysing and estimating the issues from an in-depth viewpoint.

3.1. Population and the Sampling Procedure

The study population was made up of 613 976 people comprising of 613 684 community members and 292 employees. The target population for this study consisted of all active extractive companies in Cape Town and their host communities. In that regard, the population was made up of two sets: (a) employees directly involved in stakeholder relationship management activities of the extractive companies, and (b) residents of the communities that host those extractive companies. Probability sampling technique namely simple random sampling was used because it is valuable in a study where the pool from which the population is drawn is too big and elements which have a chance of being included have a probability that exceeds zero (Sekaran & Bougie, 2016). A sample size of 16 employees from 8 companies purposefully selected from the major mining communities was used to collect qualitative data and 384 survey respondents were used to gather quantitative data from residents of the host communities. Previous work experience and secondary data forms the base for sample selection whilst being cognisant of the relevant of population retrospectivity.

According to unconfirmed reports obtained telephonically from an official of the Department of Mineral Resources in Western Cape Province of South Africa, there were 146 active mining companies in the Western Cape at the time of this study. A company was said to be active based on having been granted prospecting and mining rights via Magisterial Districts. The Department of Mineral Resources official went on to say that it was difficult to state a population figure for the affected communities because this figure was fluid, as it included people that came from labour sending areas as far as the Eastern Cape. The researchers observed that most extractive companies in the areas had departments manned by at least 2 employees. It can thus be inferred that the total number of employees was 292. These areas were selected for use in this study based on the scale of extractive operations conducted in the areas as well as the sizes of host communities in terms of population. According to data drawn from Census 2011 these areas had populations presented in Table 1 below:

Table 1. Population for selected areas

Source: Makoni (2018)

3.2. Data Collection and Measuring Instrument

Although we followed a mixed method approach in this paper, a survey, cross-sectional in nature with multiple Likert rating scales, was the main source of data collection employed. Qualitative data was collected through in-depth interviews from 16 purposefully selected employees of the participating companies. Interviews were captured by means of notetaking and audio recording. Verbatim transcripts of the interviews were collected for analysis and interpretation. Quantitative data was collected through a self-developed measuring instrument whose contents were premised on an intensive literature review of relationship management theories as well as interview protocols. The questionnaire comprised of 3 sections: Section A related to demographics data (namely, gender, age, qualifications, marital and employment status). This helped set the contextual issues as a key variable for the proposed framework, specifically on the understanding of stakeholder needs. Section B sought to present the role played by local communities in the engagement process. Finally, Section C - sought to present the outcomes of an effective framework, particularly on the measuring and communication of results. The online ‘LimeSurvey’ survey was administered to selected local community respondents with the purpose of ensuring: (i) “greater completion rates, (ii) control over order of questions, and (iii) greater information gathering from people who cannot read or write” (Coolican, 2017). The online pilot-study conducted yielded a reliability coefficient of 0.76. Face validity and content validity were ensured in this paper as the contents of the questionnaires covered issues respondents are familiar with.

3.3. Results and Discussion

The ‘results and discussion’ responds to the study objectives and is based on the respondents’ perceptions of SRM activities.

3.3.1. Stakeholders’ views about SRM

From the interviews, below are the stakeholders’ views about SRM:

Many respondents (84.1%) viewed SRM to be about obtaining a social license to operate. SLO reflects local communities and other stakeholders’ acceptance of extractive companies (Andriof et al., 2017). This research contends that an SLO can only be attained if corporates deliver on communities’ triple bottom line, namely economy, society, and environment. Given that most respondents lived in the slams neighbouring the extractive companies, it was unsurprising that 78% viewed SRM to be about wealth redistribution. SRM success corelates to how well it tackles wealth gaps in communities. About 70% of the respondents believed multi-stakeholder practices to be key.

In a similar study, Payne and Calton (2017) reinforced the notion by stating that multi-stakeholder practices should promote community participation, planning and decision-making. SRM was also perceived to be about integration and alignment (72%) and these results were supported by Epstein (2018) who posited that SRM plans must be integrated with vision, mission, values, corporate objectives, key business strategies and business plans. Results (68%) show that SRM activities must be sustainable as reinforced by Yakovleva (2017) who recommended that companies should encourage communities to self-sufficient. This was study argues that communities should be able to continue with SRM projects long after the companies have left. The discussion about how stakeholders’ viewed SRM was critical in developing the context and group dynamics variables of the proposed SRM framework.

3.3.2. Motivation for SRM

The results on motivation for SRM exhibit that compliance with government regulations had the highest frequency at 25%; followed by achieving economic benefits by companies (20%); building trust with local communities (13%); managing relationships with other stakeholders (11%); building reputation (11%), achieving environmental benefits (10%), obtaining a social license to operate (7%), achieving social benefits (3%), and wealth redistribution (1%). This concurs with Zandvliet and Anderson (2017)’s assertions that companies were more interested in gaining favourable government relations by abiding with regulatory requirements. Companies were further concerned with avoidance of conflict, which often turned violent in the case of South Africa, such as the Marikana case, leading to breakdown in relations. An understanding of the motive for carrying out SRM activities was critical to the development of the context and outcomes variables of the proposed SRM framework.

3.3.3. Compliance with SRM Expectations

Companies were not complying with many of the SRM expectations. At least 87% of the interview participants stated that their companies did not have strategic SRM plans that were in line with the core business objectives and competencies. This was expected because none of the interviewed participants lived in the local communities and were thus divorced from the realities of problems facing these communities. Groenewald (2017) supported the findings by stating that the companies were not communicating and consulting adequately with communities which meant they were not able to offer solutions for the communities. The discussion about compliance with SRM expectations was critical in developing the context variable for this study.

3.3.4. Implementation Strategy

Implementation strategy refers to how the SRM plan is delivered to the communities. There was a general feeling by respondents (75%) that extractive companies had no properly laid implementation plans in place. About 75% of the interview respondents believed that those tasked with the responsibility of coming up with SRM plans were divorced from the challenges facing extractive communities as none of them lived in these communities. Further, results show that an effective implementation plan is one that achieves optimal partnerships. Quantitative results showed that 95.3% of the respondents preferred to partner with civic organisations and not with government institutions. Civic organisations are well known for promoting community development projects. There are numerous cases of corruption by government officials which lead to communities not to trust government (Joseph et al., 2016). The Mining Charter of 2017 is a case in point.

3.3.5. Role of Communities in SRM

Table 2 below shows that many respondents (88%) felt it was important for communities to participate in projects meant for their development. Further, companies ought to establish demographic compositions of host communities before embarking on community projects.

Table 2. Role of Local Communities in Engagement Process

This study argues that to fully understand the social context, both the company and community should assess their respective capacities to carry out community activities. Such assessment should include measuring the capabilities of host communities in terms of their human, material, physical, and financial resources to solve their own problems. All the interview participants (100%) stated it was important for communities to identify their own credible community leaders to participate in community projects. This was supported by 88.9% of the survey respondents who felt communities needed to identify their own leaders. Community leaders have an important role to play, including representing their communities in community projects, guidance, receiving and dissemination of information, as well as being accountable. At least 89.4% of the survey respondents were of the view that communities needed to identify and prioritise their own community needs; as well as identifying potential barriers to engagement.

3.3.6. Extent of Community Involvement in SRM

Table II below shows that 85.9% of the participants felt that the companies were not facilitating responsibility sharing in their decision-making. A further 80.6% were of the view that there was no frequent communication between the community and the extractive companies. Another 78.5% believed that there was no trust between the companies and communities. This led to the numerous cases of conflict in the sector.

Table 3. Extent of Involvement in SRM

3.3.7. Relationships between Constructs

The results show that there is no significant correlation between the variable “extent to which company is involved in SRM” and any of the “roles played by local communities” variables (all p-values>0.05). However, importance attached to traditional elements of SRM is correlated to all “role played by local communities” variables (all p-values>0.05). There is a significant correlation between the variables “importance attached to traditional elements of SRM” and “importance of roles played by the community” (correlation=0.255, p-value=0.000).

4. Conclusion

The study found mix and varied respondents’ perception of stakeholders’ relations that is ineffective failed to harmonised stakeholders interest in extractive sector. With a transforming South African society, the management of stakeholders’ relations in the extractive sector has gain more traction. A framework for stakeholders’ relationship management (SRM) that applied the variables (context, group dynamics, and implementation strategy) to achieve envisaged social, economic development as outcomes is envisage as value proposition. The findings and framework presented in the paper is consistent with stated objectives that seek to achievement community development and company success through the application of a context specific stakeholders’ relationship management framework. It is hoped that the success of extractive companies and community development projects can be enhanced with a management framework that supports a new approach to stakeholder relations.

5. Recommendation

The study recommends the following:

1. Application of the stakeholders’ relations management framework with monitoring and evaluation of achieved outcome;

2. An understanding of the nature of context, requirements of group dynamics and implementation framework agreeable to all stakeholders;

3. Conduct monitoring and evaluation report of applied framework;

4. Develop policy document based on the outcome of the monitoring and evaluation.

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