Involving communities and allowing them to participate in and benefit from projects is vital for investors and the companies that develop such projects.
The increasing importance of environmental, social and governance (ESG) considerations to investors means projects in various sectors — including mining, agriculture, tourism, renewable energy and infrastructure development — must be able to demonstrate a net positive effect on the lives and livelihoods of communities surrounding the project site.
One option is for companies to establish shareholding entities or revenue-sharing schemes to enable host communities to participate in the project’s commercial success.
Experience teaches that community shareholding entities often suffer serious governance failures and easily become mired in factional community infighting. This not only produces poor developmental outcomes for the beneficiary community, it can create a real headache for the well-intentioned sponsor company.
Fortunately, companies and communities can take several actions to avoid the deepest pitfalls, ensuring their good intentions bear fruit. Most important is building consensus. As part of the project initiation phase every party must be on the same page, with a sense of common purpose.
All too often a project is conceived and developed before any consultation takes place. This limits room for accommodating needs and concerns because the plan is already in motion.
It requires skill, patience and humility, but it is simpler to build consensus at the project initiation phase and embed best practices, than it is to address festering consequences of issues that were swept under the carpet, with agreements signed in haste and without securing appropriately informed consent from the beneficiaries.
We are likely to see more community shareholding and revenue-sharing schemes as ESG and community economic empowerment gain traction
Engaging stakeholders from the beginning minimises the chances of costly disruption down the line and — importantly — establishes a genuine spirit of partnership.
Furthermore, community shareholding entities vary across industries and include community trusts, community property associations and profit-driven companies. Irrespective of which legal structure is adopted, a key set of principles must be incorporated into the founding documents and practices of the community shareholding entities to give them greater prospects of success.
These principles include the appointment of independent, appropriately qualified people to the governance or management structure (trustees or directors), establishing a common purpose and understanding of the entity’s objectives among beneficiaries, sound and practical financial disclosure requirements, conflict management mechanisms, and inclusive decision-making processes.
Defining beneficiaries is one of the most contentious issues leading to conflict between groups. Not only should founding documents accurately describe the current beneficiaries, but thought must be given to how the definition may evolve over time as new generations are added, either by birth or by
in-migration.
Building the capacity of community representatives is also vital. SA’s rural communities suffer from high levels of illiteracy, with insufficient numbers of appropriately skilled people living in many project areas. Relevant training can enabled them to effectively represent their community’s interests and contribute to the success of the shareholding entity.
People unconnected to the beneficiary community can be allowed to serve in the governance structures to augment the lack of skills in the community. This introduces professionally regulated and impartial people likely to stay above any factional infighting.
Mechanisms should be provided for the company that established the community shareholding entity to intervene, appropriately, where there is serious misgovernance. This is especially important where there is a continuing relationship between the beneficiary group and the company. Companies usually have access to resources, skills and expertise that can help resolve problems creatively. However, if they have no real leverage — for example, through not having its own trustee or board positions on the community shareholding entity — they are hostage to problems not of their own creation.
We are likely to see more community shareholding and revenue-sharing schemes as ESG and community economic empowerment gain traction. It is vital that we learn from past successes and failures. Mining and agriculture have had long experience with these schemes and we can learn from them — and adopt best practices — to give true expression to developing rural SA.
• Mahapa is a senior associate at Concentric Alliance (CA), a conflict management and development practice.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.