“It’s not what you know but who you know.” People have always recognized the importance of relationships.
The integrated reporting movement asked that businesses make relationships part of their reporting. International Integrated Reporting Council (IIRC) guidance suggests that a company’s public report should include information about six forms of “capital,” including social capital, which focuses on “institutions and relationships.”
South Africa: Leading Integrated Reporting
South Africa is the first country to make integrated reporting a requirement for listed companies. When a group of South African business leaders met in 2013 to identify sustainable development challenges, they asked: How can we measure and value social capital for business decision-making and reporting?
“Business and society must come to a place of agreement on how businesses create value,” said Ansie Ramalho of the Institute of Directors in Southern Africa.
Designed for business leaders, this Executive Report provides:
A definition of social capital
An overview of its business benefits
Measures and tools that can be used to assess the key dimensions of social capital
Case studies of social capital management by South Africa's platinum industry and Transnet, a freight transport company.
The report can also be used by government representatives and other societal change agents. While the research addresses the South Africa context, the findings have global relevance.
Understanding Social Capital
Relationships are familiar territory. Social capital is a formal way of thinking about relationships. Technically, the term refers to an individual’s or group’s ability to secure or obtain resources, knowledge and information through relationships with and among individuals and groups.
These relationships exist inside an organization (e.g. among employees) and outside an organization (e.g. between the organization and external stakeholders such as communities, consumers and regulators).
Social capital has three key elements:
Social networks. A social network is the interactions and relationships between individuals or organisations.
Trust and reciprocity. Trust and reciprocity are about the quality of relationships, rather than the number of connections.
Shared norms and values. Shared norms and values are the common expectations which make interactions more productive.
Figure: Three Dimensions of Social Capital
Recognizing the Value of Social Capital
Social capital has many benefits. Internal social capital – good relationships among employees – makes companies more efficient and reliable, in operations, product and innovation management.
The firm’s relationships with external stakeholders also bring benefits. For example, companies with greater external social capital gain competitive advantage as a result of access to valuable resources, knowledge and information that are not easily traded.
Measuring and Managing Social Capital
Measuring social capital can help firms enhance it, and is also necessary to respond effectively to integrated reporting guidelines.
Each of social capital’s three dimensions is associated with particular measures. In this Executive Report and the Systematic Review, we describe the measures and provide specific tools.
An Issue for Business and Society
Use this report to understand what social capital is, how to measure it, and the value it provides to individuals, organisations and communities. The report will support you in making the business case to continue building social capital.
Ultimately, we need each other to survive. Organisations depend on diverse internal and external relationships. As with other forms of capital, effective management of social capital enhances the success of organizations and society.